1973 (2) TMI 40 - HC - Income Tax

These writ petitions challenge the validity of attachment orders made by the Tax Recovery Officers with respect to the attachment of the properties which stand registered in the names of the petitioners for the recovery of income-tax arrears due from the respective husbands of the petitioners in Writ Petitions Nos. 484 of 1969 and 1144 of 1970, and the father of the petitioner in Writ Petition No. 801 of 1970 - Whether property held benami by third party for the defaulter could be proceeded against for recovery of tax - writ petitions are dismissed

Issues Involved:
1. Validity of attachment orders made by the Tax Recovery Officers.
2. Authority of the Tax Recovery Officer to attach and sell properties registered in the name of a third party.
3. Requirement of a preliminary enquiry before attachment.
4. Specific case analysis of trade marks attached as movable properties.

Detailed Analysis:

1. Validity of Attachment Orders:
The writ petitions challenge the validity of attachment orders made by the Tax Recovery Officers for properties registered in the names of the petitioners, which were attached for the recovery of income-tax arrears due from the respective husbands or father of the petitioners. The petitioners conceded that they were benamidars and the real ownership vested in the defaulters.

2. Authority to Attach and Sell Properties Registered in Third Party's Name:
The primary contention was that the Income-tax Act, 1961, and the Second Schedule do not authorize the Tax Recovery Officer to attach and sell properties registered in the name of a third party. The court analyzed Section 222 of the Income-tax Act and rules in the Second Schedule, which authorize the Tax Recovery Officer to recover arrears by attachment and sale of the defaulter's properties. The court noted that these provisions are in pari materia with Order 21 of the Code of Civil Procedure, which allows the attachment of properties held benami for the defaulter. The court rejected the contention that the department should file a suit to declare the property belongs to the defaulter before attachment, emphasizing that the provisions impliedly authorize attachment and sale of properties held in trust or benami for the defaulter.

3. Requirement of Preliminary Enquiry:
The petitioners argued that a preliminary enquiry should be conducted before attaching properties in the possession of a third party. The court held that Rule 48 and Rule 11 of the Second Schedule do not contemplate a preliminary enquiry before attachment. The rules provide for a posterior enquiry where the claimant can adduce evidence to show their interest in the property. The court emphasized that the Tax Recovery Officer's satisfaction on the real ownership is interim and subject to final determination in an enquiry under Rule 11 and any subsequent suit. The court found no substance in the contention that a preliminary enquiry is necessary, citing the need to avoid duplication of proceedings.

4. Specific Case Analysis of Trade Marks:
In Writ Petition No. 801 of 1970, three trade marks were attached as movable properties. The petitioner claimed that two trade marks belonged to a partnership and were assigned to him and his brother, while the third trade mark was assigned to him individually. The court noted that the petitioner did not advance arguments on the first two trade marks. Regarding the third trade mark, the court acknowledged the assignment but noted that the facts were not presented to the Tax Recovery Officer. The court allowed the petitioner to produce evidence before the Tax Recovery Officer to prove that the defaulter had no interest in the trade mark at the relevant time.

Conclusion:
The court dismissed the writ petitions, holding that properties held benami for the defaulter or in trust for the defaulter are liable for attachment and sale under Section 222 read with the Second Schedule of the Income-tax Act. The court found no requirement for a preliminary enquiry before attachment, emphasizing the sufficiency of the posterior enquiry provided under Rule 11. The petitioners were allowed to present their claims in the enquiry under Rule 11. The petitions were dismissed with costs.

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