Recently, the Delhi High Court
("Court"), in the case of AAA Portfolios
Pvt. Ltd. v. DCIT1 held that funds lying in an escrow
account cannot be appropriated by the tax authorities as recovery
of taxes in connection with a taxpayer's liability, when such
funds are not held by the escrow agent on behalf of the taxpayer,
or owed by the third party to the taxpayer.
BACKGROUND
The petitioners, AAA Portfolio Pvt. Ltd., Big Apple Clothing
Pvt. Ltd. ("Petitioners") and other
shareholders (collectively referred to as
"Sellers") held shares in Escorts Heart
Institute & Research Centre Ltd.
("Target"). The Sellers entered into a
Share Purchase Agreement ("SPA") for the
sale of their shares in the Target, which constituted 90% of the
total shareholding in the Target, to Fortis Health Care Ltd.
("Purchaser"). Apart from the SPA, the
Sellers, Purchaser and the escrow agent also entered into a
separate an escrow agreement ("Escrow
Agreement") which recorded the obligations of
