2023 (1) TMI 490 - HC - Income Tax

Auction of property by the Department to recover tax - Failure to handover the property to the successful bidder of the said property - However, the sale proclamation and the entire proceedings in respect of that property had been set aside by the learned Single Bench in its order dated 30th June, 2016. The Income Tax Department nor the owner of the property had challenged the order passed in the writ petition. - HELD THAT - What is important to note is use of the expression shall , which would mean that the Rule in no uncertain terms states that if the sale of the immovable property is set aside, then the purchaser is entitled for return of the money, which was paid by them together with interest and the determination of interest is to be done by the Tax Recovery Officer. Therefore, to that extent, we agree with the learned Single Bench that it is the Tax Recovery Officer, who has to determine the interest payable. Income Tax Department cannot put the entire matter in cold storage and keep the purchaser running from pillar to post to recover the moneies paid by them towards the purchase price along with interest. It is not clear as to why the possession of the property has not been handed over to the purchaser / appellants. It is the submission on behalf of the Income Tax Department that the appellants/auction purchasers have not approached the department. It would be relevant to take note of Rule 65 of the 2nd Schedule, which deals with sale certificate and sub-Rule (1) states that where a sale of immovable property has become absolute, the Tax Recovery Officer shall grant a certificate specifying the property sold and the name of the person, who at the time of sale is declared to be the purchaser. In terms of sub-Rule (2), such certificate shall set the date on which the sale became absolute. It is a submission on behalf of the Income Tax Department that the sale certificate has been issued and the date on which the sale became absolute, has also been mentioned. If that is so, we find no justification on the part of the Income Tax Department in not handing over vacant possession of the property to the auction purchasers /appellants. We issue the following interim directions - (a) The respondents shall refund the entire purchase money paid by the appellants towards the purchase of the said property together with interest as the Tax Recovery Officer may determine by way of damand draft drawn in favour of the appellant / purchaser not later than 20th January, 2023. (b) The determination of the interest payable by the Tax Recovery Officer as mandated under Rule 64 of the Rules of the 2nd Schedule shall be without prejudice to the rights of the appellants, who will be entitled to question the correctness of the rate of interest, if so advised. (c) The Tax Recovery Officer is directed to file an affidavit as to and under what circumstances, the Income Tax Department has not handed over the property for which sale certificate has already been issued to the appellants and the road blocks, if any, as also the procedure, which are required to be followed in the matter of handing over of the property and whether the property is in the possession of the Income Tax Department, whether it is vacant, etc.

Summary

Issues:
1. Refund of sale price with interest to the appellants.
2. Non-delivery of physical possession of the property to the appellants by the Income Tax Department.

Analysis:

1. Refund of Sale Price with Interest:
The appeal was against an order allowing the sale of properties by the Income Tax Department for recovery of tax dues. The appellants were declared successful bidders for one property, but the sale proclamation for the other property was set aside. The appellants had paid the sale price in 2006, which was not refunded with interest. The learned Single Bench directed the appellants to approach the Tax Recovery Officer for refund, emphasizing expeditious disposal within six weeks. Rule 64 of the 2nd Schedule to the Income Tax Act mandates the return of purchase money with interest if a sale is set aside. The Court agreed that the Tax Recovery Officer should determine the interest payable, as per the rule.

2. Non-Delivery of Physical Possession:
The second grievance was the failure to hand over physical possession of the property to the appellants despite being declared successful bidders. The Court noted that a sale certificate had been issued, making the sale absolute, and the Income Tax Department had no justification for withholding possession. Rule 65 of the 2nd Schedule requires the Tax Recovery Officer to grant a certificate specifying the property sold and the purchaser. The Court issued interim directions for the respondents to refund the purchase money with interest by a specified date and for the Tax Recovery Officer to provide an affidavit explaining the delay in handing over possession, the roadblocks, and the necessary procedures.

The judgment emphasized the strict adherence to the rules governing the refund of purchase money and the delivery of possession in cases where property sales are set aside. The Court's directions aimed to ensure prompt action by the Income Tax Department in refunding the appellants and facilitating the transfer of physical possession of the property without further delay.