2018 (3) TMI 388 - HC - Income Tax

Recovery of tax dues of defaulter from the purchaser of property - Interpretation of clause (iii) of sub-rule (2) of Rule 68B of the Second Schedule to the Income Tax Act - Remedy of writ under Article 226 - Held that - It is seen that the purpose of sub-rule (2) of Rule 68B is to exclude the period during which the Tax Recovery Officer is prevented from continuing the proceedings for realisation of the tax arrears by virtue of orders passed by Courts as also the period during which it is inappropriate for the Tax Recovery Officer to continue the proceedings for realization of the tax arrears on account of the pendency of the proceedings challenging the decisions taken by the Tax Recovery Officer, irrespective of the fact as to whether there is any interim order in such proceedings or not, while computing the outer time limit provided for under sub-rule (1) of Rule 68B. Looking at the issue in the above perspective, I have no doubt that the proceedings are liable to be treated as proceedings falling within the scope of the expression appeal contained in Clause (iii) of subrule (2) of Rule 68B of the Second Schedule. Any other interpretation of the said provision would go against the principle that he who prevents a thing from being done shall not avail himself of the non-performance he has occasioned. The question aforesaid is thus answered accordingly. Remedy of writ under Article 226 is extraordinary and discretionary and that the exercise of discretion to issue a writ shall be for the purpose of granting an equitable relief to the party. It is equally well established that the power under Article 226 may not be exercised by the court to strike down an illegal order or action although it would be lawful to do so, if the exercise of the jurisdiction in a given matter would resurrect a grave illegality or would work out injustice to others. High Court cannot be oblivious of the conduct of the party invoking the remedy while exercising the said jurisdiction. In the instant case W.P. was instituted by the petitioner with an undertaking that he would liquidate the entire tax arrears of the defaulter. Had the petitioner not made such an undertaking when the said matter was taken up for hearing, this Court would not have entertained the said writ petition in exercise of the discretionary power and in that event, the Revenue would have at least received the balance sale consideration from the successors of the auction purchaser who were willing to pay the same as indicated in the judgment in the writ petition. Having obtained a favourable order in the writ petition, the petitioner changed his stand and refused to liquidate the tax arrears of the defaulter. This is not a fit case at all for exercise of the discretionary jurisdiction of this Court under Article 226 of the Constitution.

Summary

Issues Involved:
1. Interpretation of clause (iii) of sub-rule (2) of Rule 68B of the Second Schedule to the Income Tax Act.
2. Validity of the attachment and subsequent sale of the property.
3. Computation of the period for the sale of attached immovable property.
4. Petitioner's right to challenge based on Rule 68B.
5. Maintainability of the writ petition.

Detailed Analysis:

1. Interpretation of clause (iii) of sub-rule (2) of Rule 68B of the Second Schedule to the Income Tax Act:
The pivotal question in this matter relates to the interpretation of clause (iii) of sub-rule (2) of Rule 68B. The court examined whether the term "appeal" in this clause includes all proceedings challenging the decisions of the Tax Recovery Officer, including suits, appeals, and review petitions. The court concluded that the term "appeal" should be interpreted broadly to include all such proceedings, ensuring that the period during which these proceedings are pending is excluded from the computation of the limitation period for the sale of the attached property.

2. Validity of the attachment and subsequent sale of the property:
The property in question was attached on 16.10.1985 due to unpaid tax arrears. The petitioner and his father purchased parts of this property through sale deeds executed in September and October 1985. The Tax Recovery Officer rejected their claim petition, stating that the attachment relates back to the date of the demand notices served on the defaulter, making the sale deeds void against the attachment. The court upheld this view, emphasizing that the attachment takes effect from the date of the notice, rendering any subsequent sale deeds void as against claims enforceable under the attachment.

3. Computation of the period for the sale of attached immovable property:
The court analyzed Rule 68B, which stipulates a three-year period from the end of the financial year in which the order giving rise to the demand becomes conclusive. The petitioner argued that this period should be reckoned from 31.3.1990, making the subsequent sale invalid. However, the court noted that the period during which any appeal or related proceeding is pending should be excluded. Given the extensive litigation history, including suits, appeals, and review petitions, the court found that the proceedings initiated by the Tax Recovery Officer were not barred by Rule 68B.

4. Petitioner's right to challenge based on Rule 68B:
The petitioner contended that the sale of the property was barred by Rule 68B. However, the court observed that this argument was available to the petitioner during earlier proceedings but was not raised. Consequently, the petitioner could not now challenge the proceedings solely on this ground. The court emphasized that the petitioner had previously undertaken to pay the tax arrears to save the property, and his subsequent refusal to do so undermined his position.

5. Maintainability of the writ petition:
The court highlighted several reasons why the writ petition was not maintainable. Firstly, the petitioner’s failure to raise the Rule 68B argument in earlier proceedings precluded him from doing so now. Secondly, the sale deeds on which the petitioner based his claim were void due to the prior attachment. Thirdly, the petitioner’s conduct, including his undertaking to pay the tax arrears and subsequent refusal, did not warrant the exercise of the court’s discretionary jurisdiction under Article 226 of the Constitution. The court concluded that the writ petition was devoid of merits and dismissed it.

Conclusion:
The court dismissed the writ petition, upholding the Tax Recovery Officer's actions and interpreting Rule 68B to include all relevant proceedings in the computation of the limitation period for the sale of attached immovable property. The petitioner’s claims were found to be invalid due to the prior attachment and his conduct in the proceedings.