2008 (2) TMI 819 - HC - Income Tax

Seeking to quash and set aside an auction notice - Held that - The petitioner has clearly acquired a right of ownership in respect of the suit premises. When this right was acquired, Swastik India (P) Ltd. who is respondent No. 4 in this petition, was the sub-lessee. The rights of Swastik India (P) Ltd. were modified by the indenture of modification dated February 19, 1986. The order under section 269UD related to the acquisition of the shareholding of Swastik India (P) Ltd. and thus the Union of India stands in the shoes of Swastik India (P) Ltd., i.e., respondent No. 4. The impugned notice, however, seeks to sell the suit premises which are of the ownership of the petitioner. In our view, this cannot be permitted as respondents Nos. 1, 2, and 3 were never the owners of the suit premises. In the circumstances, the petition will have to be allowed.We, however, make it clear that the income-tax authorities will be at liberty to take any proceedings or steps in relation to their acquired assets and rights in accordance with law.

Summary

Issues:
Challenge to auction notice seeking to sell an immovable property owned by the petitioner.

Analysis:
The petitioner, Plaza Diamond Properties Pvt. Ltd., sought to quash an auction notice by the Income-tax Department to sell an immovable property owned by the petitioner. The property in question was a cinema hall located in Mumbai. The petitioner acquired ownership rights through a consent decree in 1983, subject to certain agreements with the previous leaseholders. Subsequently, modifications were made to the lease agreements, limiting the sub-lessee's rights to one renewal for 10 years. Despite the expiration of the lease in 1992, the sub-lessee continued in possession illegally. The Income-tax Department initiated proceedings to acquire the shares of the sub-lessee company, valuing the property at over Rs. 10 crores. However, upon discovering the lack of valid lease extension, the acquisition was withdrawn in 1997.

The shareholders of the sub-lessee challenged the withdrawal of acquisition through a writ petition, leading to court orders for depositing Rs. 4 crores and subsequent re-validation of the acquisition. The court held that the appropriate authority could withdraw the acquisition after obtaining permission and that the lease duration issue required adjudication under the Income-tax Act. The court directed the respondents to pay Rs. 4 crores to the petitioner, which was done. Subsequent legal actions by the petitioner, including a writ petition for possession and a suit for eviction, were also mentioned.

The Income-tax authorities' review petition against the court's 2002 judgment was dismissed in 2006. Despite these legal proceedings, an auction notice for the sale of the suit premises was issued in 2007, prompting the petitioner to file the present petition. The court found that the petitioner had acquired ownership rights in the property, and the auction of the property owned by the petitioner could not be permitted. The petition was allowed, with the Income-tax authorities retaining the right to take lawful actions regarding their acquired assets. The court clarified that its observations in the judgment would not influence the pending suit in the Small Causes Court.

This detailed analysis of the legal judgment highlights the complex legal history and proceedings surrounding the ownership and attempted auction of the immovable property in question, providing a comprehensive understanding of the case.