2016 (2) TMI 42 - HC - Indian Laws

Non-deposit of the entire amount as envisaged under rule 60 of the Second Schedule to the Income Tax Act - Recovery proceedings - whether the provisions of rule 60 of the Second Schedule to the Income Tax Act have not been satisfied by the respondents No.1 to 3 and hence, the sale in favour of the petitioners could not have been set aside? - Held that - On a reading of the proclamation for sale as a whole, it is not possible to state that the same specifies the sum of ₹ 1,27,30,527/- as the amount for the recovery of which the sale is ordered, inasmuch as, the same clearly says that such amount was due as on 30th June, 2006. The proclamation also refers to the contents of the certificate issued by the Presiding Officer, DRT which says that the sale is for the recovery of a sum of ₹ 71,88,819.87 ps. with further interest payable at the rate of 12% per annum from 27th December, 1999 till realization and the costs, charges and expenses of the proceedings for recovery thereof and says that the sale is for satisfaction of such certificate. Therefore, the amount specified in the sale proclamation would come to the amount specified as payable till 30th June, 2006 plus interest at the rate of 12% per annum on the sum of ₹ 71,88,819.87 paise from 30th June, 2006 till 28th November, 2006 namely, the date of publication of the proclamation of sale. In view of the provisions of rule 60 of the Second Schedule to the Income Tax Act, with effect from 28th November, 2006, that is, the date of the sale proclamation, the interest has to be calculated at the rate of 15% per annum. In the present case, it appears that due to oversight, or may be, due to a misreading of rule 60 of the Second Schedule to the Act, the certified debtor paid the amount specified in the proclamation of sale payable as on 30th June, 2006 with interest at the rate of 15% per annum from the date of the proclamation of the sale. Nonetheless, the fact remains that the total amount as specified in the proclamation of sale was not deposited within the prescribed period. In the opinion of this court, while equity may favour the certified debtor, the case cannot be decided on the basis of equities when the statutory provision is clear and unambiguous. As contemplated under rule 60 of the Second Schedule to the Act was required to be deposited within a period of thirty days from the date of the sale. Albeit the shortfall is very small, nonetheless, the respondents No.1 to 3 have failed to deposit the entire amount within the prescribed period of thirty days. Under the circumstances, the certified debtor is not entitled to the benefit of rule 60 of the Second Schedule to the Act as the requirements thereof have not been strictly complied with. It is evident that the requirements of rule 60 of the Second Schedule to the Income Tax Act, 1961 have not been satisfied. Under the circumstances, the application made by the first respondent for setting aside the sale held on 8th January 2007, could not have been allowed. The impugned order passed by the Appellate Tribunal setting aside the order passed by the Presiding Officer, Debts Recovery Tribunal and confirming the order passed by the Recovery Officer setting aside the sale in favour of the petitioners, therefore, cannot be sustained. 23. For the foregoing reasons, the petition succeeds and is accordingly allowed.

Summary

Issues Involved:
1. Legality of the auction sale of the property held on 8th January 2007.
2. Compliance with Rule 60 of the Second Schedule to the Income Tax Act, 1961.
3. Validity of the order passed by the Debts Recovery Appellate Tribunal setting aside the auction sale.
4. Source of funds deposited by the certified debtor.

Issue-wise Detailed Analysis:

1. Legality of the Auction Sale of the Property Held on 8th January 2007:
The petition was filed under Article 226 of the Constitution of India challenging the order dated 7th September 2015 passed by the Debts Recovery Appellate Tribunal (Appellate Tribunal) which set aside the auction sale of the property held on 8th January 2007. The Recovery Officer had initially accepted the highest bid of Rs. 1.35 crores by the petitioners, and the entire bid amount was deposited by 22nd January 2007. However, the first respondent filed an application to set aside the auction under Rule 60 of the Second Schedule to the Income Tax Act, 1961, which was allowed by the Recovery Officer on 15th February 2007, setting aside the sale and withdrawing the attachment on the property.

2. Compliance with Rule 60 of the Second Schedule to the Income Tax Act, 1961:
The core issue was whether the first respondent complied with Rule 60, which requires the defaulter to deposit the amount specified in the proclamation of sale along with interest and a penalty within thirty days from the date of the sale. The petitioners contended that the first respondent failed to deposit the entire amount within the stipulated period. The Recovery Officer allowed the application despite the shortfall, and this decision was upheld by the Appellate Tribunal. The petitioners argued that the entire amount, including interest from 30th June 2006 to the date of the sale proclamation, was not deposited within the prescribed period, thus failing to meet the requirements of Rule 60.

3. Validity of the Order Passed by the Debts Recovery Appellate Tribunal Setting Aside the Auction Sale:
The Appellate Tribunal's order was challenged on the grounds that the provisions of Rule 60 were not strictly complied with by the first respondent. The petitioners argued that the Appellate Tribunal erred in setting aside the auction sale despite the non-compliance with the mandatory requirements of Rule 60. The court noted that the contention regarding non-compliance with Rule 60 was raised before the lower authorities and found that the first respondent failed to deposit the entire amount within the prescribed thirty-day period. The court held that the requirements of Rule 60 are mandatory and must be strictly complied with, and since the entire amount was not deposited within the stipulated period, the application for setting aside the sale could not be allowed.

4. Source of Funds Deposited by the Certified Debtor:
The petitioners also raised objections regarding the source of funds deposited by the first respondent, alleging collusion with a third party. However, the Supreme Court in K. Basavarajappa v. Tax Recovery Commissioner held that the source of funds is irrelevant as long as the required amount is deposited by the defaulter or their representative. The court in the present case, therefore, did not find merit in the petitioners' objection regarding the source of funds.

Conclusion:
The court concluded that the first respondent failed to comply with the mandatory requirements of Rule 60 of the Second Schedule to the Income Tax Act, 1961, as the entire amount was not deposited within the prescribed thirty-day period. Consequently, the application for setting aside the auction sale could not be allowed. The order of the Debts Recovery Appellate Tribunal was quashed, and the sale in favor of the petitioners was confirmed. The court granted a stay on the operation of its order for four weeks to allow the respondents to approach a higher forum, with a condition to maintain the status quo on the property.