2024 (8) TMI 1082 - HC - Income Tax

Tax liability of the transaction now become the property of the decree holder by virtue of the said consent decree u/s 50C - sale of the property at at the instance of judgement debtor - Respondents has submitted that income tax implication is beyond the scope of the execution case because the decree itself does not provide any such condition as argued by the decree holder/petitioner - HELD THAT - Judgement-debtors have harped on the point that what they did, they did in accordance with the terms of agreement and further, the sale of the property at Park Street at the instance of judgement debtor no. 1 in favour of judgement debtor no. 2 is in accordance with terms of consent decree. If we go through the said terms of consent decree dated 18.05.2018 we shall find that in condition no. 9 it has been mentioned that the property having an office space admeasuring approximately 1314 sq.ft. of 113 Park Street is transferred/allotted to the judgement-debtor no. 2 Smt. Manju Agarwal with the condition that she shall be entitled to use, enjoy and deal with the said premises as owner thereof without any hindrance/objection from any of the parties including deed of partition. All expenses incurred in the above process shall be exclusively borne by Smt. Manju Agarwal. From the condition no. 10 it further appears that neither the plaintiff nor the other defendants shall claim any right, title and interest over the said property in any manner whatsoever and Smt. Manju Agarwal shall be entitled to use, enjoy and/or deal with the same as owner thereof and in the manner as she likes. Therefore, from the above conditions it is revealed that by virtue of the said consent decree the plaintiff, the defendant no. 2 i.e. the decree holder and defendant no. 4 had relinquished their right in connection with the property as mentioned hereinabove and they had given absolute right to Smt. Manju Agarwal to use, enjoy and deal with the said office premises admeasuring 1314 sq.ft as owner thereof without any hindrance and objection, and further she has been given authority to deal with the said property as owner thereof and in the manner as she likes. The relevant deed of conveyance shows that the property was sold by the Nav Technology Pvt. Ltd. being represented by one of its directors, namely, Anmol Agarwal. There is no whisper that the other directors have given such authority to Ms. Anmol Agarwal to transfer the same on her own. There is no reference in the deed regarding any resolution by the other directors or majority of the directors authorising the respondent no. 1 to execute the same on their behalf. There is no signature of other directors confirming/ratifying such transfer. The question is whether a director can convey the property of the company without having such resolution or without confirmation of other directors. No answer to such a question is forthcoming from the side of the judgement-debtors. Whether an executing court can direct the person other than the vendor of a registered deed to shoulder the tax responsibility in connection with a transaction where sale value of the property is lesser than the value of the adopted or assessed by the Authority for the purpose of payment of stamp duty in respect of such transfer? - As per consent decree the Nav Technology Pvt. Ltd. along with other defendants are to execute transfer deed in respect of the office space as aforesaid in favour of Manju Agarwal. As the name of Nav Technology Pvt. Ltd. has been shown as the vendor and as the relevant provisions of the Income Tax Act direct the vendor to shoulder the tax responsibility, we cannot direct the then director or the vendee to shoulder the tax responsibility personally. As the law does not authorise an executing court to say anything palpably against the provisions of Income Tax Act, 1961 the executing court cannot pass such a direction. The undertaking given by the concerned lawyer shows that such undertaking was given against the provisions of law, and even if such undertaking is not respected, this court cannot direct the concerned party to shoulder the tax responsibility since if it does so it would go against the provisions of Income Tax Act, 1961 and also against the intention of the legislature. Therefore, though found that the judgement-debtors did not respect the underlying intention of the parties to the consent decree, the prayer for asking the judgement-debtor no. 2 to shoulder the tax responsibility cannot be allowed at this stage. So far as the other prayers of the instant petition are concerned it appears that evidence is required to prove such factual aspects particularly, the factum of surrender or the quantum of surrender value and so on in respect of the property at the third and fourth floor of P-161, VIP Road, Scheme VII M, Kolkata 700054. Without going through the evidence this court cannot allow the relevant prayers of the decree holder at this stage. Moreover, during the pendency of the execution proceeding admittedly some obligations of the consent decree as imposed upon the judgement-debtors have been complied with, and as the court is not apprised of specifically which portions of the obligations have been complied with by the judgement-debtors, from the side of the decree holder, the other prayers of the GA also cannot be allowed.

Summary

Issues Involved:
1. Tax liability arising from the transfer of property.
2. Compliance with the consent decree.
3. Validity of the deed of conveyance.
4. Execution of share transfer deeds.
5. Surrender value of tenancy rights.

Issue-wise Detailed Analysis:

1. Tax Liability Arising from the Transfer of Property
The decree-holder filed IA No. GA 1 of 2024 alleging that the transfer of office space by Nav Technology Pvt. Ltd. to the judgment-debtor no. 2 was significantly undervalued, implicating tax liabilities under Section 50-C of the Income Tax Act, 1961. The decree-holder sought an undertaking from the judgment-debtors to bear the tax liability. Despite initial undertakings by the judgment-debtor's counsel, the judgment-debtor later refused to submit such an affidavit. The court, referencing various judicial decisions, concluded that it could not direct the judgment-debtor to shoulder the tax responsibility as it would contravene the provisions of the Income Tax Act, 1961.

2. Compliance with the Consent Decree
The consent decree dated 18.05.2018 outlined several obligations, including the transfer of shares and properties. The decree-holder argued that the judgment-debtors failed to comply with these terms, particularly regarding the tax liability. The court noted that several terms of the decree had been complied with, but not all. The court emphasized that the judgment-debtors' inconsistent stands and failure to respect undertakings given by their counsel were problematic. However, the court could not enforce a tax liability that contradicted statutory provisions.

3. Validity of the Deed of Conveyance
The court scrutinized the deed of conveyance executed by Anmol Agarwal, a director of Nav Technology Pvt. Ltd., transferring the property to Manju Agarwal. The court found no evidence of authorization from other directors or a company resolution, raising questions about the validity of the transfer. The court highlighted that the consent decree required all defendants to execute necessary documents for the transfer, which was not adhered to, indicating a lack of due process.

4. Execution of Share Transfer Deeds
The decree-holder requested the court to direct the judgment-debtors to hand over duly signed share certificates of Nav Technology Pvt. Ltd. The court recorded multiple instances where the judgment-debtors' counsel assured compliance but failed to deliver. The court noted the decree-holder's right to these shares but did not issue a final directive due to the need for further compliance and evidence.

5. Surrender Value of Tenancy Rights
The decree-holder sought the surrender value received by the judgment-debtors for tenancy rights at a property on VIP Road, Kolkata, alleging a violation of the settlement terms. The court found that factual evidence was required to substantiate these claims, which was not presented. Consequently, the court could not grant this prayer without further investigation.

Court's Conclusion:
The court dismissed IA No. GA 1 of 2024, stating that it could not direct the judgment-debtors to shoulder the tax liability as it would contradict the Income Tax Act, 1961. The court also highlighted the need for evidence to address other claims, such as the surrender value of tenancy rights. The court allowed the decree-holder liberty to mention the matter before the appropriate Bench for further hearing of the execution proceedings.