2017 (4) TMI 1587 - HC - Income Tax

Recovery proceedings - attachment orders - HELD THAT - In the counter affidavit, the facts that were narrated in the affidavit filed in support of the writ Petition are not disputed. It is the case of the respondents that the property in question was earlier mortgaged by the petitioner to the Tamil Nadu Mercantile Bank Limited, Tuticorin and that the petitioner was prohibited from dealing with the property mortgaged in favour of the Tamil Nadu Mercantile Bank Limited. Hence, the respondent could not proceed with the same. Since, the respondents were prohibited by law from proceeding with the sale, the respondents are entitled to exclude the time during which the respondent could not proceed with the sale of the property. Only on this premise, the respondents wanted this Court to dismiss the writ petition. The perusal of the records discloses that the facts narrated by the petitioner with regard to the dates are admitted. The assessment order though passed on 28.09.1998 and the amount was determined long back, the property was attached in the year 2003. Despite the fact that there was an order of attachment even in the year 2003, there was no attempt to bring the property for sale. The period that can be excluded is also enumerated in Rule 68 (B) (2). The reason for the delay cannot be accepted as the property can also be sold subject to any mortgage. Further, it is not a ground to extend the period of limitation. Rule 68 (B) as extracted above give a clear indication that no sale of immovable property shall be made after the expiry of three years from the end of the financial year, in which the order giving rise to a demand of any tax, interest, fine or penalty. The provision has been clarified by the judgment of this Court in a number of cases. This Court has no hesitation to allow the writ petition with the following direction - 9(i) The impugned order of attachment passed by the first respondent dated 27.01.2003 and the consequential proceeding of the third respondent dated 31.12.2014 are quashed. Consequently the third respondent is directed to remove the endorsement of encumbrance made in respect of the petitioner's property in Door No.316A, 316B, Vittalapuram Village, Ottapidaram Taluk. Though, the respondents are not permitted to bring the property for sale in view of the limitation standing in the way, it is the duty of the petitioner to pay the tax due to the respondent. The right of the respondents to recover the tax from the petitioner by any other modes cannot be curtailed. The third respondent is directed to remove the endorsement for recording of encumbrance in the relevant books within a period of four weeks from the date of receipt of a copy of this order.

Summary

Issues:
1. Validity of orders of attachment passed by the first respondent
2. Rejection of application to cancel encumbrance by the third respondent
3. Interpretation of Rule 68(B) of the second schedule
4. Compliance with the time limit for sale of immovable property under Rule 68(B)
5. Prohibition on sale due to property being mortgaged
6. Entitlement of respondents to exclude time for sale due to legal prohibition
7. Justification for delay in bringing property for sale
8. Clarification on the provision of Rule 68(B) through judicial precedents

Analysis:

1. The petitioner filed a Writ Petition challenging the orders of attachment passed by the first respondent in 2003 and the subsequent rejection of the application to cancel the encumbrance by the third respondent in 2014. The petitioner sought to quash these orders and remove the encumbrance on their property in Ottapidaram Taluk.

2. The petitioner, an assessee, had an assessment order for income tax, which was later reduced by the Appellate Authority. Despite this, the first respondent attached the petitioner's immovable properties. The third respondent registered this encumbrance, leading to the petitioner's application for cancellation being rejected, prompting the Writ Petition.

3. The petitioner argued that the orders contravened Rule 68(B) of the second schedule, emphasizing the need for sale of immovable property within three years from the end of the financial year in which the tax demand became conclusive. Citing a previous judgment, the petitioner contended that any attachment beyond the specified period would be illegal and void.

4. The respondents, in their defense, claimed that the property was previously mortgaged, restricting them from proceeding with the sale. They argued for the exclusion of time due to this legal prohibition, justifying their delay in executing the sale.

5. The Court, after considering the arguments and precedents, upheld the petitioner's contentions. It emphasized the strict timeline under Rule 68(B) for the sale of immovable property for tax recovery purposes and directed the removal of the encumbrance on the petitioner's property. The Court clarified that while the sale was prohibited due to the limitation, the petitioner remained obligated to pay the tax.

6. The judgment highlighted the importance of adhering to the provisions of Rule 68(B) and emphasized that the respondents' right to recover tax through other means was not curtailed. The third respondent was instructed to remove the encumbrance endorsement promptly.

7. Ultimately, the Writ Petition was allowed, quashing the attachment orders and providing specific directions for the removal of encumbrance, with the Court emphasizing the need for compliance with statutory timelines and legal provisions in tax recovery matters.