1984 (6) TMI 12 - HC - Income Tax

Issues Involved:
1. Issuance of income-tax clearance certificate under Section 230A(1) of the I.T. Act, 1961.
2. Validity of lease agreement post attachment under Rule 16(2) of the Second Schedule.
3. Violation of principles of natural justice.
4. Interaction between Section 230A and Rule 16(2).
5. Alleged delay in recovery proceedings and its implications.

Detailed Analysis:

1. Issuance of Income-Tax Clearance Certificate under Section 230A(1) of the I.T. Act, 1961:

The petitioner sought a writ directing the ITO to issue an income-tax clearance certificate to register a lease deed for newly constructed premises. The petitioner had arrears of Rs. 37,38,450 for assessment years 1978-79, 1979-80, and 1980-81, and appeals were pending. The petitioner argued that he had made reasonable provisions to pay the arrears, including depositing Rs. 50,000 received as an advance from the tenant and undertaking to remit the monthly rent towards tax arrears. However, the ITO refused to issue the certificate, stating that the petitioner had not made satisfactory provisions for all existing liabilities as required by Section 230A(1)(a).

2. Validity of Lease Agreement Post Attachment under Rule 16(2) of the Second Schedule:

The ITO argued that the lease agreement entered into after the attachment of the property on October 1, 1982, was void under Rule 16(2) of the Second Schedule, which states that any private transfer or delivery of attached property is void. The court agreed, stating that a lease is a form of transfer of property, and thus, the execution of a lease deed post-attachment is legally void.

3. Violation of Principles of Natural Justice:

The petitioner contended that the ITO's refusal to issue the certificate was arbitrary and devoid of reasons, violating principles of natural justice. The court acknowledged that the order communicated by the ITO was a one-line order without reasons. However, citing the Supreme Court's decision in Tripathi v. State Bank of India, the court held that unless prejudice is established, a violation of natural justice principles does not necessarily call for quashing the order. Since the petitioner was not entitled to the certificate based on undisputed facts, the court found no need to remit the matter back for reconsideration.

4. Interaction between Section 230A and Rule 16(2):

The court examined the interaction between Section 230A and Rule 16(2). Section 230A(1) allows for the issuance of a certificate if the applicant has paid or made satisfactory provisions for all existing liabilities or if the registration of the document will not prejudicially affect the recovery of any existing liability. However, the court emphasized that where an attachment is already in place, the defaulter cannot claim to make satisfactory provisions for payment and demand a certificate, as any transfer of attached property is void under Rule 16(2).

5. Alleged Delay in Recovery Proceedings and Its Implications:

The petitioner argued that the attachment was effected on October 1, 1982, and no further proceedings were taken, causing him to lose potential lease income. The court noted that the petitioner himself had obtained a stay of the sale from the Commissioner of Income-tax, pending appeals, and thus could not complain of the delay. The court also highlighted that recovery proceedings must be conducted with reasonable expedition to avoid being termed unreasonable and oppressive.

Conclusion:

The court dismissed the writ petition, holding that the petitioner was not entitled to an income-tax clearance certificate due to the legal void of the lease agreement post-attachment and the lack of satisfactory provisions for existing liabilities. The court also emphasized that the discretionary jurisdiction under Article 226 of the Constitution would not be exercised to issue futile orders. The petitioner's failure to establish prejudice from the ITO's refusal further supported the dismissal. The court awarded costs of Rs. 250 to the respondents.

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