2005 (9) TMI 38 - HC - Income Tax

Where an immovable property attached for recovery of any tax, interest, penalty or any other sum under the Income-tax Act, 1961 is sold beyond the period of limitation prescribed by rule 68B of the Second Schedule to the Income-tax Act, 1961, whether such sale is a valid sale - the petition succeeds. The sale of the immovable property held on March 30, 2004 beyond the period of limitation prescribed under rule 68B of the Second Schedule of the Income-tax Act is quashed and set aside. We are not expressing any opinion as to whether the said immovable property can be attached again and sold for recovery of the dues, because, that is not an issue raised in this petition

Summary

Issues:
Validity of sale of immovable property for tax recovery beyond the prescribed limitation period under the Income-tax Act, 1961.

Detailed Analysis:
The judgment concerns the validity of the sale of an immovable property for tax recovery beyond the limitation period prescribed by rule 68B of the Income-tax Act, 1961. The petitioner, a partner in a firm, had huge tax demands raised against the firm for the assessment years 1986-87 and 1987-88. The Tax Recovery Officer attached the petitioner's residential flat for recovery of the firm's dues. Despite multiple attempts at auctioning the property, the sale did not materialize until a proclamation of sale on February 23, 2004, with the auction scheduled for March 30, 2004. The petitioner objected, citing that the sale exceeded the five-year limitation period from the finality of the demand, which was June 15, 1994, as confirmed by the Income-tax Appellate Tribunal.

The petitioner argued that the sale on March 30, 2004, was beyond the five-year limitation period as per rule 68B of the Income-tax Act. The Revenue contended that the limitation period started from the dismissal of a miscellaneous application on May 19, 1998, and thus, the sale was within the prescribed period. The court analyzed rule 68B, emphasizing the obligation on the Revenue to complete the sale of attached properties within the specified time frame. The rule was introduced to set a three-year time limit for such sales, with provision for a one-year extension in certain cases.

The court determined that the limitation period for the sale commenced from the finality of the demand on June 15, 1994, and not from the dismissal of the miscellaneous application in 1998 as argued by the Revenue. The court noted that the miscellaneous application did not stay the recovery or auction process, thus not falling under the exclusion criteria in rule 68B(2). Consequently, the sale on March 30, 2004, was deemed invalid as it exceeded the prescribed limitation period.

The court rejected the Revenue's argument of delay in filing the petition, stating that the petitioner had raised the limitation issue before the sale was confirmed. The court quashed the sale held on March 30, 2004, beyond the limitation period, without affecting the Revenue's right to pursue recovery through lawful means. The judgment clarified that setting aside the sale did not preclude the Revenue from recovering its dues through appropriate legal procedures.

In conclusion, the court allowed the petition, setting aside the sale of the immovable property conducted beyond the limitation period prescribed under rule 68B of the Income-tax Act. The judgment highlighted the importance of adhering to the statutory time limits for the sale of attached properties for tax recovery, ensuring procedural fairness and legal compliance.