1988 (8) TMI 378 - SC - Income Tax

Garnishee order is for a specified sum - sale of property to recover a higher sum makes the garnishee order and the sale void - Revenue, is held responsible to make good the loss of auction purchaser by way of compensation - sum was deposited by the auction-purchaser - auction-purchaser will be entitled to withdraw the said amount unconditionally & will be entitled to get interest on the said amount at the rate of 15% on the amount remained blocked, by way of compensation

Issues Involved:
1. Legality of the garnishee order under section 226(3)(x) of the Income-tax Act, 1961.
2. Validity of the auction sale of M/s. Krishna Kapoor & Co.'s property.
3. Entitlement of the auction-purchaser to compensation.
4. Responsibility of the Revenue and the firm, M/s. Krishna Kapoor & Co., for the compensation.

Issue-wise Detailed Analysis:

1. Legality of the garnishee order under section 226(3)(x) of the Income-tax Act, 1961:
The garnishee order dated December 12, 1984, was passed by the Inspecting Assistant Commissioner (Assessment), Range-II, Amritsar, holding M/s. Krishna Kapoor & Co. as a defaulter for Rs. 8,56,377. The basis of this order was a statement of accounts and a letter from M/s. Indo-Kashmir Carpets & Handicrafts. However, the Enquiry Officer's report revealed that the show-cause notice issued to M/s. Krishna Kapoor & Co. was for Rs. 2,86,450, not Rs. 8,56,377. The Enquiry Officer noted the lack of evidence and verification by the Assessing Officer regarding the amount due. The court found that issuing a garnishee order for a fictitious sum without proper verification and without giving the firm an opportunity to show cause was a nullity. Consequently, the garnishee order was deemed null and void.

2. Validity of the auction sale of M/s. Krishna Kapoor & Co.'s property:
The property of M/s. Krishna Kapoor & Co. was auctioned on January 21, 1986, and purchased by Raja Properties for Rs. 37,81,000. The sale was confirmed on March 14, 1986. However, the court, in its order dated October 12, 1987, set aside the sale, noting that the tax liability had been reduced and paid. The Enquiry Officer's report further substantiated that the garnishee order was based on an unverified and fictitious amount. Therefore, the auction sale held pursuant to such an order was also null and void. The court reiterated that any step taken in enforcement of a null order is also a nullity, rendering the sale invalid.

3. Entitlement of the auction-purchaser to compensation:
The auction-purchaser, Raja Properties, argued that the confirmed sale could not be set aside. However, the court held that since the garnishee order and the subsequent sale were nullities, the auction-purchaser was entitled to compensation. The court ordered the Revenue to refund the auction amount of Rs. 37,81,000 unconditionally to Raja Properties. Additionally, the auction-purchaser was entitled to interest at the rate of 15% per annum for two and a half years, amounting to Rs. 14,17,875, as compensation for the blocked amount.

4. Responsibility of the Revenue and the firm, M/s. Krishna Kapoor & Co., for the compensation:
The court found that the Revenue was responsible for the erroneous garnishee order and the subsequent null auction sale. However, it also noted the misrepresentation by Surinder Nath Kapoor regarding the payment of tax dues. Consequently, the court directed the Revenue to pay Rs. 11,17,875 of the interest amount and M/s. Krishna Kapoor & Co. and/or Surinder Nath Kapoor to pay the remaining Rs. 3,00,000 to the auction-purchaser. The firm was given three months to pay this amount, failing which the auction-purchaser could execute the order and realize the amount by selling the property.

Conclusion:
The civil miscellaneous petition was disposed of with the court directing the refund of the auction amount and compensation to the auction-purchaser. The Revenue and the firm were held jointly responsible for the compensation, reflecting the court's balanced approach in addressing the missteps of both parties. There was no order as to costs.

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