2017 (1) TMI 880 - HC - Income Tax

Non registering the Certificate of Sale - public auction - Attachment orders - recovery proceedings - original owner has been prohibited and restrained from transferring or charging the property in question for the alleged dues with interest under section 220(2) - Held that - When the petitioner is a bonafide purchaser of the property in question, which has been purchased by him in a public auction held and conducted pursuant to the order passed by the Debt Recovery Tribunal and when the order of attachment has been passed subsequently, appropriate authority is required to be directed to register the Certificate of Sale in favour of the petitioner. Therefore, there is no justification in not registering the Certificate of Sale issued by the Debt Recovery Tribunal and informing the petitioner to obtain No Objection Certificate from the Income Tax Department on the ground that pursuant to the communication / order dated 18/11/2011 issued by the Income Tax Department, the property in question is under attachment. As held by the Division Bench of this court in the case of Asset Reconstruction Company (India) Ltd. (2011 (9) TMI 1087 - GUJARAT HIGH COURT ) and even not disputed by the learned counsel appearing on behalf of the Income Tax Department, for the dues of the Income Tax Department, Income Tax Department cannot claim priority and/or cannot claim first charge over the dues of the secured creditor. There is no justification in refusing to register the Certificate of Sale with respect to property in question which the petitioner has purchased on payment of full sale consideration in an auction held and conducted by the on payment of full sale consideration pursuant to the for the dues of the Bank and pursuant to the order passed by the Debt Recovery Tribunal.

Summary

Issues:
Challenge to communication prohibiting property transfer due to tax dues and refusal to register sale certificate due to attachment.

Analysis:
1. The petitioner sought to quash a communication from the Income Tax Department prohibiting property transfer and a subsequent refusal by the Sub-Registrar to register a sale certificate due to attachment. The petitioner, a purchaser in a public auction, argued that the property was bought prior to the attachment order and full payment was made.

2. The facts revealed that the property was auctioned following a Debt Recovery Tribunal order, with the petitioner purchasing it for a sum of ?23,25,000. The Debt Recovery Tribunal issued a Certificate of Sale in favor of the petitioner. However, the Income Tax Department later attached the property due to tax dues of ?1,03,32,973 for the Assessment Year 1998-99.

3. The petitioner contended that the attachment was unjustified as the property was already sold in the auction conducted by the Bank, a secured creditor. The petitioner argued that the Income Tax Department cannot have priority over a secured creditor, citing a relevant court decision.

4. The Income Tax Department acknowledged that they cannot claim priority over a secured creditor but defended the attachment due to outstanding tax dues. After hearing both parties, the Court noted that the attachment was made after the property was sold in the auction, and the petitioner was a bona fide purchaser who had paid the full sale consideration.

5. The Court held that the attachment order was invalid as it came after the property was sold in the auction. The Court directed the Sub-Registrar to register the Sale Certificate issued by the Debt Recovery Tribunal in favor of the petitioner. The Court quashed the impugned communications and ruled in favor of the petitioner, emphasizing that the Income Tax Department cannot claim priority over a secured creditor.