2018 (4) TMI 780 - HC - Indian Laws

Recovery proceedings - lease rights were not transferred in favour of the petitioner - attachment of immovable property of a defaulter - sale aftr expiry of three years - Held that - Provisions show that under Section u/s 68B if the sale is not executed within a period of three years after the attachment, the same shall be deemed to have been vacated. Rule 48 mentions attachment of immovable property of a defaulter prohibiting the defaulter from transferring or charging the property in any way and prohibiting all persons from taking all benefits under such transfer or charge fees. Thus, if the facts of the present case are taken into consideration, it is apparent that Section 281 of the Act of 1961 would not come into operation to declare the sale and transfer as void since the provision is only with reference to the pendency of the proceedings before the service of notice under Rule 2 of Second Schedule. Do not agree with the said submission as there is a basic fault in it to the extent that the Rule 16(2) shall be examined on the day when the sale was executed i.e. on 17.11.2006. The attachment was enforceable on that day when the sale was executed between the Company i.e. petitioner and the defaulting company and would be void. The clams of the department being enforceable against the defaulting company the petitioner s attempt to take umbrage of Rule 16(2) is wholly unfounded. On a conjoint reading of Rule 16(1) and 16(2), it is apparent that while Rule 16(1) puts an embargo on the defaulter or his representative in interest to mortgage, charge, lease or otherwise deal with any property belonging to him except with the permission of the Tax Recovery Officer. Rule 16(2) disallows any private transfer or delivery of property attached or of creating any interest therein for any payments to the defaulter of any debt, dividend and other monies contrary to such attachment when all such dealings have been treated as void All cases the Tax Recovery Officers may not have proceeded under 168(b) and has an option to appoint a person as Receiver instead of directing of sale of property in terms of Rule 70 and 71. Admittedly the Receiver has already been appointed on the properties of the defaulting Company which includes the property situated at Alwar thus, there was no occasion for the Tax Recovery Officer to proceed with the sale in terms of 68(b) and the argument of the petitioner relating to the same not being void on account of vacation of the attachment is not made out and in such circumstances, the sale executed in favour of the petitioner has to be treated as void. Even as per Section 222 there is an option for either to proceed with the charge sheet and sale by the Tax Recovery Officer or to appoint a Receiver on the property. However, in view of the fact that Receiver had already been appointed by the Bombay High Court, it is to be presumed that the attachment and sale could not be proceeded further and receiver as appointed by the High Court, would be deemed to do the work in terms of Rule 70 and 71 of the Income Tax, 1961. In view of the law as laid down by Apex Court in Macson Marbles Private Limited cited (2003 (11) TMI 71 - SUPREME COURT OF INDIA), the sale executed in favour of the petitioner results in the petitioner liable to pay the dues as against the defaulting company and, therefore, the demand raised by the department is wholly justified. Income Tax Act provides a complete code in itself and protect the revenue from misadventures which may be taken up by a defaulting person like the Company in the present case.

Summary

Issues Involved:
1. Validity of the attachment of property by the Income Tax authorities.
2. Applicability of Rule 68B of the Second Schedule of the Income Tax Act, 1961.
3. Legitimacy of the transfer of property during the subsistence of the attachment.
4. Rights of the petitioner company in relation to the attached property.
5. Interpretation of relevant legal provisions and precedents.

Issue-wise Detailed Analysis:

1. Validity of the attachment of property by the Income Tax authorities:
The petitioner company challenged the demand notice issued by the Income Tax authorities, which held the petitioner company as an assessee in default due to the outstanding tax dues of Pan Asia Industries Ltd. The properties of Pan Asia were attached on 31.03.2004 by the Income Tax authorities. The petitioner argued that the attachment was not enforceable after three years as per Rule 68B of the Second Schedule of the Income Tax Act, 1961.

2. Applicability of Rule 68B of the Second Schedule of the Income Tax Act, 1961:
The petitioner contended that as per Rule 68B, the sale of immovable property should be made within three years from the end of the financial year in which the order giving rise to the demand was passed. Since the sale was not executed within this period, the attachment should be deemed vacated. The petitioner relied on the Supreme Court judgment in Commissioner of Income Tax Vs. S.V. Gopala Rao & Ors. and other precedents to support this contention.

3. Legitimacy of the transfer of property during the subsistence of the attachment:
The petitioner purchased the lease rights of the industrial plots from Pan Asia Industries Ltd. through a registered sale deed on 17.11.2006. The petitioner argued that since the attachment was deemed vacated after three years, the sale deed executed in their favor should remain intact and not be termed void. However, the respondents contended that the transfer was void as it was made during the subsistence of the attachment, and the petitioner was aware of the outstanding dues.

4. Rights of the petitioner company in relation to the attached property:
The petitioner argued that the RIICO authorities were not justified in withholding the transfer of lease rights to the petitioner company, as the attachment notice had become barred by limitation. The petitioner also submitted that the loan account of Pan Asia with RIICO was already satisfied, and thus RIICO had no authority to withhold the transfer of lease rights.

5. Interpretation of relevant legal provisions and precedents:
The court examined various provisions of the Income Tax Act, 1961, including Sections 281, 222, and relevant rules of the Second Schedule. The court also referred to the judgments cited by both parties. The court held that Rule 68B(4) comes into operation where the sale of immovable property is not made within the prescribed period, but it does not apply if a receiver is appointed instead of directing a sale. The court noted that a receiver had already been appointed by the Bombay High Court for the properties of the defaulting company, including the property in question.

Conclusion:
The court concluded that the attachment was enforceable on the day the sale was executed (17.11.2006) and thus, the sale was void against all claims enforceable under the attachment. The court dismissed the writ petitions, holding that the demand raised by the Income Tax department was justified, and imposed a cost of ?50,000 on the petitioner.