2005 (4) TMI 50 - HC - Income Tax

Summary

Issues Involved:
1. Vesting of property under Section 269UE of the Income-tax Act.
2. Non-cooperation by the State Bank of India in handing over original title deeds.
3. Petitioner's entitlement to the conveyance deed.
4. Role and responsibilities of the Debts Recovery Tribunal.
5. Costs and penalties for non-compliance.

Detailed Analysis:

1. Vesting of Property under Section 269UE of the Income-tax Act:
The court examined Section 269UE of the Income-tax Act, 1961, which stipulates that property vested in the Central Government under Section 269UD(1) is free from all encumbrances. The property in question vested in the Central Government on November 25, 1989, free from all encumbrances. The Supreme Court's judgment in C.B. Gautam v. Union of India [1993] 199 ITR 530 struck down the phrase "free from all encumbrances," leading to legislative amendments. The amended Section 269UE(1) and its proviso were discussed, emphasizing that the property should vest in the Central Government in terms of the agreement for transfer, and any encumbrance aimed at defeating the provisions of Chapter XX-C could be declared void.

2. Non-cooperation by the State Bank of India:
The State Bank of India (SBI) had an injunction order from a civil court and was in possession of the original title deeds. Despite the Debts Recovery Tribunal (DRT) modifying the injunction to allow the auction, SBI did not agree to part with the title deeds. SBI contended that it had a right over the property due to an equitable mortgage and sought the entire sale consideration to be handed over to it. The court rejected SBI's stance, noting that the property vested in the Central Government free from encumbrances and that SBI's claim was not mentioned in the agreement for transfer.

3. Petitioner's Entitlement to the Conveyance Deed:
The petitioner, a bona fide third-party purchaser, fulfilled all auction sale conditions and paid the full consideration. The court held that the petitioner was entitled to a conveyance deed without any cloud over the property. The Income-tax Department's condition to deposit the sale consideration in the ZAO (CBDT) account was rejected, as the DRT had directed the sale proceeds to be deposited with the applicant-bank in interest-bearing deposits.

4. Role and Responsibilities of the Debts Recovery Tribunal:
The court criticized the DRT for not ensuring the custody of the title deeds before permitting the auction. It emphasized that the DRT should have retained the title deeds to avoid complications for the bona fide purchaser. The DRT was expected to regulate procedures to ensure effective completion of transactions, including the transfer of title to the highest bidder.

5. Costs and Penalties for Non-compliance:
The court directed SBI to hand over the original title deeds to ARCIL, which in turn was to forward them to the Income-tax Department. The Income-tax Department was instructed to execute the conveyance deed by May 5, 2005. The court imposed costs of Rs. 5,000 on the Income-tax Department and Rs. 10,000 on SBI for their lack of diligence and the resultant inconvenience to the petitioner.

Conclusion:
The court allowed the petition, directing the execution of the conveyance deed and the transfer of title deeds within specified timelines. The judgment emphasized the need for procedural diligence by the DRT and cooperation among involved parties to avoid unnecessary litigation and ensure smooth property transactions.