1969 (1) TMI 3 - SC - Income Tax

Business of manufacture and sale of sugar and supply of electricity - an order for recovery was made under section 46(7) of the Income-tax Act, 1922 - argument that the movables were of no use to any person other than the purchaser of immovable property is without substance - sale of immovable property can not be resorted to only after adopting other methods - assessee s appeal is dismissed

Summary

Issues Involved:
1. Financial difficulties and liabilities of the company.
2. Appointment of the Collector as the authorized controller.
3. Sale of the company's properties.
4. Application to set aside the sale.
5. High Court's judgment on the sale.
6. Compliance with Section 286(2) of the U.P. Zamindari Abolition and Land Reforms Act.
7. Validity of the sale of movables after the sale of immovable property.
8. Impact of the Income-tax Officer's intimation to stay the sale.
9. Company's ability to exercise rights under rule 285-H.

Detailed Analysis:

1. Financial Difficulties and Liabilities of the Company:
The company, engaged in the manufacture and sale of sugar and the supply of electricity, faced significant financial difficulties in 1954, unable to meet its obligations. The principal liabilities included Rs. 81,821-2-0 due as income-tax for the assessment year 1952-53, Rs. 5,64,301-14-9 as sugarcane cess for the years 1952-53 to 1954-55, and Rs. 1,92,053-12-3 due to the Co-operative Development Union Ltd. as arrears of cane price for the year 1954-55.

2. Appointment of the Collector as the Authorized Controller:
By an order dated July 14, 1954, under the Essential Supplies (Temporary Powers) Act, the Government of U.P. appointed the Collector, Deoria, as the authorized controller of the company. The Land Reforms Commissioner later sanctioned the sale of the company's holdings and property to realize Rs. 8,38,176-13-0.

3. Sale of the Company's Properties:
A sale proclamation was issued on October 4, 1955, for the recovery of Rs. 8,38,176-13-0. Initially, only the movables were put up for sale, fetching a highest bid of Rs. 2,75,000. Subsequently, the immovable property was sold for Rs. 23,50,000, and the movables were again sold for Rs. 2,75,000. The Cawnpore Sugar Works Ltd. purchased both lots through their managing agent.

4. Application to Set Aside the Sale:
The company moved an application before the Commissioner under rule 285-I of the U.P. Zamindari Abolition and Land Reforms Rules to set aside the sale, claiming material irregularity or mistake in publishing or conducting the sale. The Commissioner rejected the application, stating no substantial injury was proved due to any irregularity or mistake.

5. High Court's Judgment on the Sale:
The company's petition in the High Court of Allahabad for a writ of certiorari was dismissed. The High Court, in appeal under the Letters Patent, confirmed this order. The judges held differing views on whether Section 286 of the U.P. Zamindari Abolition and Land Reforms Act required the Collector to exhaust processes prescribed by clauses (a) to (e) of Section 279 before selling immovable property. Ultimately, it was concluded that the provision was directory, not mandatory.

6. Compliance with Section 286(2) of the U.P. Zamindari Abolition and Land Reforms Act:
The company's argument that the Collector was bound to exhaust the processes for recovery of arrears prescribed by Section 279 before selling immovable property was rejected. The court held that Section 286(2) does not mandate the Collector to follow a sequence of processes before resorting to the sale of immovable property. The Collector's actions were deemed compliant with the Act.

7. Validity of the Sale of Movables After the Sale of Immovable Property:
The court found no explanation for why the Collector sold the movables after the immovable property fetched Rs. 23,50,000, which was more than the amount required. However, since this issue was not raised before the Commissioner or the High Court, the court did not investigate further.

8. Impact of the Income-tax Officer's Intimation to Stay the Sale:
The company argued that the Income-tax Officer had asked the Collector to stay the sale proceedings for the recovery of income-tax dues. Despite this, the Collector proceeded with the sale. The court found that even without including the income-tax dues, the sale was valid for recovering other significant amounts.

9. Company's Ability to Exercise Rights Under Rule 285-H:
The company claimed it was prevented from exercising its right under rule 285-H due to the purchaser being appointed as the authorized controller. The court noted that the company did not attempt to deposit the required amounts under rule 285-H and that this argument was not raised before the Commissioner or the High Court. The contention was deemed hypothetical and insufficient to set aside the sale.

Conclusion:
The appeal was dismissed, with the court noting that the Collector's actions, including the sale of movables and ignoring the Income-tax Officer's intimation, involved the company in a substantial loss. However, the sale was not proved to be vitiated by any material irregularity or mistake. Each party was ordered to bear its own costs throughout.