2023 (3) TMI 560 - HC - Income Tax

Recovery proceedings - want of conversion of leasehold right to ownership so as to enable dealing with the land for liquidating demands outstanding against the estate of Nanu Ram Agrawalla, since deceased - revenue submits, no transfer can be permitted as barred by section 281 in Income Tax Act, 1961 as conversion means that the government land will be transferred by the government, to petitioners - Whether estate has income tax dues, to enforce recovery of which there has been attachment of the property? - HELD THAT - The leasehold is likely to have restriction on assignment and transfer of the interest. Petitioners have only leasehold interest and therefore some interest in the land. They seek conversion of their interest to ownership. Petitioners have averred and there has been reliance by revenue, on the averments that on conversion petitioners will deal with the land to pay the demand of revenue. We have before us State claiming recovery of certificate dues from the estate and the revenue claiming recovery of their demand, already put in enforcement by attachment of the property. How far the attachment may be built upon for the revenue to deal with the land is doubtful. Real opposition to recovery by revenue is from State, who wants to recover their certificate dues. The resistance to conversion on contention that late Daulatram Nanuram Agrawalla had applied for conversion by putting in the fees and without waiting for an order of conversion is not a contention that can bear scrutiny, neither for its substance nor because it is in trying to supplement reasons given in impugned order, impermissible as declared by the Supreme Court in Mohinder Singh Gill v. Chief Election Commissioner 1977 (12) TMI 138 - SUPREME COURT Opposition from the Sate being that the lease hold stands attached by revenue - We are convinced that in event petitioners obtain conversion, there will be better chance of recovery by revenue on proceeding with the attachment of land that would then be owned by the estate. On the grounds asserted in impugned order, State cannot sustain its opposition to the claim for conversion. In the facts and circumstances, in event revenue gives permission for the conversion, impugned order will stand set aside and quashed. Upon the permission granted under clause (ii) of the proviso in section 281, State will be bound to cause the conversion within four weeks thereof.

Summary

Issues: Conversion of leasehold right to ownership, outstanding certificate dues, transfer restrictions under section 281 of Income Tax Act, 1961, attachment of property for recovery, relation to other pending cases

The judgment by the Orissa High Court, delivered by Justice Arindam Sinha and Justice Sanjay Kumar Mishra, revolves around the issue of converting leasehold rights to ownership for dealing with outstanding demands against the estate of a deceased individual. The petitioners, as heirs and legal representatives, seek this conversion to liquidate the demands. The State, represented by Mr. A.K. Nanda, opposes the conversion, citing outstanding certificate dues from the estate and attachment of the property for recovery. Mr. T.K. Satapathy, representing revenue, highlights the restriction on transfer under section 281 of the Income Tax Act, 1961, and the need for permission for such conversion. The court notes an indenture from 1998 involving the deceased individual, the subsequent lessor, and the Governor of Orissa, indicating a possible restraint on assignment. The absence of the original lease further complicates the assessment of any restrictions on assignment.

The court delves into the provisions of section 281 of the Income Tax Act, 1961, which allows transfer with the Assessing Officer's permission. The State's refusal for conversion is based on the property's attachment by the Income Tax Department for recovery and its sub-judice status in another case. However, a previous order clarifies that the property is not related to the mentioned case, undermining the State's grounds for opposition. The court acknowledges the likelihood of assignment restrictions on the leasehold and the petitioners' desire to convert their interest to ownership to pay the revenue demands.

The State's argument against conversion includes the deceased individual's hasty application for conversion without approval, deemed illegal. The court dismisses this argument as unsubstantiated and impermissible. The State's primary opposition lies in the recovery of certificate dues and the attachment of the property. The court opines that allowing the conversion could facilitate revenue recovery through the owned land, rendering the State's opposition unsustainable. If revenue permits the conversion, the impugned order will be set aside, and the State must effect the conversion within four weeks. Ultimately, the court disposes of the writ petition in favor of the petitioners, subject to revenue's consent for the conversion.