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2016 (7) TMI 935 - HC - Income TaxAttachment orders - Priority on debts - overriding effects - whether the notice issued under Section 13 (2) of the SARFAESI Act by IDBI tantamounts to an attachment and would get precedence over the attachment of the property in question by the ITD by its order dated 25th November 2013 - Held that - In the present case, the notice issued by IDBI under Section 13 (2) of the SARFAESI Act was prior to the impugned order dated 25th November 2013 passed by the ITD attaching the property in question. IDBI was entitled, in terms of Section 13 (2) read with Section 35 of the SARFAESI Act, to proceed to bring to sale by way public e-auction the property in question on 25th February 2015 notwithstanding that the ITD had passed the impugned attachment order dated 25th November 2013. In view of the legal position explained in Bombay Stock Exchange v. V.S. Kandalgaonkar (2014 (10) TMI 368 - SUPREME COURT ) the ITD is precluded from relying on the proviso to Section 281 of the IT Act to prevent the registration of the sale deed executed in favour of the Petitioner in respect of the ground floor of the property in question. Its instructions to the contrary to Respondent No. 3 are, therefore, unsustainable in law. Consequently, the attachment order dated 25th November 2013 issued by the ITD insofar as it relates to the ground floor of the property in question is hereby set aside. Respondent No. 3 will, within a period of not later than four weeks from today, proceed to register the sale deed executed by IDBI in favour of the Petitioner in respect of the ground floor of the property in question.
Issues Involved:
1. Legality of the attachment order dated 25th November 2013 issued by the Tax Recovery Officer (TRO). 2. Priority of claims between the SARFAESI Act and the Income Tax Act. 3. Registration of the sale deed executed by IDBI in favor of the Petitioner. Detailed Analysis: 1. Legality of the Attachment Order The principal challenge is to the order dated 25th November 2013 passed by the TRO attaching the ground floor of the property in question. The Petitioner also seeks a direction to the Sub-Registrar to register the sale deed executed by IDBI in favor of the Petitioner or, alternatively, to refund the amount paid by the Petitioner. 2. Priority of Claims between SARFAESI Act and Income Tax Act The background reveals that the property was mortgaged to IDBI, and upon default, IDBI initiated recovery proceedings under the SARFAESI Act. The TRO issued the impugned attachment order for arrears of income tax dues owed by Mr. Sareen. The Petitioner contends that Section 35 of the SARFAESI Act, a non-obstante clause, overrides Section 281 (1) of the Income Tax Act. The Petitioner relies on the Supreme Court decision in Transcore v. Union of India, which held that a notice under Section 13 (2) of the SARFAESI Act operates as an attachment and takes precedence over subsequent attachments by the ITD. 3. Registration of the Sale Deed The Petitioner was declared the successful bidder for the ground floor of the property in question and paid the full consideration. Despite this, the Sub-Registrar refused to register the sale deed due to the attachment order by the ITD. The Petitioner made several representations to various authorities, including the Finance Minister and the Prime Minister, seeking the removal of the attachment and registration of the sale deed. Judgment: 1. Priority of SARFAESI Act: The Court held that the notice under Section 13 (2) of the SARFAESI Act issued by IDBI on 24th May 2012 takes precedence over the attachment order dated 25th November 2013 issued by the ITD. The Court cited the Gujarat High Court decision in Asset Reconstruction Company (India) Limited v. Commissioner of Income Tax, which confirmed that claims under the SARFAESI Act override those under the Income Tax Act. 2. Attachment Order Set Aside: The Court set aside the attachment order dated 25th November 2013 issued by the ITD insofar as it relates to the ground floor of the property in question. The Court instructed the Sub-Registrar to register the sale deed executed by IDBI in favor of the Petitioner within four weeks. 3. Legal Precedents: The Court referred to the Supreme Court decision in Bombay Stock Exchange v. V.S. Kandalgaonkar, which clarified that the Income Tax Act does not provide for paramountcy of dues over secured debts under the SARFAESI Act. 4. Final Directions: The Court concluded that the ITD's instructions to the Sub-Registrar to not register the sale deed were unsustainable in law. The writ petition was disposed of, directing the Sub-Registrar to proceed with the registration of the sale deed executed by IDBI in favor of the Petitioner. The judgment underscores the precedence of the SARFAESI Act over the Income Tax Act in cases of conflicting claims on secured assets, ensuring the protection of secured creditors' rights.
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