2017 (12) TMI 1130 - HC - Income Tax

Investigation by Tax Recovery Officer - Held that - Tax Recovery Officer has failed to understand the scope of the provisions of rule 11 of the Second Schedule to the Act, in observing that the matter involved complicated issues and referring the matter for the opinion of the learned standing counsel instead of confining the inquiry to the extent provided under rule 11. Besides, what the Tax Recovery Officer has failed to appreciate is that powers under rule 11 of the Second Schedule to the Act are vested in him and he is required to exercise the same in accordance with the said rule and cannot abdicate his powers in favour of anyone. In the present case, the Tax Recovery Officer, instead of independently exercising powers under rule 11 of the Second Schedule, has abdicated his powers by placing reliance upon the opinion of the learned senior standing counsel and basing his order thereon. Evidently therefore, the Tax Recovery Officer has failed to exercise the jurisdiction vested in him. Under the circumstances, the writ petition under Article 226 of the Constitution of India would be maintainable before this court. In the light of the above discussion, the impugned order dated 3.3.2016 passed by the third respondent Tax Recovery Officer cannot be sustained. The petition, therefore, succeeds and is, accordingly, allowed.

Issues Involved:
1. Maintainability of the petition under Article 226 of the Constitution of India.
2. Interpretation and application of Rule 11 of the Second Schedule to the Income Tax Act, 1961.
3. Jurisdiction and procedural conduct of the Tax Recovery Officer.

Issue-wise Detailed Analysis:

1. Maintainability of the petition under Article 226 of the Constitution of India:

The respondents argued that the petition was not maintainable under Article 226 as the appropriate remedy was to file a suit in a civil court under Rule 11(6) of the Second Schedule to the Income Tax Act. The petitioner contended that the Tax Recovery Officer treated the application as a grievance application and did not exercise jurisdiction under Rule 11, making the petition maintainable. The court concluded that since the Tax Recovery Officer failed to exercise jurisdiction under Rule 11 and misunderstood the scope of his powers, the writ petition under Article 226 was maintainable.

2. Interpretation and application of Rule 11 of the Second Schedule to the Income Tax Act, 1961:

The court examined Rule 11, which mandates the Tax Recovery Officer to investigate claims or objections against the attachment or sale of property. The claimant must show interest or possession of the property at the date of the notice to pay arrears. The Tax Recovery Officer must then determine if the property was in the possession of the defaulter or held in trust for another. The court found that the Tax Recovery Officer did not follow the procedural requirements of Rule 11, failed to conduct an independent investigation, and relied on the opinion of the standing counsel instead of making an independent finding.

3. Jurisdiction and procedural conduct of the Tax Recovery Officer:

The Tax Recovery Officer referred to the opinion of the standing counsel instead of independently exercising his jurisdiction under Rule 11. The court noted that the Tax Recovery Officer must exercise his powers independently and cannot abdicate his responsibilities. The impugned order lacked the necessary satisfaction required under Rule 11(5) and was based on the standing counsel's opinion rather than an independent investigation by the Tax Recovery Officer. Consequently, the court held that the Tax Recovery Officer failed to exercise the jurisdiction vested in him.

Conclusion:

The court quashed the impugned order dated 3.3.2016 and restored the matter to the file of the Tax Recovery Officer, directing him to decide the case in accordance with Rule 11 of the Second Schedule to the Income Tax Act after providing the petitioner with a reasonable opportunity of hearing. The Tax Recovery Officer was instructed to complete the exercise within two months from the date of receipt of the court's order. The petition was allowed, and the rule was made absolute to the extent specified.

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