1976 (5) TMI 17 - HC - Income Tax

Summary

Issues Involved:
1. Validity of the auction proceedings for the sale of properties.
2. Jurisdiction of the Tax Recovery Officer to hold and confirm the sale.
3. Validity of the sale proclamation.
4. Legality of selling the petitioner's property for the arrears of the managing director.
5. Compliance with relevant provisions of the Income-tax Act, 1961, and its Second Schedule.
6. Petitioner's objections and alternative remedies.

Detailed Analysis:

1. Validity of the Auction Proceedings for the Sale of Properties:
The petitioner contested the auction proceedings initiated to recover arrears of income-tax dues amounting to Rs. 56,628 against the company and Rs. 8,905 against the managing director. Despite representations against the initial notice, a sale proclamation was issued, and the property was auctioned for Rs. 65,000, which was not confirmed due to the bid being lower than the reserve price. Subsequent auctions were postponed, and a final sale took place on December 14, 1972. The petitioner sought the quashing of the auction proceedings, the confirmation order, and the sale certificate.

2. Jurisdiction of the Tax Recovery Officer to Hold and Confirm the Sale:
The petitioner argued that the Tax Recovery Officer had no jurisdiction to hold or confirm the sale after a stay order was issued by the Officiating Additional Commissioner of Income-tax on November 25, 1972. The respondents claimed the telegram staying the sale was received after the sale had occurred. The court found that the sale proceeded despite the stay order, raising questions about the jurisdiction and validity of the Tax Recovery Officer's actions.

3. Validity of the Sale Proclamation:
The petitioner contended that the sale proclamation was vague and did not comply with the requirements of the Income-tax Act, 1961. The sale proclamation mentioned an amount of Rs. 62,513 due from the petitioner, which included dues against both the petitioner-company and the managing director. The court examined the provisions of sections 222(1) and 224, and Schedule 2 of the Income-tax Act, 1961, concluding that the sale proclamation was invalid as it combined dues from two separate assessees.

4. Legality of Selling the Petitioner's Property for the Arrears of the Managing Director:
The court emphasized that the properties in question were sold to recover arrears from both the petitioner and the managing director. The relevant rules under the Second Schedule of the Income-tax Act, 1961, do not permit the Tax Recovery Officer to combine recovery certificates for different assessees into a single sale proclamation. The court held that the sale of the petitioner's property for the dues of another person (the managing director) was illegal and contrary to the provisions of the Act.

5. Compliance with Relevant Provisions of the Income-tax Act, 1961, and its Second Schedule:
The court analyzed the relevant provisions, including sections 222(1) and 224, and rules under the Second Schedule, such as rules 2, 8, 9, 53, 56, 60, 61, and 63. The court concluded that the Tax Recovery Officer's actions were not in compliance with these provisions, particularly rule 53, which requires the sale proclamation to specify the amount due from the defaulter alone.

6. Petitioner's Objections and Alternative Remedies:
The petitioner had filed objections to the sale, which were rejected by the Tax Recovery Officer on the grounds that the petitioner had not deposited the amount due. The court noted that requiring the petitioner to deposit the combined dues of both the petitioner and the managing director to challenge the sale was unreasonable. The court also considered the argument that the petitioner should seek alternative remedies, such as an appeal under rule 86, but found it unjust to require this given the circumstances and the timing of the petition.

Conclusion:
The court allowed the petition, quashing the impugned sale, the confirmation thereof, and the sale deed executed in favor of the auction purchaser. The court held that the entire procedure, from the sale proclamation to the confirmation of the sale, was invalid and without jurisdiction due to the sale of the petitioner's property for arrears not due against him. The petitioners were awarded costs.