2022 (5) TMI 735 - HC - Income Tax

Recovery proceedings - attachment and auction sale of immovable property - petitioner before this Court is that the impugned auction notice dated 27.02.2017 was published on 01.03.2019 does not disclosed the reserve price through fixed the market price - HELD THAT - The arguments advanced on behalf of the petitioner that Rule 52 and 53 (of the II Schedule of the Income tax Act 1961) were not followed cannot be countenanced in the light of the fact that the impugned auction notice clearly stated the terms and condition of the proposed Auction could be downloaded from the website of the Income Tax Department or collected from the office of the respondent Tax Recovery Officer. There is also no violation of Rule 53 (b). As per Rule 53 (b), a proclamation of sale of immovable property is to be drawn up after due notice to the defaulter as to the time and place of sale. The proclamation shall also specify as fairly and accurately as possible the reverse, if any, assessed upon the property or apart thereof. If revenue has not been assessed, question of including the same in the proclamation sale does not arise. In this case the property was admittedly in the hand of one sudhakar jayaraj who had filed W.P. Even according to the petitioner, the property was not used for any business by the petitioner. When the first attempt was made to recover the amount with the issue of auction notice, dated 16.06.2008, there was response - No irregularity committed by the Income Tax Department while auctioning the property. The Income Tax Department also made it very clear that the auction amount will be adjusted toward the tax liability and the interest thereon and the balance if any will be adjusted and payable toward the other state holders namely 234 time share holders, dues to Repco Bank and the tax due to the Commercial Tax Department totalling to Rs.95,02,968/-. Since the amount was recovered from the auction sale is only Rs. 3,38,03,500/-, the third respondent is also bound to pay the amounts due to the 234 time share holders, Commercial Tax Department and Repco Bank. These are the liabilities of the petitioner which the third respondent has undertaken to discharge and therefore, we do not find any irregularity in the auction conducted by the Income Tax Department. There is no merit in the present writ petition.

Issues Involved:
1. Validity of the impugned proclamation of sale deed and consequential notice.
2. Compliance with procedural safeguards under Chapter III of the Second Schedule to the Income Tax Act, 1961.
3. Alleged material irregularity in the auction process.
4. Rights and interests of third parties, including time share holders and other creditors.

Issue-wise Detailed Analysis:

1. Validity of the Impugned Proclamation of Sale Deed and Consequential Notice:
The petitioner challenged the impugned proclamation of sale deed dated 18.01.2019 and the consequential notice dated 01.03.2019, asserting that these were arbitrary, unjust, illegal, and unconstitutional. The petitioner sought to quash these documents and prevent any sale confirmation pursuant to them. The court noted that the petitioner was in arrears of income tax amounting to Rs. 29,84,56,331/- for the period before 2008, and previous attempts to auction the property had failed due to lack of public interest and other complications.

2. Compliance with Procedural Safeguards under Chapter III of the Second Schedule to the Income Tax Act, 1961:
The petitioner argued that the auction notice did not disclose the reserve price, which was a violation of procedural safeguards under Chapter III of the Second Schedule to the Income Tax Act, 1961, specifically Rules 52, 53, and 54. The court examined the procedural requirements and found that the impugned auction notice clearly stated that the terms and conditions could be downloaded from the Income Tax Department’s website or collected from the office. The court held that there was no violation of Rule 53(b), as the proclamation of sale was drawn up after due notice to the defaulter.

3. Alleged Material Irregularity in the Auction Process:
The petitioner contended that the auction conducted on 14.03.2019 was irregular and fetched a lower bid amount due to the non-disclosure of the reserve price. The court referred to the Kerala High Court’s decision in Moni Senan Vs Commissioner of Income Tax, which emphasized the importance of fixing a reserve price to safeguard the interests of the defaulter. However, the court found no material irregularity in the auction process, noting that the property had not evinced public interest in previous auctions and that the auction amount would be adjusted towards the petitioner’s tax liability and other dues.

4. Rights and Interests of Third Parties, Including Time Share Holders and Other Creditors:
The court considered the interests of third parties, including 234 time share holders, Repco Bank, and the Commercial Tax Department, who were also creditors of the petitioner. The court noted that the third respondent, who purchased the property in the auction, was bound to pay the amounts due to these third parties. The court found that the Income Tax Department had made it clear that the auction amount would be adjusted towards the petitioner’s tax liability and other dues, and there was no irregularity in the auction process.

Conclusion:
The court dismissed the writ petition, stating that there was no merit in the petitioner’s arguments. The court found that the auction conducted by the Income Tax Department was valid and that the third respondent was bound to discharge the petitioner’s liabilities to the time share holders, Repco Bank, and the Commercial Tax Department. The connected miscellaneous petitions were also closed.

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