2011 (7) TMI 1400 - HC - Indian Laws

Summary

Issues involved:
The issues involved in this case are whether the Income Tax Department can claim priority over secured debts in favor of a bank u/s mortgage, and whether the properties subjected to auction sale can be attached by the Income Tax Department after being mortgaged.

Judgment Details:

Issue 1: Auction Sale and Sale Certificate (W.P. No. 5329 of 2010)
The Petitioner participated in an auction sale conducted by the Recovery Officer for properties mortgaged with the 3rd Respondent Bank. The Petitioner was the highest bidder, and a sale certificate was issued. However, the first Respondent refused to file the sale certificate due to attachment by the Income Tax Department u/s 222(1) of the Income Tax Act.

Issue 2: Auction Sale and Sale Certificate (W.P. No. 5593 of 2010)
In a separate case, the Petitioners participated in another auction sale for properties mortgaged with the 3rd Respondent Bank. They were the highest bidders, and a sale certificate was issued. The first Respondent refused to file the certificate due to attachment by the Income Tax Department for tax arrears.

Key Points:
- The Income Tax Department attached the properties based on ITCP-I certificate for tax arrears.
- The Petitioners argued that secured debts should prevail over tax arrears, citing a Division Bench judgment.
- The Income Tax Department claimed priority based on the attachment date, which could relate back to the ITCP-I certificate issuance.
- The Court held that secured debts have priority over tax arrears unless a specific provision gives priority to the tax department.
- The Court referred to the Division Bench judgment stating that tax arrears can have priority over unsecured debts but not over secured debts without statutory provision.
- The Court allowed the writ petitions, directing the first Respondent to file the sale certificates in accordance with the Registration Act.

In conclusion, the Court ruled in favor of the Petitioners, emphasizing the priority of secured debts over tax arrears and directing the first Respondent to file the sale certificates as requested.