1996 (10) TMI 4 - SC - Income Tax

Tax Recovery Officer - partition suit was filed for division of the properties by metes and bounds among the sharers, an attempt was made by the State to have the estate attached for recovery of the tax dues - held that since the income tax and other dues are a first charge on the estate of the deceased, the State had rightly proceeded to recover the tax arrears from the estate before partition - held that executing court had power to proceed with the recovery

Summary

Issues:
1. Validity of the sale of property for recovery of tax dues.
2. Interpretation of section 222 of the Income-tax Act and Schedule II for recovery of tax arrears.
3. Consideration of objections raised under Order 21, rule 90, of the Civil Procedure Code.
4. Justifiability of court interference in directing payment of interest and compensation to auction-purchaser.

Validity of the Sale:
The case involved a dispute regarding the sale of a property to recover tax dues owed by the deceased. The property was sold through public auction, and objections were raised regarding the validity of the sale. The executing court rejected the objections, and the High Court upheld the decision. The Supreme Court dismissed the appeals challenging the sale, emphasizing that the tax dues were a first charge on the estate, and the executing court had the authority to proceed with the recovery and payment to the State.

Interpretation of Income-tax Act and Schedule II:
The appellants argued that the sale was not valid as the tax arrears had been liquidated before the auction. They relied on section 222 of the Income-tax Act and Schedule II for recovery procedures. However, the Supreme Court held that the Tax Recovery Officer did not invoke these provisions as the estate was directed to be sold by consensus to settle the tax dues. The court found no procedural infraction and affirmed the authority of the executing court to proceed with the recovery.

Consideration of Objections under Civil Procedure Code:
The appellants also filed objections under Order 21, rule 90, of the Civil Procedure Code to set aside the sale. These objections were heard together with other related matters. The executing court rejected the objections and extended time for payment of the balance amount. The High Court dismissed the revision petitions challenging this decision, leading to the appeals before the Supreme Court.

Court Interference in Directing Payment:
The appellants sought court interference to direct payment of interest on the deposited amount and compensation to the auction-purchaser due to the property's undervalued sale. However, the Supreme Court declined to interfere, considering the history of the litigation, failed attempts at settlement, and the tax liability issue. The Court found no procedural irregularities and dismissed the appeals without costs, granting six months for the appellants to vacate the property.

In conclusion, the Supreme Court upheld the validity of the property sale for tax recovery, clarified the non-applicability of certain Income-tax Act provisions, rejected objections under the Civil Procedure Code, and declined to interfere in directing additional payments to the auction-purchaser.