1997 (7) TMI 35 - HC - Income Tax

Summary

Issues:
1. Recovery of arrears of tax from rent payable by a tenant.
2. Validity of orders directing deposit of rent towards tax arrears.
3. Right of the mortgagee over the property and rent collection.
4. Jurisdiction of Tax Recovery Officer in recovering tax arrears.
5. Legality of attaching rent for tax recovery.
6. Rights of the petitioner and tenant in relation to the property.
7. Justification for refund of illegally collected amount.

Analysis:
1. The petitioner filed a petition seeking a writ of certiorari to quash orders directing the tenant to deposit rent towards tax arrears and a mandamus for refund of the amount collected. The property was mortgaged to the petitioner with the right to construct shops, which were later rented out to the tenant. The Tax Recovery Officer issued notices to the tenant to deposit rent for tax recovery from a partner of a firm, which the petitioner challenged as illegal.

2. The court noted that the petitioner had the right over the property and the tenant was obligated to pay rent to the petitioner, not the firm. The Income-tax Act allows recovery only from those holding money for or on account of the assessee, which did not apply to the petitioner or the tenant in this case. Therefore, the orders directing rent deposit for tax arrears were deemed invalid and quashed by the court.

3. The judgment clarified that the mortgagor had no possessory rights over the property or the shops, and the right to receive rent lay with the petitioner. As the petitioner did not owe any money to the firm or its partners, the rent payable by the tenant could not be garnished for tax adjustment. The court held that the actions of the Tax Recovery Officer were illegal and unjustified.

4. Consequently, the court accepted the petition, quashed the impugned orders, and directed the refund of the amount collected from the tenant to the petitioner. Failure to refund within two months would attract interest. However, the Tax Recovery Officer was permitted to recover tax arrears from the firm or its partners in accordance with the law, maintaining the rights of the petitioner and the tenant over the property and rent payment.

Conclusion:
The judgment emphasized the legal rights of the petitioner as the mortgagee and the tenant in relation to the property, highlighting the invalidity of attaching rent for tax recovery from unrelated parties. It upheld the petitioner's claim, ordering the refund of the unlawfully collected amount and allowing the Tax Recovery Officer to pursue tax recovery from the appropriate entities under the Income-tax Act.