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2024 (6) TMI 74 - HC - Income TaxLegal Right to Challenge Auction - Property belongs to HUF or not? - Validity of Recovery Certificate and Auction Proceedings - auction purchasers in knowledge of the proceedings pending before this Court as well as before the Delhi High Court or not? - member of the Hindu Undivided Family ( HUF ) assailing the auction of sale conducted by the respondents of the properties owned by the HUF and individually by the members of the HUF to recover the tax assessed against the HUF - HELD THAT - The argument of respondent No. 7 that the present petition filed by HUF would not be maintainable because the objection petitions were filed by the coparceners who had in their objection petitions also contended that the properties do not belong to the HUF and could not therefore be sold in auction and relying on said contention, the auction purchaser/respondent No. 7 raises point of locus standi of petitioner-HUF is not acceptable who has himself purchased the property in auction relating to a demand raised by the revenue against the HUF resulting in the auction. A look at the certificate of sale reveals that the same specifically mentions all the list of properties of M/s Gokal Chand Rattan Chand-HUF to the purchaser, he, therefore, cannot turn around and argue that the property was not that of HUF. When the revenue itself recognized the property to be that of HUF, it would be HUF alone and none else who can challenge such an auction. The law cited by learned senior counsel in Bokaro and Rambur s case ( 1962 (3) TMI 133 - SUPREME COURT (LB) is therefore found to be not applicable to the facts of the present case. Thus, we hold that the petitioner had a legal right available to challenge the auction by way of present writ petition and the preliminary objection is accordingly rejected. Petitioner had objected to the imposition of tax by reassessment - Out of the total demand raised part amount had already been paid before the auction was conducted. An information in this regard was given to the TRO and to the Appellate Authority too but it proceeded to ignore and confirm the sale in favour of the auction purchasers. Thus, the entire basis of auction is based on fictitious demand and therefore, the entire auction proceedings are held to be nullity in the eyes of law. As per the principles of lis pendens, the action taken during the pendency of the issue being alive in Court, would be at one s own risk and costs and no equity or right can be said to be created in favour of such person who knowingly proceeds to make construction or investment thereto. Principle of Lis Pendens and Auction Purchasers' Rights - The principle of lis pendens has been incorporated in Section 52 of the Transfer of Property Act, 1882. It was known to one and all about the reference pending. The auction purchasers were also in knowledge of the orders passed by the TRO where contention had already been raised by the petitioner about the reference being pending in the Delhi High Court. In fact the writ petition filed before this Court in 1989 impleads the auction purchaser but they have chosen not to participate in the proceedings before the Delhi High Court. This Court had also stayed the proceedings initially but on an application moved by the respondents, the stay was vacated. Hence, it cannot be said that the auction purchasers were not in knowledge of the proceedings pending before this Court as well as before the Delhi High Court and they had, therefore, proceeded at their own risk and costs in developing and selling their properties further. Any action taken pendent lite, would, therefore, be subject to the decision of the case and it cannot be said that the auction had attained finality. We, therefore, hold that no right is created in favour of the auction purchasers. Even at the time of admitting of the present petition and vacating the interim order, this Court was very cautious that no right is created in favour of the auction purchasers, while observing that if any of the auction purchasers would like to raise any construction, they will do so at their own peril . Delhi High Court has set at naught the complete proceedings initiated by the Income Tax Authorities against the petitioner and it stands concluded that the petitioner was not required to pay any additional tax and the additions of Rs. 5 Lakh to their income was found to be unjustified. Restoration of Property and Compensation - The petitioners have been fighting for their justifiable cause since 1960. They cannot be deprived of their rightful claim to their own properties. The contention of learned counsel for the respondents of having offered refund along with interest cannot be in any manner to be a suitable substitute to the return of the properties. A person whose property is put to auction by the Income Tax Authorities not only faces financial loss but also suffers from loss of his esteem in the public but while the same cannot be redeemed in spite of a final adjudication in favour of the assessee. We are maintaining the balance of justice by returning back the properties. The concept of taking over and putting to auction properties of persons who were not able to pay the tax without waiting for the result of appeal, is found to be based on the law as the Britishers before independence had initiated. It is by the aforesaid modus operandi that the properties of many rulers had been acquired by the Britishers and the officers of the East India Company. A new interpretation needs to be introduced. However, Hon ble the Supreme Court in Surinder Nath Kapoor s case 1988 (8) TMI 378 - SUPREME COURT and Mohan Wahi s case 2001 (3) TMI 4 - SUPREME COURT has charted a new path of interpretation relating to auctions conducted in cases relating to demand of tax. Thus, where the properties are put to auction without awaiting the final result in appeals and ultimately, it is found by the appellate authority that no tax was payable, the properties ought to be restored and the normal rule as laid down with regard to auctions conducted in favour of decree holders would not be applicable. Writ petition is allowed and orders are set aside and thus quashed. The respondents are directed to restore the properties of the petitioner-HUF from the auction purchasers and subsequent purchasers/assignees or persons to whom interest have been devolved. Any transfer of property done after the auction by the auction purchasers, shall be treated as void ab initio and the title and ownership of the properties shall be restored in the name of the petitioner-HUF. It is made clear that no civil court would be empowered to pass any orders in favour of any person, who has acquired any right on the properties after the auction conducted on 31.10.1985 and 15.11.1985. ITO would be responsible to take appropriate measures for the said purpose. The Income Tax Authorities would be required to refund the auction price obtained in auction from the auction purchasers along with interest @ 15% per annum as prevalent in the year 1985. The order shall be implemented within one month failing which the petitioner would be free to initiate contempt proceedings without further notice. The petitioner is also held entitled to costs of Rs. 1,00,000/- to be paid by the income tax authorities. The reference has been answered in favour of the petitioner and the assessment order and demand of interest has become nullity in the eyes of law.
Issues Involved:
1. Maintainability of the writ petition and locus standi of the petitioner. 2. Validity of the auction of properties for tax recovery. 3. Compliance with procedural requirements under the Income Tax Act, 1961, and related rules. 4. Application of the doctrine of lis pendens and rights of auction purchasers. Summary: 1. Maintainability of the Writ Petition and Locus Standi of the Petitioner: The court rejected the contention that the writ petition filed by the Hindu Undivided Family (HUF) was not maintainable. It was held that the petitioner had a legal right to challenge the auction since the properties were recognized by the revenue as belonging to the HUF. The preliminary objection regarding locus standi was thus rejected. 2. Validity of the Auction of Properties for Tax Recovery: The court found that the ex-parte order passed by the ITAT on 23.07.1979, which led to the issuance of the recovery certificate on 14.12.1979, was set aside. Consequently, any action based on this order, including the auction, was void ab initio. The subsequent order by the ITAT on 11.04.1983 required a fresh demand notice and recovery certificate, which was not issued. The court concluded that the TRO acted unjustifiably in conducting the auction based on the original demand of Rs. 11,98,848/-, which was incorrect and illegal. 3. Compliance with Procedural Requirements: The court observed that the TRO violated several procedural requirements under the Income Tax Act, 1961, and related rules. It was held that the TRO should have amended the recovery certificate to reflect the payments already made by the petitioner. The auction proceedings were found to be conducted in haste and in violation of mandatory rules, making the entire auction process null and void. 4. Application of the Doctrine of Lis Pendens and Rights of Auction Purchasers: The court applied the doctrine of lis pendens, holding that any action taken during the pendency of the legal proceedings was at the auction purchasers' own risk. The auction purchasers were aware of the ongoing litigation and thus could not claim to be bona fide purchasers without notice. The court held that no rights were created in favor of the auction purchasers, and the properties should be restored to the petitioner-HUF. Conclusion: The writ petition was allowed, and the orders dated 23.07.1979, 12.12.1985, and 17.05.1988 were set aside. The court directed the respondents to restore the properties to the petitioner-HUF and refund the auction price to the auction purchasers with interest at 15% per annum. The petitioner was also awarded costs of Rs. 1,00,000/-.
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