2012 (11) TMI 454 - HC - Income Tax

Auction of immovable property on non payment - right of highest bidder (petitioner) - stay granted for further proceedings on appeal filled by assessee - appeal allowed without hearing the petitioner - Held that - Proclamation of sale and holding a public auction are only the initial steps towards sale of immovable property of a tax defaulter to recover such amount through sale of his properties. The highest bidder, whose offer is accepted, during such public auction, has the responsibility to deposit 25% of the purchase money on spot, failing which, the acceptance of offer stands revoked. However, before the sale can be confirmed in favour of the highest bidder, several steps are to be completed and intervening factors to be taken into account, like within fifteen days from the date of public auction, the purchaser has to pay remaining 75% of the amount. Even then the sale is subject to confirmation and the tax defaulter, at various stages, has right either to intervene, pay off the tax or question the very proclamation i.e under Rule 60 he can apply to set aside the sale of immovable property upon deposit of the amount of tax dues, of course before the confirmation of sale. He also has a right to question any order that the Tax Recovery Officer may have passed under the schedule. Rule 86(1) provides for a statutory appeal against any such order before the Chief Commissioner or the Commissioner. Sub-rule (3) empowers the appellate authority, pending its final decision in appeal, to stay the execution of the certificate. It was in exercise of such statutory right of appeal that the respondent No.3 carried order of the Tax Recovery Officer before the Commissioner and questioned the very proclamation of sale. When such appeal was filed, the auction was not even conducted. The petitioner was nowhere in picture. In such appeal, it is unable to find as how at least at the outset the petitioner could have been made a party. The question of joining the petitioner as a respondent in such an appeal at a later stage also would not arise since by merely being the highest bidder in a public auction, the petitioner did not get any vested right in the property. His time for depositing remaining 75% of the amount had not yet expired nor before such date he had deposited the remaining amount. Even after depositing the remaining 75% of the amount, the sale was subject to confirmation & long before such steps could be completed, the Commissioner on the very day of the public auction, had stayed the entire proceedings. Thus as Respondent No.3 had succeeded in requiring the settlement commission to entertain his application for settlement on which certain demand orders were passed & payments were also made the petitioner has made out any case for interference. Departmental authorities are directed to return to the petitioner the amount of 25% of the bid offer deposited by him on 31.03.2000 with simple interest @ 8% per annum from such date till actual payment.

Issues Involved:
1. Legality of the Commissioner's order setting aside the auction proclamation without hearing the petitioner.
2. Compliance with principles of natural justice.
3. Petitioner's right to the auctioned property.
4. Delay in filing the petition.
5. Return of the deposit amount with interest.

Detailed Analysis:

1. Legality of the Commissioner's Order:
The petitioner challenged the order dated 20.04.2001 passed by the Commissioner of Income Tax, Rajkot, which set aside the auction proclamation for certain immovable properties belonging to respondent No.3. The Commissioner acted under Rule 86 of the Second Schedule of the Income Tax Act, 1961, and stayed the execution of the recovery certificate pending the appeal decision. The appeal was allowed on grounds of improper application of mind regarding the actual outstanding dues and pending disputes regarding the tax dues.

2. Compliance with Principles of Natural Justice:
The petitioner argued that the Commissioner's order was passed without giving him an opportunity to be heard, thus breaching the principles of natural justice. The petitioner was the highest bidder in the auction and had a vested interest in the outcome. The respondent contended that the petitioner was not a necessary party at the time of the appeal since the auction had not yet been conducted, and the petitioner had no vested right in the property until the sale was confirmed.

3. Petitioner's Right to the Auctioned Property:
The petitioner participated in the auction on 31.03.2000, deposited 25% of the bid amount, and was ready to pay the remaining 75%. However, the Commissioner stayed the proceedings before the petitioner could complete the payment. The court noted that the highest bidder in a public auction does not gain a vested right in the property until the sale is confirmed, and several steps, including the possibility of the tax defaulter setting aside the sale, must be completed before confirmation.

4. Delay in Filing the Petition:
The petition was filed on 15.04.2002, nearly a year after the Commissioner's order was communicated to the petitioner on 22.05.2001. The court considered this delay, along with other relevant facts, as an additional ground for not entertaining the petition.

5. Return of the Deposit Amount with Interest:
The court directed the department to return the 25% deposit amount to the petitioner with simple interest at 8% per annum from 31.03.2000 until actual payment. The petitioner's refusal to accept the refund earlier was not held against him, as he was pursuing his legal remedies.

Conclusion:
The court dismissed the petitions, upheld the Commissioner's order dated 20.04.2001, and directed the department to return the deposit amount with interest. The court emphasized that the petitioner did not have a vested right in the property until the sale was confirmed and that the delay in filing the petition, along with other factors, justified the decision.

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