2017 (2) TMI 338 - HC - Income Tax

Recovery of dues - Auction purchaser failure to remit the balance consideration of sale - sale in favour of the predecessor-in-interes - Held that - This is a case in which the petitioner has been in possession of the property prior to the date of sale. The petitioner had, in fact, filed a claim petition at the relevant time, which was rejected as per Exhibit P8. The petitioner, admittedly, was in possession of the Cashew factory in the property purchased by him, as is seen from Exhibit P9; a licence issued in the name of the petitioner s father on 22/07/1985. In such circumstance, equity demands that the petitioner be given a chance to settle the entire dues under the IT Act created by the 4th respondent, which also occasioned the charge being created on the property purchased by the petitioner. The respondents 1 to 3 shall, hence, intimate the amounts due as on 10th November, 2016 with any interest accruing to the dues and the petitioner shall be permitted to pay the said amounts within the said period; i.e., on or before 10.11.2016. The intimation of computation of amounts with interest shall be served on the petitioner within three weeks from the date of receipt of a certified copy of this judgment. If the petitioner makes the payment prior to 10/11/2016, deduction in the interest shall also be made so as to compute the interest only till the date of payment. If such payment is made, attachment shall be lifted. It is also directed that if amounts with respect to the dues have already been received, the same shall be deducted; for which the petitioner relies on Exhibit P10. The petitioner then shall be retained and reverted with unencumbered title of the property covered by Exhibits P1 and P2. The balance property covered by Exhibit P 5 shall then be enjoyed by the legal heirs of the 4th respondent or their assignees.

Summary

Issues:
Challenge to auction sale due to non-remittance of balance consideration under Rule 58 of IT Act, 1961; Claim of respondents 5 to 8 regarding injunction preventing balance payment; Dispute over default under IT Act by 4th respondent; Claim of petitioner as bona fide purchaser; Litigation history and delays in auction process; Equity considerations for petitioner in possession of property; Directions for payment of dues and property rights.

Analysis:
The petitioner challenged an auction sale due to the auction purchaser's failure to remit the balance consideration, invoking Rule 58 of the IT Act, 1961. Respondents 5 to 8 argued that an injunction obtained by the petitioner delayed the balance payment, leading to the current willingness to pay. The dispute involved the default under the IT Act by the 4th respondent, with notices issued and property attachment. The petitioner's claim as a bona fide purchaser was disputed, emphasizing the auction purchaser's default in payment.

The judgment delved into the lengthy litigation history, including the auction sale, injunction, suits, appeals, and delays in balance payment. The court noted the auction purchaser's lack of action despite multiple opportunities for payment, leading to the application of Rule 58 and setting aside the sale in favor of respondents 5 to 8. The court highlighted the necessity for a re-auction and the return of the balance amount to respondents 5 to 8 after deducting expenses.

Considering the petitioner's possession of the property pre-sale, the court emphasized equity by allowing the petitioner to settle the IT Act dues to lift the attachment and retain property rights. The judgment directed the computation of dues with interest for the petitioner to settle by a specified date, with consequences for non-compliance. It also addressed the potential return of the 25% deposit to respondents 5 to 8, subject to an application to the Income Tax authorities under Rule 58.

In case of the petitioner's failure to comply with the payment directive, the Income Tax Department was authorized to proceed with auction and sale of properties, with distribution of remaining amounts as per holding extents. The writ petition was allowed with specified directions, leaving parties to bear their respective costs, thereby resolving the complex legal issues and providing a comprehensive resolution to the auction sale dispute.