2023 (12) TMI 1231 - HC - Income Tax

Recovery proceedings - Validity of Attachment of property - Encumbrance attachment entry - grievance of the petitioner is that the first respondent has attached the properties of the third and fourth respondents towards the income tax dues for the year 2018-19, and even though the mortgage properties were sold, the encumbrance certificate reflected, as if, there is a clog in the title by virtue of the entries made in the Encumbrance Certificate due to attachment order passed by the first respondent. It is under these circumstances, the present writ petition has been filed before this Court. HELD THAT - It is quite clear from the materials placed before this Court that the properties, which were attached by the first respondent in the year 2018-19, were already a subject matter of mortgage with the petitioner Bank in the year 2015 itself and it is apparent from the particulars that have been extracted supra. It is now too well settled that the Bank as a secured creditor will have a priority over the dues that are payable to the first respondent. The Full Bench judgment of this Court in UTI Bank Ltd 2006 (12) TMI 2 - MADRAS HIGH COURT also took note of the priority of the Bank over the dues as against the crown's debts. The relief as sought for by the petitioner is granted. There shall be a direction to the second respondent to make necessary footnote and delete the attachment entries made by the first respondent. It is made clear that this order will not stand in the way of the first respondent to recover the income tax dues from the third and fourth respondents, if other properties are available for sale and recovery of dues.

Summary

Issues Involved:
The issues involved in the judgment are the attachment of properties by the first respondent towards income tax dues, the priority of the Bank as a secured creditor over such dues, and the request for deletion of encumbrance attachment entries made by the first respondent.

Attachment of Properties for Income Tax Dues:
The petitioner Bank extended financial assistance to the third and fourth respondents against securities registered through mortgage deeds. When the respondents failed to repay the loans, the Bank initiated proceedings under the SARFAESI Act, leading to the sale of mortgage properties. However, the first respondent had attached the properties towards income tax dues for the year 2018-19, causing a hindrance in the sale process and reflecting a clog in the title through encumbrance certificate entries.

Priority of Bank as Secured Creditor:
The Court found that the properties attached by the first respondent were already subject to mortgages with the petitioner Bank in 2015. Referring to past judgments, including one involving Anjani Synthetics Limited, it was established that the Bank, as a secured creditor, holds priority over the income tax department in receiving dues. The Court also cited a Supreme Court decision emphasizing that the Income Tax Act does not provide paramountcy of income tax dues, and the Bank's priority over such dues was upheld.

Deletion of Encumbrance Attachment Entries:
Based on the above findings, the Court directed the second respondent to delete the attachment entries made by the first respondent, allowing the Bank to proceed with the recovery of dues from the sale of properties. The order clarified that this decision does not prevent the first respondent from recovering income tax dues from other available properties of the third and fourth respondents.