2023 (1) TMI 226 - HC - Income Tax

Recovery proceeding - priority of charge - attachment by the Income Tax Department prior to their mortgage in favour of the Bank on 28.06.2016 and hence the mortgage is void in terms of the provisions U/s .281 of the Income Tax Act and the corresponding relevant rules - HELD THAT - It cannot be disputed that the question whether the attachment of the mortgaged property by the Tax Department or any proceedings stood initiated by the Income Tax Department prior to the mortgage are serious questions of disputed facts, which cannot be decided in writ jurisdiction under Article 226. The Income Tax Department was well within its right to seek a declaration of transaction being void before the forum of appropriate jurisdiction before seeking its simple impleadment before this Court, which concededly has not been done till now. Therefore, relegating the parties to seek adjudication on this issue by our order cannot be faulted with by any stretch of reasoning. The Income Tax Department is also free to seek its remedy before the appropriate forum including DRT to establish by leading cogent evidence that the action had been initiated which constituted proceedings prior in time of creation of an equitable mortgage in favour of the Bank so as to seek a declaration of the mortgage being void or the attachment being prior in time so as to seek a priority of charge. The Secured Creditor/Bank would be equally free to stress the impact of Section 26(E) and Section 31(B) of the SARFAESI Act, 2002 qua the priority of the claim. Accordingly, the adjudication before this Court in view of Section 281 of the Income Tax Act is also rejected. However, we observe that the I.T. Department and the parties would be free to raise all these pleas before the DRT for adjudication in accordance with law.

Summary

Issues:
1. Review petitions against a common judgment dated 29.06.2022 in W.P.(C) No.26500 of 2021 & W.P.(C) No.27775 of 2021.

Analysis:
I. Brief facts in RVWPET Nos.156 & 173 of 2022:
The review petitioners sought a review of the judgment as they were aggrieved by the decision against them in the Writ Petitions. The petitioner in RVWPET No.156 was a partnership firm involved in a case where the Tax Recovery Officer-1 claimed not to have been impleaded despite a pending application. The judgment was passed against the petitioner.

II. Brief facts in RVWPET Nos.157 & 174 of 2022:
Similarly, in RVWPET No.157, another partnership firm was involved, and the Tax Recovery Officer-1 claimed non-impleadment despite a pending request. The judgment was also decided against this petitioner.

The review petitioners argued that factual errors had crept into the judgment. They contended that properties were attached by the Income Tax Department before being mortgaged to the Bank, rendering the mortgage void under Section 281 of the Income Tax Act, 1961. They raised issues regarding the auction sale of properties and the timing of attachments by the Income Tax Department.

The Income Tax Department argued that the properties were attached before being mortgaged to the Bank, making the mortgage void. They emphasized that the factual correctness of the assertions regarding the date of mortgage and attachment needed further inquiry.

The Court, after hearing arguments, held that corrections to factual aspects did not warrant a review of the judgment. It emphasized that the right to challenge actions by the Bank or District Magistrate remained with the petitioners. The Court rejected contentions regarding the priority of charge and the absence of the Income Tax Department in the proceedings.

The main argument centered around the properties being mortgaged after attachment by the Income Tax Department, potentially rendering the mortgages void. The Court ruled that such serious questions of disputed facts could not be decided in writ jurisdiction and parties should seek adjudication in the appropriate forums.

In conclusion, the Court found no merit in the review applications and dismissed them, allowing parties to raise their arguments before the Debt Recovery Tribunal for proper adjudication.