Scam recovery payment to I-T dept put on hold

The Cabinet Committee on Disputes has withheld the payment of recovery proceeds from the Harshad Mehta case to the Income Tax (I-T) department following an appeal by State Bank of India (SBI) in the Supreme Court.

The apex court has directed a special court dealing with the securities scam to work out a distribution method for the SBI and the I-T department before any payments are made.

However, in its order last month, the Supreme Court also left the scope open for the I-T Department to make a representation before the disputes committee for interim release of payments.

SBI officials said they were waiting for the directions of the special court, which is working out a mechanism for distribution of the proceeds.

After the scam proceeds were recovered, the Supreme Court, in an order in 1996, had directed that the I-T department should be paid the proceeds, keeping distribution to other parties pending, albeit with an undertaking from the I-T department that the money will be returned as and when asked.

The I-T department has been making applications for release of funds towards I-T dues of the Harshad Mehta group (as a company and individuals) against tax liabilities of approximately around Rs 1,700 crore since April 1992. In 2003, the I-T department made an application.

This was objected by SBI on the grounds that the bank was holding a decree under the court order for more than Rs 3,000 crore and therefore it should be paid before any further payment is made to the I-T department.

The special court, presided by justice D K Deshmukh, rejected the SBI's contention saying the payment to the I-T department is being made merely on an ad hoc basis and the I-T department will bring back the money as and when it will be ordered to do so with a rate of interest as directed by the special court.

Moreover, it said, the money given to the I-T department will deposited in a bank and can be used for welfare of the state. Challenging this, the SBI filed an appeal in the Supreme Court in November last year.

The apex court, in its order dated July 6, dismissed the appeal and asked the special court to work out a distribution method before any payment is made.