2016 (9) TMI 1414 - HC - Income Tax

Attachment orders - recovery of dues - Held that - As rightly pointed out by the petitioner, the object of the demand is to secure the interest of the revenue. The Income Tax Officer acquires jurisdiction to attach the property based on a certificate issued by the Tax Recovery Officer, certifying that the assessee is a defaulter. Tax Recovery Officer has not issued such a certificate. Even assuming that the Tax Case Appeal filed by the Revenue is entertained, that by itself, will not make the petitioner as an assessee in default, on account of the fact that the entire tax liability is wiped of pursuant to the order of ITAT. Assuming further that the Revenue succeeds in the Tax Case Appeal, automatically, the assessee will not be treated as defaulter, since the consequential orders have to be passed, notice of demand have to be issued, time has to be granted, thereafter, proceeding has to be initiated and certificate has to be issued by the Tax Recovery Officer, declaring the petitioner as defaulter, and only then, the order of attachment of immovable property of the petitioner could be effected. Writ Petition is allowed, and the first respondent/Tax Recovery Officer is directed to pass appropriate orders for lifting the order of attachment of the immovable property of the petitioner, and return the original documents given as surety to the second respondent, vide letter, dated 04.09.2012, and pass necessary consequential orders with due intimation to the Sub Registrar, Neelankarai

Summary

Issues Involved:
1. Legality of the attachment order of immovable property by the Tax Recovery Officer.
2. Compliance with Section 225(3) and Rule 12 of the Second Schedule of the Income Tax Act.
3. Interpretation of the terms "final" and "conclusive" in the context of tax recovery proceedings.
4. The effect of appellate decisions on the status of tax demands and attachments.

Detailed Analysis:

1. Legality of the attachment order of immovable property by the Tax Recovery Officer:
The petitioner, a Private Limited Company, challenged the attachment order dated 08.01.2013 issued by the Tax Recovery Officer under the Income Tax Act, 1961. The attachment was made for the assessment years 2009-10, 2010-11, and 2011-12, following the disallowance of capital gain computation by the Assessing Officer. The petitioner contended that the attachment should be lifted as the demand was reduced to nil after the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal (ITAT) ruled in their favor.

2. Compliance with Section 225(3) and Rule 12 of the Second Schedule of the Income Tax Act:
The Revenue argued that the attachment should continue as the order by ITAT had not become "final" and "conclusive" due to a pending Tax Case Appeal before the High Court. The petitioner argued that the attachment should be lifted as the demand was effectively reduced to nil by the ITAT's order, which was given effect by the Assessing Officer.

3. Interpretation of the terms "final" and "conclusive" in the context of tax recovery proceedings:
The court examined the interpretation of "final" and "conclusive" under Section 225(3). The Revenue's stance was that these terms imply finality only after all possible appeals, including to the Supreme Court, are exhausted. However, the court did not subscribe to this view, stating that Section 225(3) should be read in conjunction with Section 222, which pertains to the issuance of a certificate by the Tax Recovery Officer when an assessee is in default.

4. The effect of appellate decisions on the status of tax demands and attachments:
The court referred to the Supreme Court's decision in Sri Mohan Wahi's case, which held that if the tax demand is reduced to nil by an appellate order, the Tax Recovery Officer must cancel the certificate and cannot confirm the sale or continue the attachment. The court also cited the decision in Sri Lakshmi Brick Industries, which reinforced that the Tax Recovery Officer must act according to the appellate orders and release the property from attachment if the demand is reduced to nil.

Conclusion:
The court concluded that the attachment order could not survive after the ITAT's ruling, which reduced the tax demand to nil. The Tax Recovery Officer was directed to lift the attachment and return the original documents given as surety. The court emphasized that the object of the demand is to secure the interest of the revenue, and once the demand is wiped out, the attachment cannot continue. The writ petition was allowed, and the Tax Recovery Officer was instructed to comply with the order within four weeks.