1998 (11) TMI 81 - HC - Income Tax

Summary

Issues Involved:
1. Validity of the auction proceedings initiated by the Income-tax Department against the property in question.
2. Ownership and possession of the property reserved for the school.
3. Jurisdiction of the Income-tax Department to auction the property.

Issue-wise Detailed Analysis:

1. Validity of the Auction Proceedings:
The petitioner sought a writ of certiorarified mandamus to quash the auction proceedings dated February 12, 1996, initiated by the Income-tax Department under rules 38 and 52(2) of the Second Schedule of the Income-tax Act. The petitioner argued that the property in question was reserved for a public purpose (i.e., establishing a school) and had been handed over to the Pallavaram Municipality and subsequently to the petitioner-society. The petitioner contended that the property could not be auctioned for the income-tax dues of the erstwhile landowner, T. P. Sathiyanathan.

2. Ownership and Possession of the Property:
The petitioner, a registered society running a school, claimed ownership and possession of the property since July 1972. The petitioner provided evidence of obtaining necessary sanctions and licenses from authorities to establish and run the school. The petitioner argued that the land was handed over to the Pallavaram Municipality by the erstwhile owner and then to the petitioner-society. The petitioner also highlighted that the municipality had assessed the property for tax, indicating recognition of the petitioner's ownership.

3. Jurisdiction of the Income-tax Department:
The Income-tax Department contended that the petitioner failed to produce documentary evidence to substantiate their ownership claim. The Department argued that no registered deed or document was provided to prove the transfer of property from the erstwhile owner to the petitioner-society. The Department maintained that T. P. Sathiyanathan continued to be the owner of the property, and thus, the auction proceedings for recovering tax arrears were valid.

Court's Analysis and Judgment:
The court examined the entire material on record and found that the petitioner-society had been in continuous possession of the property since 1972 and had obtained necessary sanctions and licenses to run the school. The court noted that the property was reserved for a public purpose in the sanctioned layout and that the petitioner-society had established a school with due recognition from authorities.

The court also referred to the Supreme Court judgment in TRO v. Gangadhar Viswanath Ranade [1998] 234 ITR 188, which held that the Tax Recovery Officer must examine who is in possession of the property and in what capacity. The Supreme Court had ruled that if a third party claims possession under some title, the property must be released from attachment.

Based on the evidence and legal precedents, the court concluded that the petitioner-society had established its ownership and possession of the property. The court held that the auction proceedings initiated by the Income-tax Department were without jurisdiction and invalid.

Conclusion:
The writ petition was allowed, and the impugned proceedings dated February 12, 1996, were quashed. The Income-tax Department was restrained from auctioning the property belonging to the petitioner-society. The court emphasized that the petitioner had made out a case in its favor, and the auction proceedings were deemed invalid and without jurisdiction. The court also dismissed W. M. P. Nos. 4848 of 1996 and 8315 of 1998.