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TMI Blog2001 (3) TMI 4X X X X Extracts X X X X X X X X Extracts X X X X ..... s collapsing in the year 1967. The partners left Varanasi, and migrated elsewhere. In the year 1972, income-tax assessments of the firm UPCC were finalised for the assessment years 1967-68 to 1969-70. Recovery certificates were issued in 1973-74 pursuant whereto the house property was attached. On December 3, 1979, a proclamation for sale of the property was issued setting out a demand of Rs. 30,82,000 and upset price at Rs. 1,70,000. On January 11, 1980, at the public auction, respondent No. 3 made a bid proposing to purchase the property for Rs. 1,70,000 (which was the upset price). The bid was accepted by the officer conducting the sale. An amount of Rs. 42,500 being 1/4th of the auction money, was deposited by the auction-purchaser on January 11, 1980, simultaneously with the acceptance of the bid. The balance amount of Rs. 1,27,500 was deposited on January 25, 1980, within the prescribed period of 15 days. R, the third brother had died. His widow, Padma, filed a civil suit in the Court of Civil judge, Varanasi, submitting that the undivided property of the four brothers and in any case the share of the brothers, who were not partners in the firm, could not have been attached ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear 1989 the several demands against the assessee-firm had all stood wiped out and therefore reduced to nil. On March 26, 1990, the Income-tax Officer, Ward-II, Varanasi, wrote to the Commissioner of Income-tax, Allahabad, that various demands raised against the assessee-firm had stood reduced to nil. On November 22, 1996, the assessee-firm, UPCC wrote to the Income-tax Officer, Ward-II, Varanasi, that all demands of tax and penalties having been cancelled/liquidated, refunds were due and the Tax Recovery Officer may be advised for cancellation of all the recovery certificates. Copy of the application was endorsed to the Tax Recovery Officer. On January 16, 1997, the advocate for the assessee firm wrote to the Income-tax Officer, Ward-II, Varanasi, that in view of all the demands against the firm having ceased to exist and instead refunds having become due to the firm, it may be confirmed that all the recovery certificates issued for demands against the firm had stood withdrawn/cancelled. A copy of communication dated March 26, 1990, from the Income-tax Officer, Ward II, Varanasi to the Commissioner of Income-tax was annexed with the letter. In spite of the abovesaid communication ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ifying the amount of arrears due from the assessee and shall proceed to recover from such assessee the amount so specified by one or more of the modes which include attachment and sale of the assessee's immovable properties. The Second Schedule sets out the procedure for recovery of tax. We will refer to some of the rules contained in the Second Schedule and relevant for our purpose. Rules regarding attachment and sale of immovable property are contained in Part III of the Second Schedule. Rule 56 provides that the sale shall be by public auction to the highest bidder and shall be subject to confirmation by the Tax Recovery Officer. Several provisions contained in the rules which follow rule 56 are in pari materia with the provisions dealing with attachment and sale of immovable property contained in Order 21 of the Code of Civil Procedure dealing with execution of decree passed by civil courts. However, in Order 21 of the Code of Civil Procedure, a provision similar to rule 56 of the Second Schedule is not to be found, Rule 60 provides for an application to set aside the sale of immovable property being made by the defaulter or an interested person on his depositing the specif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the order of confirmation by the Tax Recovery Officer by incorporating rule 56 in the Schedule. It is true that ordinarily if there is no application filed for setting aside the sale under rule 60, 61 or 62 and 30 days from the date of the sale have expired, the Tax Recovery Officer has to make an order confirming the sale. Nevertheless, an order shall have to be actually made. The combined effect of sub-section (3) of section 225 of the Act and rule 56 and rule 63 of the Second Schedule is that if before an order confirming the sale is actually passed by the Tax Recovery Officer, the demand of tax consequent upon an order made in appeal or other proceedings under the Act has been reduced to nil, the Tax Recovery Officer is obliged to cancel the certificate and as soon as the certificate is cancelled, he shall have no power to make an order confirming the sale. The sale itself being subject to confirmation by the Tax Recovery Officer, would fall to the ground for want of confirmation. In the case at hand the sale was held on January 11, 1980. No application was filed for setting aside the sale either by the assessee or by the auction purchaser or by anyone interested in the prope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch event which would oblige the Tax Recovery Officer not to pass an order confirming the sale and rather annul the same. The High Court in our opinion, clearly fell in error in not allowing relief to the petitioner-appellant by setting aside the sale. Shri S. K. Jain, learned counsel for the auction-purchaser, respondent No. 3, referred to Janak Raj v. Gurdial Singh [1967] AIR 1967 SC 608 ; 2 SCR 77 and Sardar Govindrao Mahadik v. Devi Sahai, AIR 1982 SC 989, wherein it has been held that once a sale has taken place in execution of a decree, the sale has to be confirmed notwithstanding the fact that after the holding of the sale, the decree was set aside. In Janak Raj's case [1967] AIR 1967 SC 608 ; 2 SCR 77, sale was held in execution of an ex parte decree. The ex parte decree was set aside subsequent to the date of the sale but before an order confirming the sale was passed. This court held that in the absence of an application for setting aside the sale having been moved on the grounds available under rules 89 to 91 of Order 21 of the Code of Civil Procedure, the court could not have refused to confirm the sale. However, in this case itself, this court has observed (at pag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... second question. Section 156 of the Act provides as under : "156. Notice of demand.---When any tax, interest, penalty, fine or any other sum is payable in consequence of any order passed under this Act, the Assessing Officer shall serve upon the assessee a notice of demand in the prescribed form specifying the sum so payable." If the amount specified in the notice of demand under section 156 is not paid within the time limited by sub-section (1) or extended under subsection (3) of section 220, then the assessee shall be deemed to be in default under sub-section (4) of section 220. Tax recovery certificate can be issued under section 222 when an assessee is in default or is deemed to be in default. Proceedings for recovery of tax under the Second Schedule can be initiated against a defaulter. Thus, section 156 provides for a vital step to be taken by the Assessing Officer without which the assessee cannot be termed a defaulter. The use of the term "shall" in section 156 implies that service of demand notice is mandatory before initiating recovery proceedings and constitutes the foundation of subsequent recovery proceedings. We have already stated that the finding of fact record ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the basis of the previous notice of demand shall continue to be valid. To this extent the decision of this court in Seghu Buchiah Setty's case [1964] 52 ITR 538 was superseded. In Homely Industries v. STO [1976] 37 STC 483 also the significance of service of demand notice came up for the consideration of this court and it was held that there can be no recovery without service of a demand notice; if such notice was not served, the recovery proceedings are not maintainable in law and are invalid and the same along with the recovery certificates are liable to be quashed. In Ram Swarup Gupta v. Behari Lal Baldeo Prasad [19741 95 ITR 339, a Division Bench of the Allahabad High Court referred to the effect of the Taxation Laws (CVRP) Act, 1964, on the law a down is court in Seghu Buchiah Setty's case [1964] 52 ITR 538 and held : "The effect of these provisions is to dispense with the need of issuing a fresh notice of demand and the recovery certificate and to allow the original recovery proceedings to continue, but only for the amount found due after reduction in the appeal, and it is for this purpose that the taxing authority is required to send intimation of the fact of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dule. Non-service of a notice of demand goes to the root of the validity of subsequent proceedings for recovery. A sale held in recovery proceedings initiated without serving the notice of demand shall be invalid and hence shall be liable to be annulled on being called in question. In Surinder Nath Kapoor v. Union of India, AIR 1988 SC 1777, property was attached and sold pursuant to a garnishee order which was found to be non-existent on account of a nullity attaching thereto. The sale was set aside. This court held : "The garnishee order that was passed was a nullity and any sale held pursuant to such an order is also a nullity. It is quite immaterial that the sale was confirmed. When a decree or order is illegal, any sale held in execution of such a decree or order and confirmed cannot be set aside on the ground that it was illegal when the sale is in favour of a third party. But, when a decree or order is a nullity, it will be deemed to have no existence at all and any sale held in execution of such a decree or order must also be held to be null and void." In the present case, the plea as to non-service of demand notice having been raised before the High Court, in our opinio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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