Creditor has priority over ITD if lien was created by assessee in favour of such creditor: HC
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- Last Updated on 5 November, 2022
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Case Details: IFCI Factors Ltd. v. Bank of India - [2022] 143 taxmann.com 313 (Delhi)
Judiciary and Counsel Details
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- Amit Bansal, J.
- Anupam Srivastava, Dhairya Gupta & Vashu Misra, Advs. for the Appellant.
- Ms Akanksha Das, Sanjay Kumar & Ms E. Kadiayan, Advs. for the Respondent.
Facts of the Case
Plaintiff-company was engaged in the business of providing financial services. The assessee-bank acquired some financial services from the plaintiff and placed a sum of money in Fixed Deposit Receipt (FDR) with the Bank in the name of Plaintiff. Assessee confirmed that lien had been created in favour of plaintiff-company.
After a period of time, plaintiff-company requested the assessee for encashment of FDR. Assessee denied on the claim that a notice was issued by the Income-tax Department under section 226 and the encashment of such FDR will require a No Objection Certificate (NOC) from the Income-tax Department.
Aggrieved by the assessee’s rejection, the plaintiff-company filed a writ petition before the Delhi High Court.
High Court Held
The Delhi High Court held that the preferential right of recovery of the Income Tax Department is confined only to ordinary or unsecured creditor and not secured creditor. Since the confirmation of lien against the FDRs was made before the issuance of recovery notice by Income Tax Department, it makes plaintiff a secured creditor and the plaintiff’s rights must be given preference over department’s rights.
Therefore, plaintiff-company would be entitled to amounts under said FDR.
List of Cases Reviewed
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- Stock Exchange v. V.S. Kandalgaonkar [2015] 2 SCC 1 (para 17) followed.
List of Cases Referred to
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- Stock Exchange v. V.S. Kandalgaonkar [2015] 2 SCC 1 (para 16).
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