2016 (11) TMI 889 - HC - Income Tax

Attachment orders - recovery of dues - Time limit for sale of attached immovable property. - Held that - When the reference made by the Revenue was disposed of on 10.08.2010, the sale of immovable property should have been made within a period of three years from the end of the financial year as mandated under Rule 68B to Second Schedule to the Act, which provides no sale of immovable property under this part after the expiry of three years from the end of financial year in which the order giving rise to demand of any tax, interest, fine/penalty or any other sum, has become final. Sub rule (4) of Rule 68B of II Schedule further clarifies that where the sale of immovable property has not been made within three years as required under Rule 68B to Second Schedule to the Act, the effect would be the attachment order of the said property deemed to be vacated. When the provision is very clear which covered the field, the continuation of the order of attachment Annexure-E till date is not proper. For the purpose of calculating three years it would be from the end of financial year on which the order was passed i.e. 10.08.2010, the end of the financial year would be 31.03.2011. Hence, the Demand Notice and Order of Attachment Annexure-E dated 28.02.2013 were no doubt issued within time, by virtue of Rule 68B (4) to Second Schedule to the Act has expired by 31.03.2014. In view of the above, Annexure-E order of attachment of immovable properties stands vacated.

Summary

Issues:
1. Interpretation of Rule 68B to Second Schedule of the Income Tax Act, 1961 regarding the timeline for sale of immovable properties after a demand order.
2. Validity of an attachment order issued by the Revenue beyond the prescribed timeline.

Analysis:
The judgment by the High Court of Karnataka dealt with the interpretation of Rule 68B to Second Schedule of the Income Tax Act, 1961 concerning the sale of immovable properties following a demand order. The Revenue had previously approached the Court in certain matters which were disposed of, allowing the references made by the Revenue. Subsequently, the respondent-Revenue issued a Demand Notice for the sale of immovable properties based on a Division Bench order. The petitioner contested this by arguing that no sale had been made within the stipulated three-year period as required by Rule 68B. The petitioner relied on a judgment from the High Court of Madras to support their argument that the Revenue cannot act beyond the period prescribed by law unless specifically provided for in the Act.

In response, the counsel for the respondent supported the Demand Notice for the attachment of immovable properties and opposed the petitioner's plea to set aside the attachment order. The Court, after considering the arguments, referred to Rule 68B of the Second Schedule, which mandates that if the sale of immovable property is not completed within three years, the attachment order is deemed vacated. The Court clarified that the three-year period should be calculated from the end of the financial year in which the order was passed. As per the Rule, the attachment order issued on 28.02.2013 should have been vacated by 31.03.2014. Therefore, the Court concluded that the attachment order stood vacated as it exceeded the prescribed timeline, and accordingly disposed of the petition in favor of the petitioner.

This judgment highlights the importance of adhering to the timelines set out in tax laws, specifically regarding the sale of immovable properties following a demand order. It underscores the significance of statutory provisions in determining the validity of Revenue actions and emphasizes the need for strict compliance with the prescribed legal timelines to avoid undue extensions of attachment orders beyond the statutory limits.