SEs to have priority over I-T dept in recovery of dues from defaulters: Supreme Court

MUMBAI: Setting aside the Bombay High Court order, the Supreme Court on Thursday clarified that when a stock exchange declares amember as defaulter, the exchange gets priority over the income tax department in recovering dues.

The division bench comprising Chief Justice RM Lodha, Justice Joseph Kurian and Justice RF Nariman ruled that the lien possessed by the stock exchange makes it a secured creditor and thus would have priority over the government. The matter relates to a two-decade-old dispute. In 1994, BSE declared one Suresh Damji Shah, a member, as defaulter after he failed to meet his liabilities. In October 1995, the tax department had sent a notice to the BSE, informing that the amount realised out of auctioning the broking card of the defaulting member should go towards clearing tax claim of Rs 25.43 lakh pertaining to assessment years 1989-90 and 1990-91. BSE had challenged the contention in the Bombay High Court and later moved the apex court when the High Court upheld the revenue department’s stand.

“The sale proceeds of a membership card and the membership card itself being only a personal privilege granted to a member cannot be attached by the Income-Tax Department at any stage,” argued senior counsel Arvind Datar, representing the exchange.