2016 (9) TMI 560 - HC - Indian Laws

Demand of unearned incremental charges - whether payment of unearned incremental charges demanded by the Collector of Mumbai is the responsibility of the Appropriate Authority as the assignor of the leasehold interest or of the Petitioners as the auction purchaser? - Held that - The relevant clause of the lease deed gave an option to the Collector to require payment of half unearned incremental charges in the event of any assignment or transfer. The Collector chose to raise such demand after the auction purchase was effected. These charges were not known to the Department at the time the auction sale was effected. Such demand would obviously be covered, as we have noted above, in the conditions of sale quoted above. In the premises, there is no merit in the challenge to the demand of the unearned incremental charges from the Petitioners. The Petitioners contention that the demand must be honoured by the Appropriate Authority, is without any substance.

Summary

Issues:
Challenge to demand of unearned incremental charges by Collector of Mumbai on auction purchasers.

Analysis:
1. The petition filed under Article 226 challenges the demand of 'unearned incremental charges' by the Collector of Mumbai on auction purchasers of a property acquired under Chapter XXC of the Income Tax Act 1961. The petitioners, as auction purchasers, were asked to pay these charges by the Collector, leading to the dispute.

2. The property in question, leasehold Plot No.100 in Government Industrial Estate at Kandivili, Mumbai, was leased to a company, which later agreed to transfer it to another entity. The Appropriate Authority acquired the property and auctioned it, with the petitioners being the highest bidders. Subsequently, the Collector demanded unearned incremental charges, which the petitioners contested, arguing that the responsibility lies with the Appropriate Authority, not them.

3. The petitioners did not dispute the demand itself but contested the allocation of liability to pay the charges. The clause in the original lease deed allowed the Collector to demand such charges in case of assignment or transfer, but the question was whether the auction purchasers or the Appropriate Authority should bear this responsibility.

4. The conditions of the auction sale specified that the purchaser must pay all outstandings related to the property, known to the IT Department at the time of sale. Any liabilities arising post-sale, not disclosed during the auction, were to be borne by the purchaser. The auction sale was on an 'as is where is' basis, making the auction purchasers liable for undisclosed demands like the unearned incremental charges.

5. The court rejected the petitioners' argument that the Appropriate Authority, as the assignor of the leasehold interest, should bear the responsibility for the unearned incremental charges. The vesting of the property under Chapter XXC of the Income Tax Act occurred without encumbrances, absolving the Appropriate Authority of any obligations from the original assignors.

6. Ultimately, the court dismissed the petition, upholding the Collector's demand for unearned incremental charges from the auction purchasers. The petitioners were directed to pay the demanded amount to the Collector within a specified timeframe as per the bond furnished during the legal proceedings.