1995 (7) TMI 28 - HC - Income Tax

Issues Involved:

1. Validity of the attachment and sale of the defaulter's property.
2. Compliance with Rule 61 of the Second Schedule to the Income-tax Act, 1961.
3. Constitutionality of the proviso to Rule 61.
4. Alleged irregularities in the sale process.
5. Equitable considerations in favor of the petitioner and the successful bidder.

Issue-wise Detailed Analysis:

1. Validity of the attachment and sale of the defaulter's property:
The properties of the late M. Natesan, an income-tax defaulter, were attached under Schedule II of the Income-tax Act, 1961. A certificate was issued on March 22, 1971, leading to the attachment of properties at door No. 15, Kandappa Pillai Street, and door No. 4, Dr. Guruswami Mudaliar Road, Madras-31. The petitioner, his wife, agreed to the sale of the property at Kandappa Pillai Street, which was auctioned on April 26, 1985, with the third respondent being the successful bidder for Rs. 70,500.

2. Compliance with Rule 61 of the Second Schedule to the Income-tax Act, 1961:
The petitioner filed a petition under Rule 61 on May 9, 1985, to set aside the sale but did not comply with proviso (b), which requires the deposit of the arrears. Consequently, the application was rejected on June 13, 1985, and the sale was confirmed on June 17, 1985. The court held that the rejection of the application and the subsequent confirmation of the sale were in accordance with the statutory mandate and could not be deemed illegal.

3. Constitutionality of the proviso to Rule 61:
The petitioner challenged the constitutionality of the proviso to Rule 61, which mandates pre-deposit of arrears for setting aside a sale. The court found that this provision is similar to rules in the Civil Procedure Code (Order XXI, Rules 89 and 90) and serves to prevent frivolous applications. The court dismissed the petition (W.P. No. 7089 of 1985) challenging the proviso, stating that such stipulations are neither arbitrary nor unreasonable.

4. Alleged irregularities in the sale process:
The petitioner argued that there were irregularities, including misdescription of the property and inadequate sale value. The first respondent countered that the property was correctly described and located in a flood-prone area, justifying the sale price. The court found no merit in the petitioner's contentions, noting that the location and value of the property were appropriately considered.

5. Equitable considerations in favor of the petitioner and the successful bidder:
The petitioner claimed that the sale proceedings were in a fluid state due to the writ petition and that equity and justice required reconsideration of the petition to set aside the sale. However, the court emphasized that the successful bidder had complied with all requirements and paid the due amounts. The court noted that equity considerations should also favor the third respondent, whose funds had been tied up since 1985. The court concluded that the petitioner's late payment of arrears in 1992 did not justify reconsideration of the application rejected in 1985.

Conclusion:
The court dismissed both W.P. No. 7088 of 1985 and W.P. No. 7089 of 1985, holding that the attachment and sale of the defaulter's property were valid, the rejection of the application under Rule 61 was justified, and the proviso to Rule 61 was constitutional. The court found no merit in the allegations of irregularities and emphasized that equitable considerations favored the successful bidder, not the petitioner.

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