2017 (8) TMI 749 - HC - Income Tax

Recovery of tax dues from the wife of deceased - earlier auction proceedings of the defaulter s property was stayed - While the stay order was in force the defaulter transferred the property - Subsequently, the Purchaser expired - validity of sale - The writ petition was dismissed by the learned Single Judge, mainly concluding that the defaulter having transferred the property, did not have locus standi to maintain an appeal under Rule 86 - Held that - Admittedly, the sale was on 12.5.1995. On 12.5.95 purchaser was declared to be successful and, therefore, she deposited 25% of the purchase money and thus complied with Rule 57(1). She ought to have deposited the balance amount within 15 days thereafter. Contention of the Department and the purchaser that the interim order passed by this court on 12.5.95 prevented the authorities from accepting the balance sale consideration within the 15 days period if accepted in favour of the Income Tax Department and the purchaser, that benefit can extend only till 18.2.2005 when the stay was vacated by this court. Then also, the Purchaser or it being the estate left behind by the Purchaser, who had expired in the meantime, his legal heirs, had the duty to comply with the requirements of Rule 57(2) within 15 days thereafter. The wife of the deceased Purchaser, who also held power of attorney of the other legal heirs of the deceased, did not deposit the balance amount within the 15 days period specified in Rule 57(2), even if the said period is reckoned from 18.2.2005, when the order of stay was vacated by this court. Evidently, therefore, there is non compliance of the mandatory provisions of Rule 57(2) attracting the consequences of such default. This means that the confirmation of sale, ordered on 29.3.2005 is of a void sale and the sale certificate issued on 30.9.2005 being a dependent order is also void and is of no consequence. Any private alienation after notice under Rule 2 has been served on the defaulter, except with the permission of the Tax Recovery Officer shall be void. Sale admittedly was without the permission of the Tax Recovery Officer. Therefore, and as rightly contended by the counsel for the Revenue, the sale is void at least as against the Revenue. If that be so, insofar as the proceedings between the appellant and the Revenue are concerned, the appellant is fully entitled to maintain legal proceedings impugning the sale and the further proceedings. Therefore, this contention is only to be refuted and we do so. For all these reasons, we are inclined to think that the learned Single judge erred in dismissing the writ petition filed by the appellant. Accordingly, the judgment under appeal is set aside and Ext.P22 order passed by the first respondent is also set aside. The writ appeal is allowed as above.

Summary

Issues Involved:
1. Validity of the sale of immovable property under the Income Tax Act.
2. Compliance with mandatory rules for deposit of auction money.
3. Locus standi of the appellant to challenge the sale.
4. Impact of private alienation of property post-attachment notice.

Issue-wise Detailed Analysis:

1. Validity of the sale of immovable property under the Income Tax Act:
The court examined the sale of 5.25 acres of land in Thrissur district, which was auctioned on 12.05.1995 to recover tax dues from the defaulter. The sale was conducted under the IInd Schedule to the Income Tax Act, 1961. The purchaser deposited 25% of the bid amount immediately but could not deposit the remaining 75% within the stipulated 15 days due to a stay order from the court. The stay was vacated on 18.12.2005, and the balance amount was paid on 28.03.2005. The court held that the sale was void due to non-compliance with mandatory provisions of Rule 57(2), which requires the full amount to be paid within 15 days of the sale. Consequently, the confirmation of the sale and the sale certificate were also deemed void.

2. Compliance with mandatory rules for deposit of auction money:
The court emphasized that the provisions of Rule 57 and 58 of the IInd Schedule are mandatory. Rule 57(1) requires a 25% deposit immediately after the auction, and Rule 57(2) mandates the payment of the remaining amount within 15 days. The court cited several precedents, including the Supreme Court's ruling in Manilal Mohanlal Shah v. Sardar Sayed Ahmed Sayed Mahmad, which held that non-compliance with these rules renders the sale void. The court reiterated that these rules are not merely directory but mandatory, and any breach results in the sale being non-est in the eyes of the law.

3. Locus standi of the appellant to challenge the sale:
The appellant, the deceased defaulter's husband, challenged the sale's validity. The court rejected the contention that the appellant lacked locus standi due to the transfer of the property to a third party during the stay period. It was held that the transfer was void under Rule 16 of the IInd Schedule, which prohibits private alienation of attached property without the Tax Recovery Officer's permission. Therefore, the appellant retained the right to challenge the sale.

4. Impact of private alienation of property post-attachment notice:
The court examined the transfer of the property by the defaulter to a third party during the stay period. Rule 16 of the IInd Schedule declares any private transfer of attached property void against the claims enforceable under the attachment. Since the transfer was without the Tax Recovery Officer's permission, it was deemed void. Consequently, the assignee of the property could not derive any benefit from the transfer and lacked standing to challenge the proceedings initiated by the Income Tax Department.

Conclusion:
The court allowed W.A.551/15, setting aside the order passed by the Chief Commissioner of Income Tax and the judgment of the learned Single Judge. The sale and subsequent proceedings were declared void due to non-compliance with mandatory provisions. W.A.588/15, filed by the assignee of the property, was dismissed, affirming that the assignment was void under Rule 16 of the IInd Schedule.