2004 (8) TMI 96 - HC - Income Tax

Petitioners challenge a sale on the ground that the sale was effected beyond time - according to rule 68B of the Income-tax Act, 1961, the order had to be deemed to have come into force from the end of the financial year in which the order giving rise to a demand of any tax, interest, fine, penalty or any other sum had been attached had become conclusive - Rule 68B(1) of the Act as on today lays down the period of three years alone and the notification referred to by the respondents has no effect at all. Therefore, clearly the sale was carried out beyond time and as such is set aside - The writ petition is allowed

Summary

Issues: Challenge to sale on the ground of time limitation; Validity of amendment to rule 68B of the Income-tax Act, 1961 by Notification No. 9995

Challenge to sale on the ground of time limitation:
The petitioners challenged a sale on the ground that it was conducted beyond the stipulated time. The order in question was finalized in 1991-92, and according to rule 68B of the Income-tax Act, 1961, the order had to be deemed to have come into force from the end of the financial year in which the order giving rise to any tax demand became conclusive. The time for the sale was to start running from March 31, 1993, as rule 68B was incorporated by the Finance Act, 1992, with effect from June 1, 1992. The assessment was completed before June 1, 1992, and the Department tried to auction the property but canceled it due to unacceptable prices. The Department claimed one year's further time as per the proviso to rule 68B(1) of the Act. The High Court stay during the proceedings was also a point of contention, with the respondents arguing that the stay period should be excluded from the calculation. The respondents further argued that an amendment to rule 68B extended the period from three to four years, making the auction conducted on February 19, 2003, within the time limit.

Validity of amendment to rule 68B of the Income-tax Act, 1961 by Notification No. 9995:
The petitioners did not dispute the factual position but contended that the amendment to rule 68B by Notification No. 9995 was ultra vires. They argued that rule 68B was inserted by the Finance Act, 1992, an Act of Parliament, and could not be amended by any authority, including the Board under its powers under section 119 of the Act. The respondents, however, argued that under rule 94 of the Act, the Board had the power to issue circulars for removing difficulties. The court found no justification for the Board to amend a provision enacted by Parliament and noted the absence of any power under section 119 of the Act allowing the Board to issue such notifications. Consequently, the court held that rule 68B(1) of the Act, as it stands, prescribes a period of three years, and the notification referred to by the respondents had no legal effect. The sale was deemed to have been carried out beyond the permissible time and was set aside.

In conclusion, the writ petition was allowed, granting the respondents the liberty to take recovery steps if permissible by law, with no order as to costs. The rule nisi was made absolute in favor of the petitioners.