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Supreme Court Directs the High Court to Re-examine Employee Regularization Dispute: Requested the High Court to Expedite the Prolonged Litigation

Case Title – Solapur Municipal Corporation Vs. Shankarrao Govindrao Patil & Ors. Etc. 2024 INSC 423

Case Number – Civil Appeal No. 9127-9132/2018 with Civil Appeal No. 9133/2018

Dated on – 15th May, 2024

Quorum – Justice Sanjay Kumar

FACTS OF THE CASE
In the case of Solapur Municipal Corporation Vs. Shankarrao Govindrao Patil & Ors. Etc. 2024 INSC 423, the Solapur Municipal Corporation, herein the Appellant, instituted six appeals against a judgment dated 31st of July, 2013, passed by a Division Bench of the High Court of Judicature at Bombay, which allowed the Writ Petition Nos. 197/2012, 2011/2003 and 2432/2003. The decision of the High Court recognized the Respondents, former employees of Majarewadi Gram Panchayat (merged with the Solapur Municipal Corporation), as having been absorbed by the corporation from the 5th of May, 1992 and entitled to regular service benefits. A subsequent order dated 8th of August, 1992 dismissed the review petitions filed by the Corporation. Another writ petition, W.P. No. 2463/2010, followed the same judgment, and the Corporation instituted a Civil Appeal No. 9133/2018 against this decision.

ISSUES
The main issue of the case whirled around whether the Respondents, employees of Majarewadi Gram Panchayat, were regular employees entitled to absorption by Solapur Municipal Corporation from the date of the merger on the 5th of August, 1992?

Whether the services of the Respondents from the dated 5th of May, 1992 to 1st of February,2003 should be treated as a regular service with the Corporation?
Whether the Respondents were entitled to service and retirement benefits based on the claim that their service should be deemed regular from the merger date?

LEGAL PROVISIONS
Section 493(5)(C) of the Bombay Provincial Municipal Corporations Act, 1949 stated that all officers and servants in the employ of the said municipality or local authority immediately before the appointed day shall be officers and servants employed by the Corporation under this Act and shall, until other provision is made in accordance with the provisions of this Act, receive salaries and allowances and be subject to the conditions of service to which they were entitled or subject on such date

Section 493 of the Bombay Provincial Municipal Corporations Act, 1949 prescribes the Continuation of appointments, taxes, budget estimates, assessments, etc.
Article 136 of the Constitution of India prescribes the Special Leave to appeal by the Supreme Court

CONTENTIONS OF THE APPELLANT
The Appellant, through their counsel, in the said case contented that the Respondents were daily wage workers until the 1st of February, 2003 and not regular employees from the 5th of May, 1992.

The Appellant referred to a corporation resolution dated 31st of August, 2002, which made the 300 employees permanent only from the date of government approval i.e., the 25th of March, 2003 and clarified that the arrears for earlier periods were not permissible.

CONTENTIONS OF THE RESPONDENT
The Respondent, through their counsel, in the said case contented that they were regular employees of Majarewadi Gram Panchayat before the merger, thereby entitling them to regularization from the 5th of May, 1992 under Section 493(5)(C) of the Bombay Provincial Municipal Corporations Act, 1949.

A resolution was produced by the Respondents from the Majarewadi Gram Panchayat dated 20th of March, 1992, indicating the permanent appointments of employees from the 31st of March, 1992 and individual appointment orders as proof of their regular employment status.
It was asserted that their service from the merger date till their regularization in 2003 should be considered continuous and regular, thus entitling them to full-service benefits.

COURT ANALYSIS AND JUDGMENT
The court in the case of Solapur Municipal Corporation Vs. Shankarrao Govindrao Patil & Ors. Etc. 2024 INSC 423, examined the Section 493 of the Bombay Provincial Municipal Corporations Act, 1949, especially the clause 5(C) in Appendix IV, which addresses the continuation of appointments and conditions of service for employees of merged municipalities. The court observed the new documentary evidences furnished by the Respondents, inclusive of the resolutions and appointment orders, which were not previously considered by the High Court. The court observed that the High Court had based its judgment on an affidavit and the sanction of 300 posts but did not have the opportunity to scrutinize the new judgments. The Supreme Court allowed the appeals, set aside the judgment of the High Court dated 31st of July, 2013 and the 8th of August, 2014 and remanded the matter to the High Court for reconsideration of the new documents. The court permitted both the parties to submit further documentary evidence. The High Court was requested to prioritize and expedite the case, taking into consideration the prolonged nature of the litigation. Each party was to bear its own cost and all pending applications were disposed of.

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Judgement Reviewed by – Sruti Sikha Maharana
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Capital Gains Tax Not Payable on Transfer of Shares by Way of Gift: Bombay High Court

Capital Gains Tax Not Payable on Transfer of Shares by Way of Gift: Bombay High Court

Case title: Jai Trust & ANR vs The Union of India & ANR
Case no.: WRIT PETITION NO.71 OF 2016
Dated on: 8th MARCH 2024
Quorum: Justice Hon’ble Mr. Justice K. R. SHRIRAM & Justice Hon’ble Ms. Justice DR. NEELA GOKHALE.

FACTS OF THE CASE
The Petitioner is challenging the legality and validity of notice dated 12th March 2015 issued under Section 148 of the Income Tax Act, 1961 (the Act) by respondent no.2 seeking to reopen petitioner’s assessment for Assessment Year 2010-2011 and the order dated 18th August 2015 passed by respondent no.2 rejecting the objections of petitioner challenging reopening. Petitioner, during the previous year relevant to Assessment Year 2010-2011, transferred 30,65,600 shares of United Phosphorus Limited (UPL) and 3,06,560 shares of Uniphos Enterprises Limited (UEL) both public listed companies to one Nerka Chemicals Private Limited (NCPL) by way of a gift in terms of Transfer Deed dated 26th February 2010. Since the shares were transferred by way of a gift, admittedly no consideration was received by petitioner. We say admittedly because it is also respondents’ case that petitioner had transferred those shares without consideration. The cost of the shares to petitioner was Rs.1,02,27,547/-. On 22nd July 2010 petitioner filed its return of income for Assessment Year 2010-2011 declaring total income as Nil. This was because the income of petitioner was distributed in the hands of the beneficiaries. Petitioner also claimed refund of tax deducted at source of Rs.547/- in the return of income. In the return of income, petitioner had disclosed the investment of Rs.8,92,335/- standing as of 31st March 2010 in the balance sheet and also the sum of Rs.1,02,27,547/- as gift which was debited to the profit and loss account.
Petitioner did not receive any communication after the return of income was filed and since no communication or order was received within the prescribed time, petitioner has proceeded on the basis that the said return of income is deemed to have been processed under Section 143(1) of the Act. On or about 19th March 2015 petitioner received a notice dated 12th March 2015 from respondent no.2 under Section 148 of the Act alleging that there was reason to believe that the income has escaped assessment for Assessment Year 2010-2011. Petitioner was provided with the reasons for initiating the proposed reassessment by a letter dated 7th July 2015 after two reminders.

CONTENTIONS OF THE APPELLANT
The learned counsel for appellant submitted that the proceedings under Section 148 of the Act could be validly initiated, there are certain jurisdictional preconditions to be complied with one of which is that the Assessing Officer must have reason to believe that income chargeable to tax has escaped assessment prior to the initiation of the proceedings. This condition is not complied with in the present case because there cannot be any reason to believe that income has escaped assessment because there is no income that could be assessed to tax. Respondent no.2 has accepted that petitioner has transferred 33,72,160 shares to NCPL without any consideration. Once respondent no.2 has accepted that the shares are transferred without any consideration, there can be no material on the basis of which any person could have validly formed a reason to believe that any income is chargeable to tax. Only if petitioner had received any consideration as a result of the transfer of such shares, then the same could be charged to tax under the head “capital gains” in terms of Section 45 read with Section 48 of the Act. Since the shares were transferred without any consideration, there cannot be any gain which has accrued to or been received by petitioner which can be held liable to be taxed under the head “capital gains” Before any income can be brought to charge under the head “capital gain” in terms of Section 45 of the Act, the computation provision of Section 48 must be capable of being applied as the charging and the computation provision are integrated code. In the present case, as the computation provision fail in as much as there is no consideration, there can be no reason to believe that any income has escaped assessment. Respondent no.2 could not have held that the market value of shares gifted by petitioner was found out to be Rs.48,49,77,920/- and petitioner did not offer the resultant income for tax and in view of this, petitioner has understated the income and the same has been under assessed. the reliance by respondent no.2 on Explanation 2(c)(i) of Section 147 of the Act to the facts of the present case is not correct.

CONTENTIONS OF THE RESPONDENTS
The respondent submitted that that the Court has to only consider whether the Assessing Officer in the reason to believe has relied on some tangible material and if that is the case, assessee should be directed to go through the process of reopening. What is tangible is something which is not illusory, hypothetical or a matter of conjecture. We are conscious that in this case return was accepted under Section 143(1) of the Act. Even in that case, the principle requirement that the Assessing Officer has reason to believe that income chargeable to tax had escaped assessment would still survive. Though this formation of belief by the Assessing Officer must be prima facie and at the stage when the Court is testing validity of such a notice, it would not be necessary for the Assessing Officer to conclusively establish that the income chargeable to tax had escaped assessment, for various reasons we are convinced that the reasons for reopening lack validity. In this case, Section 45 read with Section 47 read with Section 48 of the Act makes it clear that the Assessing Officer could not have any tangible material to form a belief that income has escaped assessment. On scrutiny of the statutory provisions as the transaction in question does not invite any tax liability, we cannot accept Mr. Sharma’s submission that there is some tangible material to form a belief that there is an escapement of income. Therefore, under Section 45 of the Act any profits or gains arising from the transfer of a capital asset shall be chargeable to income tax under the head “capital gains” and shall be deemed to be the income of the previous year in which the transfer took place. Therefore, (a) there has to be a capital asset, (b) there has to be a transfer of such a capital asset and (c) there has to be a profit or gain arising from the transfer. Only when these three conditions are fulfilled, can the profit or gain be charged to income tax under the head “capital gains”. Section 47 (1)(iii) of the Act, which deals with transactions not regarded as transfer, expressly provides nothing contained in Section 45 shall apply to any transfer of a capital asset under a gift or will or an irrevocable trust. The proviso in clause (iii) of Section 47 of the Act for apparent reasons is not applicable to the case at hand. This proviso is in the nature of exclusion to main provisions of sub-clause (iii) of Section 47 of the Act. The case in hand, therefore, would be governed by the main body of sub-clause (iii) of Section 47 of the Act. Therefore, even if there is a transfer of a capital asset under a gift, which admittedly in the case herein, it shall not amount to a transfer under Section 45 of the Act. If it does not amount to a transfer under Section 45 of the Act, no capital gains will be payable because Section 45 is the only taxing provision for capital gains. Consequently, the provision of Section 45 of the Act pertaining to capital gain would not apply.

LEGAL PROVISIONS
Section 148 of the Income Tax Act, 1961: It gives authority to the Assessing Officer to send notice to a taxpayer whose income has not been properly assessed
Section 143(1) of the Act, 1961: It provides a preliminary assessment of the taxpayer’s tax liability and highlights any adjustments made by the Income Tax Department.
Section 45 of the Act, 1961: that any profits or gains arising from the transfer of a capital asset effected in the previous year will be chargeable to income-tax under the head Capital Gains.
Section 47(iii) of the Income Tax Act, 1961: any transfer of a capital asset under a gift or will or an irrevocable trust:
Section 48 of the Income Tax Act, 1961: it states that the income chargeable as “capital gains” must be calculated after deducting specified amounts from the returns one has received after selling off a capital asset.
Article 226 of the constitution of India : That every High Court shall have the powers throughout the territories in relation to which it exercised jurisdiction to issue writ or orders to any person or authority.

COURT’S ANALYSIS AND JUDGEMENT
The respondent submission that the reliance on Section 50CA of the Act in this regard has to be rejected because (a) Section 50CA of the Act was inserted with effect from 1st April 2018 by the Finance Act, 2017 and (b) it applies to a capital asset being share of a company other than a quoted share (in this case shares transferred were quoted shares) and also applies only where the consideration received or accruing as a result of such transfer. Mr. Sharma’s reliance on Section 50D of the Act also has to be rejected because (a) it was inserted by Finance Act, 2012 with effect from 1st April 2013 and (b) there also the Section postulates receiving consideration and not a situation where admittedly no consideration has been received. A gift is commonly known as voluntary transfer of property by one to another without any consideration. A gift does not require a consideration and if there is a consideration for the transaction, it is not a gift. Since in the reason to believe it is admitted that shares were transferred by assessee to NCPL without consideration, certainly it is a gift. Infact it is not even respondents’ case that is it not a gift. Mr. Sharma submitted, as an afterthought, that assessee being a Trust it can be reasonably presumed that the transfer was for a consideration because anything a Trust does is for the benefit of its beneficiaries. It is not the case of the Revenue in the reasons to believe or in the order disposing objections or even in the affidavit in reply. Therefore, this submission of Mr. Sharma cannot be even considered. We cannot proceed on hypothesis and deal with such presumptuous argument. Moreover, if the transfer is not valid, the property. still remains with the Trust and in such a situation, there can be no capital gain. In the circumstances, the Rule issued on 11th February 2016 is made absolute in terms of prayer clause that this Hon’ble Court be pleased to issue a Writ of Certiorari or a writ in the nature of Certiorari or any other appropriate writ, order or direction under Article 226 of the Constitution of India calling for the records of the Petitioner’s case and after examining the legality and validity thereof quash and set aside the Impugned Notice dated 12 March 2015 issued by Respondent No.2 under section 148 of the Act (Exhibit A) and the Impugned Order dated 18 August 2015 (Exhibit B).

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Judgement Reviewed by – HARIRAGHAVA JP

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Secured Creditors have priority over Tax Authorities under CERSAI : High Court of Bombay

Case Title : Purushottam Prabhakar Chavan v Deputy Commissioner of Sales Tax(GST)

 Case no : Writ Petition No. 3477 of 2024Purushottam Prabhakar Chavan Versus Deputy Commissioner of Sales Tax (GST)

 Order no : 3rd May, 2024

 Quorum : Hon’ble Justice B.P. Colabawalla & Somashekar Sundareshan JJ

 FACTS OF THE CASE

The Lender bank between the dates of 31st May 2010 and 31st January 2010 provided credit facilities to several properties including Walkeshwar Flats and Nashik Properties. Walkeshwar Flats was owned by Mrs Praffullata Shah and the said property served as security for loan, and after her demise the loans on that property became a non-performing asset. Despite that the lender banks claimed possession over the property by invoking SARFAESI Act.

The DCST claimed the property under MVAT Act due to the taxes owned by one of the borrowers. Recovery proceedings were initiated and the DCST secured the assets. The lender bank registered a mortgage on the property using CERSAI.

Later on the said property was Auctioned and won by the Petitioner but due to conflicting claims the petitioner faced problems getting the ownership of the property. 

ISSUES

Whether as a matter of law, the Petitioner, the auction purchaser of the Walkeshwar Flat under the SARFAESI Act, is a valid recipient of free and marketable title to it ?

 LEGAL PROVISIONS

  1.  Article 226 of the Indian Constitution : Clearly states that every High Court has the powers throughout the territories in relation to which it exercises jurisdiction to issue writ or any order to any person or authority.
  2. Section 37 of Maharashtra Value Added Tax Act, 2002 : would override any provision of contract that creates a charge, it would be subservient to any provision in a Central Act that gives first charge to some other entity
  3.  Section 26-E of the SARFAESI Act : after the commencement of the Insolvency and Bankruptcy Code, 2016 (31 of 2016), in cases where insolvency or bankruptcy proceedings are pending in respect of secured assets of the borrower, priority to secured creditors in payment of debt shall be subject to the provisions of that Code.

 CONTENTION OF THE PARTIES

The contentions of the Directorate of Commercial Taxes are establishing their right to enforce tax dues against the Walkeshwar Flat, particularly in relation to Bharat Shah’s liability as a partner of SMI in the mortgage of the property. The DSCT argue that Bharat, as a legal heir of Mrs. Praffullata, inherits the property, thereby providing a basis for the DCST to assert their claim against it. However, the petitioner argues against this stance by emphasizing the priority of enforcement established by the Lender Bank through SARFAESI Act, including registration of the mortgage under CERSAI and obtaining physical possession of the said property.

The petitioner contends that the DCST’s attachment orders were after the Lender Bank’s actions and are therefore priority can be established by the Lender Bank’s registered security interest. They rely on the case of Jalgaon Janta, to support their argument that security interests registered with CERSAI take precedence over attachment orders by tax authorities.

Overall, the petitioner asserts that the legal framework supports their claim to priority in enforcement against the Walkeshwar Flat, and any further action by the DCST would be after the rights established by the Lender Bank’s actions under the SARFAESI Act. 

COURT’S ANALYSIS AND JUDGMENT

The court looked into the contentions of both the parties and admitted the Petition with no costs imposed. The court ruled that attachment orders predating January 24, 2020, do not grant priority to the DCST over the Walkeshwar Flat. As the DCST did not register with CERSAI nor issue a proclamation of sale, the Lender Bank’s priority remains intact, passing to Encore ARC. Consequently, the petitioner gains a clear title, unaffected by the DCST’s claim. Any attachment related to tax dues by SMI on the property is nullified, allowing the petitioner to register it unopposed.

 

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 JUDGMENT REVIEWED BY – Nagashree N M

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“Bombay High Court Confirmed Civil Judge’s Removal from Service: Upholding Judicial Integrity Through Substantial Evidence of Misconduct and the Importance of Upholding Judicial Integrity.”

Case Title – Aniruddha Ganesh Pathak Vs. Registrar General, Bombay High Court & Anr.

Case Number – Writ Petition No. 15539 of 2022

Dated on – 23rd April,2024

Quorum – Justice A.S. Chandurkar and Justice Jitendra Jain

FACTS OF THE CASE

In the Case of Aniruddha Ganesh Pathak Vs. Registrar General, Bombay High Court & Anr., Aniruddha Ganesh Pathak, the Appellant in the said case, was appointed as a Civil Judge Junior Division on 19th of March,2010. During the term of Aniruddha’s serving as the Civil Judge Junior Division, several complaints were instituted against Aniruddha Ganesh Pathak stating his misbehaviour, absenteeism and presiding over the court under the due influence of alcohol. Aniruddha Ganesh Pathak’s misconducted was highlighted from the reports of the Principal District and Sessions Judge, Nandurbar and the Shahada Bar Association. A discerning inquiry was conducted by the District Judge, Jalgaon during which it was observed that Aniruddha Ganesh Pathak’s behaviour was irregular which included not following court timings and wandering around in the near vicinity of the court. On dated 6th of January, 2018, Aniruddha Ganesh Pathak was involved himself in a serious incident at the Maharashtra Judicial Academy at Uttan, where he was spotted in an intoxicated state during a mediation course. Subsequently, he was relieved from the course. Charges were framed against Aniruddha Ganesh Pathak, which comprised of not following court timings, defection of duty, and being inebriated during the official duties. An inquiry committee found Aniruddha Ganesh Pathak guilty of charges 1,6 and 7 leading to his removal from the Judicial Service under Rule 5(1)(viii) of the Maharashtra Civil Services (Discipline and Appeal) Rules, 1979.

CONTENTIONS OF THE APPELLANTS

  1. The Appellant, through their counsel, in the present case contented that the order of disposition was based on conjectures and lacked concrete evidences.
  2. The Appellant, through their counsel, in the present case contented that the Appellant was not adequately examined after the incident at Uttan and that the testimonies of the witnesses were conflicting.
  3. The Appellant, through their counsel, in the present case contented that the punishment of disposal from the position of power was disproportionate to the charges against him.
  4. The Appellant, through their counsel, in the present case relied on the past judgment of the court, including the Udaysingh s/o Ganpatrao Naiknimbalkar Vs. Governor, State of Maharashtra, Bombay & Ors. And Rahul s/o Abhimanyu Ranpise Vs. The State of Maharashtra & Anr., to support the contentions of the Appellant.

CONTENTIONS OF THE RESPONDENT

  1. The Respondent, through their counsel, in the present case contented while supporting the order of disposal of the Appellant, that the court should emphasize on the need for judges to uphold high standards of conduct.
  2. The Respondent, through their counsel, in the present case contented that the evidences clearly established the misconduct and inadequate behaviour of Aniruddha Ganesh Pathak while presiding over the court as well as in the vicinity of the court, justifying his disposition from the Judicial Services.
  3. The Respondent, through their counsel, in the present case cited the seriousness of the charges and the importance of maintaining the dignity of the judiciary.

LEGAL PROVISIONS

  1. Article 226 of the Constitution of India prescribes the Power of the Courts to issue Writs.
  2. Rule 5 (1)(viii) of the Maharashtra Civil Services (Discipline and Appeal) Rules, 1979 governs the removal of the civil servants for misconduct.

ISSUES

  1. The main issues in the present case revolves around whether the charges against Aniruddha Ganesh Pathak were proven?
  2. Whether the punishment of disposition of Aniruddha Ganesh Pathak was proportionate to the charges imposed on him?
  3. Whether there were any irregularities in the procedure in the disciplinary process?

COURT ANALYSIS AND JUDGMENT

The court in the case of Aniruddha Ganesh Pathak Vs. Registrar General, Bombay High Court & Anr., recognised the narrow scope of the Judicial Review in the matter of services, stating that interference is warranted only if there are irregularities in the procedures or arbitrariness in the decision making. The court referred to the precedents and replicated the duty of the judiciary to uphold high standards of integrity and conduct. The court observed that the charges against Aniruddha Ganesh Pathak, including not following the timings of the court and being inebriated while presiding over the court were supported with substantial evidences. The court, considering the grave nature of the charges and the significance of judicial integrity, rejected the contentions of the Appellant that the punishment of disposition was disproportionate. The court in the present case, held that there were no irregularities in the procedures followed in the disciplinary process and that the decision of disposition of the Appellant from the service was justified. The court overturned and deemed inapplicable, all the precedents cited by the appellant, further strengthening the case of the disposition of the Appellant. The court, in the end, dismissed the Writ Petition instituted by the Appellant, upholding the decision of the disposition of the Appellant from the judicial services.

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Judgement Reviewed by – Sruti Sikha Maharana

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