1997 (4) TMI 43 - HC - Income Tax

Immovable Property By Central Government, Law Applicable, Leasehold Interest, Movable Property, Retrospective Effect

Summary

Issues Involved:
1. Validity of the auction sale notice without prior permission of the lessor.
2. Impact of Section 269UE(1) of the Income-tax Act on the auction sale.
3. Applicability of the Supreme Court judgment in C. B. Gautam v. Union of India.
4. Requirement of fresh auction notice incorporating the condition of prior permission from the lessor.

Issue-wise Detailed Analysis:

1. Validity of the Auction Sale Notice Without Prior Permission of the Lessor:
The plaintiff-respondent No. 1 challenged the auction sale notification on the ground that the indenture of lease dated March 21, 1925, as modified on December 29, 1973, required prior permission from the lessor before transferring, assigning, or parting with possession of the property. The Income-tax Department failed to adhere to this clause when publishing the auction notice. The court found that the Central Government, having stepped into the shoes of the lessee (Lipton India Limited), must adhere to all terms and conditions of the original lease, including obtaining prior consent from the lessor before any transfer.

2. Impact of Section 269UE(1) of the Income-tax Act on the Auction Sale:
Section 269UE(1) of the Income-tax Act, as it stood at the time of the auction notice, stated that properties vested in the Central Government "free from all encumbrances" upon an order under Section 269UD(1). However, the Supreme Court in C. B. Gautam v. Union of India declared this provision ultra vires Article 14 of the Constitution, leading to its amendment. The amended section required properties to vest in the Central Government "in terms of the agreement for transfer referred to in sub-section (1) of section 269UC." Consequently, the Union Government could not rely on the original provision and had to act according to the amended law.

3. Applicability of the Supreme Court Judgment in C. B. Gautam v. Union of India:
The Supreme Court in C. B. Gautam v. Union of India held that the phrase "free from all encumbrances" in Section 269UE(1) was arbitrary and violated Article 14 of the Constitution. This judgment led to the amendment of the section, which now required compliance with the terms of the agreement for transfer. The court noted that the Union Government must act in accordance with the amended provisions, which necessitated obtaining prior consent from the lessor before finalizing any sale.

4. Requirement of Fresh Auction Notice Incorporating the Condition of Prior Permission from the Lessor:
The court acknowledged that mere publication of an auction notice does not constitute an actual sale. However, to avoid future legal complications and ensure transparency, the court directed that any fresh auction notice must include the condition that the sale would be subject to obtaining prior permission from the lessor. This would prevent potential bidders from being surprised by additional conditions and reduce the likelihood of subsequent legal disputes.

Conclusion:
The court rejected the stay petition and modified the stay order to require the defendant-appellants to issue a fresh auction notice incorporating the condition of obtaining prior permission from the lessor. The F. M. A. was disposed of accordingly, and there was no order as to costs.