9911796707
TMI Blog2007 (3) TMI 233X X X X Extracts X X X X X X X X Extracts X X X X ..... , 1991, has been dismissed by the Commissioner of Income-tax. Hence, the petition has been amended to challenge the said order passed by Commissioner of Income-tax as well. The facts relevant for the present petition are that one Sultan Karim Mithani was the owner of the disputed property. The said Mithani appears to have gifted the disputed property to Mrs. Kamla Chandwani by executing a gift deed on February 20, 1974. The said gift deed was lodged for registration on February 28, 1974. Mrs. Kamla Chandwani inducted the petitioners as tenants in the disputed property during the period from 1974-75. The petitioners are in peaceful possession and enjoyment of the disputed property since 1974-75. On November 3, 1979, the Tax Recovery Officer attached the disputed property with a view to recover the tax arrears payable by the tax defaulter Sultan Karim Mithani. Mrs. Kamla Chandwani objected to the attachment of the disputed property by filing an application before the Tax Recovery Officer contending that she is the owner of the disputed property and that the disputed property belonging to her cannot be attached for the tax default committed by Sultan Karim Mithani. The said applic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tory suits pending in the Court of Small Causes at Bombay. In the terms and conditions of auction issued along with the proclamation of sale it was specifically stated that the petitioners are in possession of the disputed property and that the said property will be sold on "as is where is" basis. Clauses 24 and 25 of the terms and conditions of sale reads thus: "24. On sale of property the person declared to be the purchaser shall pay immediately after such declaration, a deposit of 25 per cent. of the amount of purchase money to the officer conducting the sale, in cash, pay order or demand draft drawn in favour of 'The Tax Recovery Officer, Outstation Charge, Bombay'. In default of such deposit the property shall forthwith be resold by auction. The balance of 75 per cent. of the purchase price together with poundage fees, registration charges and stamp duty shall be paid in Tax Recovery Officer's office on or before 15th day from the date of auction sale. Under no circumstances this period of 15 days can be extended by any authority. If the total purchase price is not paid, 25 per cent. deposit amount paid on auction sale and the costs of the auction will be deducted and the ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... money for setting aside the auction sale comes to Rs. 30,74,079. As the petitioners had already deposited a sum of Rs. 30,00,000, by the said letter the Tax Recovery Officer called upon the petitioners to deposit the balance amount of Rs. 74,079. Accordingly, the petitioners deposited the balance amount of Rs. 74,079 and the Tax Recovery Officer by his letter dated November 29, 1990, confirmed that the total amount of Rs. 30,74,079 deposited by the petitioners covers taxes, interest on demand, cost, charges, expenses and compensation payable to the auction purchaser on setting aside the auction sale. It was further stated in the said letter that the application for setting aside the sale filed by the petitioners will be considered in due course. In the meantime, on November 21, 1990, respondent No. 4 moved a draft notice of motion in suit No. 713 of 1984 filed by Mrs. Kamla Chandwani, inter alia, seeking modification of the earlier order dated March 30, 1984, so as to permit the Tax Recovery Officer to confirm the auction sale held on November 7, 1990 and also sought an order seeking extension of time to pay the balance purchase price. However, on noticing that after the grant of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Tax Recovery Officer in confirming the auction sale in favour of respondent No. 4, the present petition is filed. As stated earlier, during the pendency of the petition, the appeal filed by the petitioners against the order of the Tax Recovery Officer dated July 9, 1991, in rejecting rule 60 application has been dismissed by Commissioner of Income-tax by an undated order which was received by the petitioners on April 24, 1992. The petitioners have also challenged the said undated order of the Commissioner of Income-tax by amending the writ petition. This petition was admitted on September 2, 1991, with an interim order to the effect that during the pendency of the writ petition, the petitioners shall not be evicted from the disputed property and that the petitioners shall deposit in court Rs. 1,150 per month towards the rent payable by the petitioners in respect of the disputed property. To complete the narration of facts, it may be noted that against the order passed by the Tax Recovery Officer on August 31, 1989, rejecting the application of the petitioners under rule 11 of the Second Schedule to the Income-tax Act, the petitioners had filed a suit in the Bombay City C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the petitioners to the Tax Recovery Officer on December 3, 1990, cannot be construed to mean that the tax arrears were deposited by the petitioners conditionally, because, by the said letter the petitioners had only brought to the notice of the Tax Recovery Officer that in view of the failure on the part of respondent No. 4 to pay the balance 75 per cent. of the purchase price within 15 days from the date of the auction sale, the sale of the disputed property held on November 7, 1990, stood cancelled and the Tax Recovery Officer was obliged to reauction the property and in that view of the matter, the petitioners had sought refund of the amounts deposited by them. Thus, the amounts deposited by the petitioners were not conditional as wrongly held by the Tax Recovery Officer. However, Mr. Mistry fairly stated that in spite of the fact that the auction sale held on November 7, 1990, stood cancelled on account of the failure on the part of respondent No. 4 to deposit the entire purchase price within the stipulated time, the petitioners want to pursue the challenge to the order rejecting the rule 60 application and that the petitioners are not interested in seeking refund of the amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount of purchase money shall be paid by the purchaser to the Tax Recovery Officer on or before the fifteenth day from the date of sale of the property. Rule 58 of the Second Schedule to the Act prescribes the procedure to be followed in case of default in payment. In the present case, even condition No. 24 set out in the terms and conditions of sale attached to the proclamation of sale provides that under no circumstances the period of fifteen days can be extended by any authority. Therefore, on acceptance of the bid for Rs. 72,00,000 given by respondent No. 4 in the auction sale of the disputed property held on November 7, 1990, it was mandatory on the part of respondent No. 4 to deposit the entire amount of Rs. 72,00,000 on or before the fifteenth day from the date of the sale of the property, that is, on or before November 22, 1990. Admittedly, respondent No. 4 has not paid the entire purchase price within the above stipulated time. It is only after the Tax Recovery Officer rejected the rule 60 application of the petitioners on July 9, 1991, and addressed a letter on July 10, 1991 calling upon respondent No. 4 to pay the balance purchase price within two days, respondent No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioners and purporting to confirm the sale on July 11, 1991, even though respondent No. 4 had committed breach of the mandatory provisions relating to the deposit of the entire purchase price within the stipulated time clearly shows mala fides on the part of the Tax Recovery Officer. Accordingly, Mr. Mistry submitted that this court be pleased to set aside the orders impugned in the petition and allow the application filed by the petitioners under rule 60 of the Second Schedule to the Act. Mr. Chinoy, the learned senior advocate appearing on behalf of respondent No. 4 submitted that the petitioners who are unsuccessful bidders and rank trespassers in the disputed property have colluded with Kamla Chandwani to deprive the Income-tax Department in recovering the dues of the tax defaulter. Relying upon a decision of the apex court in the case of S.P. Chengalvaraya Naidu v. Jagannath [1994] 1 SCC 1, Mr. Chinoy submitted that the petitioners have come to this court with unclean hands and, therefore, the petition deserves to be dismissed on that ground alone. Mr. Chinoy submitted that the petitioners have no locus standi to challenge the impugned orders because, the petitioners who cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... validly executed on February 20, 1974, even after attachment of the disputed property in the year 1969. It is further held that Mrs. Kamla Chandwani failed to establish that the transfer of the disputed property by gift deed was in consonance with section 281 of the Act. In view of the above findings which are binding, Mr. Chinoy submitted that the claim of the petitioners regarding their tenancy cannot be sustained. In any event, the interim order passed in Small Causes Court proceedings on September 29, 1989, protects the interests of the petitioners, if any, and since the petitioners cannot be evicted except by due process of law, it is not open to the petitioners to contend that their interests would be affected by sale of the disputed property. Mr. Chinoy further submitted that the petitioners are neither the defaulters themselves nor are they covered by the language used in rule 60 of the Second Schedule to the Act and hence the petitioners were not entitled to make an application under rule 60. The petitioners' interest are not affected by the sale for two reasons. Firstly, the petitioners are not lawful tenants because Mrs. Kamla Chandwani had no valid gift in her favour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 984 regarding confirmation of sale. Before any order could be passed to that effect, the petitioners on July 19, 1990, filed an application before the Tax Recovery Officer for setting aside the sale under rule 60 of the Second Schedule to the Act. In view of the said application made by the petitioners and in consultation with the Tax Recovery Officer, respondent No. 4 refrained from depositing the balance purchase price. Both the Tax Recovery Officer and respondent No. 4 understood that the balance purchase price could be paid after deciding the application made by the petitioners under rule 60 of the Second Schedule to the Act. Thus, respondent No. 4 though had money and was ready and willing to pay the balance purchase price did not deposit the same in the above circumstances. Mr. Chinoy further submitted that on receiving the rule 60 application filed by the petitioners, the Tax Recovery Officer was duty bound to stay all further process in the sale and consider the rule 60 application filed by the petitioners. Therefore, respondent No. 4 was under a bona fide belief that before deciding the rule 60 application the Tax Recovery Officer would not be able to accept the balance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mrs. Kamla Chandwani to the effect that the petitioners will have to vacate the disputed property after the auction sale even though it was specifically stated in the terms and conditions of sale that the auction shall be on "as is where is basis" and subject to the tenancy rights claimed by the petitioners. Mr. Kotangale further admitted that there is no provision in the Act which empowers the Tax Recovery Officer to grant extension of time or grace period to the auction purchaser to pay the balance purchase price beyond the period of fifteen days from the date of the auction sale. Mr. Kotangale, however, submitted that in the present case, there is sufficient evidence to show that the notice under rule 2 of the Second Schedule to the Act were served on the tax defaulter much prior to the execution of the gift deed by the tax defaulter in favour of Mrs. Kamla Chandwani. Since the attachment of the disputed property on November 3, 1979, relates back to the date of the service of rule 2 notice, the disputed property being under attachment the tax defaulter could not have gifted the disputed property in favour of Mrs. Kamla Chandwani. Consequently, Mrs. Kamla Chandwani could not ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation under rule 60 of the Second Schedule to the Act, what is relevant apart from other conditions set out therein, is that the person making such application must be either a tax defaulter himself of a person whose interests are affected by the sale. A person whose interests are likely to be affected by the sale may have participated in the auction. But the failure to purchase the property in the auction would not disentitle him from making an application under rule 60 for setting aside the sale so long as he is in a position to establish that his interests are affected by the sale. Therefore, rule 60 application by an unsuccessful bidder would be maintainable if his interests are affected by the sale. While considering the rule 60 application, the Tax Recovery Officer cannot adjudicate upon the title of the applicant over the property that is sold. Moreover, no competent court has declared the petitioners to be rank trespassers on the disputed property. Therefore, the Tax Recovery Officer could not have rejected the application on the ground that the petitioners are rank trespassers. Similarly, the argument that the petitioners have colluded with Mrs. Kamla Chandwani to deprive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ithani, then, it will obviously affect the case of the petitioners in establishing that the disputed property belongs to Mrs. Kamla Chandwani. It is neither the case of the Revenue nor the case of respondent No. 4 that on auction sale of the disputed property, the petitioners would become the tenants of the auction purchaser. On the contrary, the specific argument of the Revenue as well as respondent No. 4 is that the petitioners must establish before the Small Causes Court that Mrs. Kamla Chandwani could validly and legally create tenancy rights in the disputed property in favour of the petitioners. If the disputed property is sold by treating it to be the property of the tax defaulter Mr. Sultan Karim Mithani, then it would certainly create difficulty for the petitioners in establishing before the Small Causes Court that the disputed property belongs to Mrs. Kamla Chandwani. The Small Causes Court has granted interim relief based on the plea of the petitioners that Mrs. Kamla Chandwani has become absolute owner of the disputed property under a gift deed dated February 20, 1974, and that she had validly created tenancy rights in favour of the petitioners. Thus, the sale of the dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n rejecting the objections filed by the petitioners for sale of the disputed property under rule 11 of the Second Schedule to the Act. The learned judge of the City Civil Court has held that the enquiry under rule 11 is limited to consider as to whether the claimant has some interest in or was possessed of the property in question and does not extend to adjudicate upon the title to the property. Therefore, the Tax Recovery Officer could not have held that the gift was invalid and consequently the tenancy was invalid. Accordingly, the learned judge has set aside the order of Tax Recovery Officer, passed under rule 11 of the Second Schedule to the Act. While setting aside the order of the Tax Recovery Officer, the learned judge referring to the service of the rule 2 notice upon the tax defaulter has doubted the genuineness of the tenancy rights claimed by the petitioners. However, these are only prima facie observations and all that has been held is that the Tax Recovery Officer has exceeded his jurisdiction in enquiring into the title in the property and accordingly set aside the order passed by the Tax Recovery Officer. Therefore, the prima facie observations made by the learned ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... letter dated December 3, 1990, merely states that the sale has become invalid on account of respondent No. 4 to deposit the entire purchase price within the stipulated time and it does not make the deposits conditional. In the letter dated December 3, 1990, although the petitioners have claimed refund of the amount deposited by them in view of the sale becoming invalid due to the failure of respondent No.4 to deposit the entire purchase price within the stipulated time. Mr. Mistry, learned counsel for the petitioners on instructions fairly stated that the petitioners are desirous of pursuing the rule 60 application irrespective of the sale becoming invalid due to the failure on the part of respondent No.4 to deposit the entire purchase price within the stipulated time. Thus, none of the grounds given by the Tax Recovery Officer for setting aside the rule 60 application can be sustained. Accordingly, we hold that the petitioners are the persons whose interests are affected by the sale of the disputed property and they are entitled to get the sale of the disputed property held on November 7, 1990, set aside by depositing the amounts quantified by the Tax Recovery Officer. Once the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its the auction purchaser to deposit the entire purchase price beyond the period of fifteen days from the date of sale nor there is any provision empowering any authority to grant extension of time. Therefore, the Tax Recovery Officer could not have accepted the balance purchase price beyond the period of fifteen days from the date of sale. The argument that respondent No. 4 had the requisite money and that he was ready and willing to pay the entire purchase price within the stipulated time cannot be accepted, because, in our opinion, under rule 57 read with the terms and conditions of sale, it was mandatory on the part of respondent No. 4 to deposit the entire purchase price on or before the fifteenth day from the date of sale. Once it is admitted that the entire purchase price has not been deposited within the stipulated time, then, it must be held that the sale had become invalid and the Tax Recovery Officer could not have confirmed the sale. In the result, the petition succeeds. The order dated July 9, 1991, passed by the Tax Recovery Officer rejecting the rule 60 application filed by the petitioners as well as the undated order of the CIT (exhibit "Y-4") confirming the afore ..... X X X X Extracts X X X X X X X X Extracts X X X X
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