Madras HC stays CBDT Circular classifying Official Assignee as artificial juridical person for tax purposes

The Madras High Court on Friday stayed a circular of the Central Board of Direct Taxes (CBDT) which had classified the Official Assignee as an “artificial juridical person” for taxation purposes..The CBDT had thereby mandated that the Assignee should obtain a Permanent Account Number (PAN) for every insolvent estate and file income tax returns for the same..The Bench of Justices S Manikumar and Subramonium Prasad stayed the CBDT Circular dated January 18, 2019 in a petition filed by the Official Assignee of the Madras High Court. Senior Advocate Arvind Datar appeared for the petitioner. He was briefed by Advocates Rahul Unnikrishnan and NS Tanvi..Datar contended that the Official Assignee was an officer of the Court, having been appointed by the Chief Justice of the Madras High Court under Section 77 of the Presidency Towns Insolvency Act, 1909..He further submitted that the Assignee does not receive income on managing the property on behalf of the debtor, and therefore cannot be termed as an artificial juridical person..Although the concept of an “artificial juridical person” has not clearly been defined by the courts, it has been understood to mean societies, Hindu Undivided Families, partnership firms, Hindu idols etc., all of which are distinguishable from an Official Assignee..Datar also submitted that the Circular was manifestly arbitrary, violative of Sections 119 and 139 of the Income Tax Act, 1961, and Article 265 of the Constitution. He argued that when the Income Tax Act does not require a return to be filed, it is not open to the CBDT to direct the filing of any return through a Circular, contrary to the Act..He also highlighted the practical difficulties that would arise as the Official Assignee would now have to apply for PAN for all the pending 3000 odd insolvent estates, and file income tax returns for all those estates. .After hearing initial submissions by Datar and Advocate Hema, appearing for the CBDT, the Bench proceeded to stay the operation of the Circular. The CBDT has been directed to file its counter affidavit within four weeks. .[Read the CBDT Circular]