2023 (7) TMI 615 - HC - Income Tax

Priority of charges - Recovery of tax dues over secured creditors - Proceedings for attachment of various immovable properties - charge by the financial institutions v/s Income-Tax Department / Commercial Taxes Department - HELD THAT - A Hon'ble Division Bench of this Court had had occasion to consider the question of priority of charges in State Bank of India v Tax Recovery Officer and batch . 2022 (12) TMI 557 - MADRAS HIGH COURT has reiterated the legal position that it is the orders of attachment passed first that would have to be reckoned in order to decide priority. There is consensus of all learned counsel before me, including learned counsel for the Revenue Department that the observations and conclusions of the Division Bench would apply on all forms in the present writ petitions as well, in light of the position that the creation of charge by the financial institutions was long prior to the orders of attachment having been passed by the Income-Tax Department / Commercial Taxes Department. These writ petitions are thus liable to be allowed - The proceedings for attachment of the properties in the respective writ petitions stand quashed.

Summary

Issues Involved:
1. Priority of charges between secured creditors and the Income-Tax Department/Commercial Taxes Department.
2. Validity of attachment orders when mortgages predate such attachments.
3. Specific prayers for writs of mandamus to lift attachments and register sale certificates.

Summary:

Issue 1: Priority of Charges
The primary issue in these writ petitions is the determination of priority between the secured creditors (banks/financial institutions) and the Income-Tax Department/Commercial Taxes Department regarding the attachment of properties. The court reiterated the legal position that "it is the orders of attachment passed first that would have to be reckoned in order to decide priority."

Issue 2: Validity of Attachment Orders
The court noted that in all cases, "the mortgages by the financial institutions in all cases precede the date of orders of attachment by the Income-Tax Department and Commercial Taxes Department, Puducherry." The Division Bench's observations were applied, emphasizing that "the orders of attachment passed by the Tax Recovery Officer / Income Tax Department were subsequent to the mortgage created in favour of the secured creditors and hence, the same will have no legs to stand." Consequently, the court quashed the attachment orders, stating that "these writ petitions are thus liable to be allowed and I do so. The proceedings for attachment of the properties in the respective writ petitions stand quashed."

Issue 3: Specific Prayers for Writs of Mandamus
In two writ petitions [W.P.Nos.11468 of 2017 and 11994 of 2018], the petitioners sought writs of mandamus to lift the attachments and register sale certificates. The court accepted these prayers, referencing the Division Bench decision in State Bank of India v Tax Recovery Officer, and concluded that "the orders of attachment would have to go, and the fact that the orders of attachment have not been challenged would have no consequence in the matter."

Conclusion:
The court allowed all the writ petitions, directing that "the needful be done within a period of four weeks from date of receipt of a copy of this order." The writ petitions thus stand allowed, with no costs, and connected miscellaneous petitions are closed.