Attachment under income tax relates back to the date of notice-Court cannot be oblivious of conduct of the party

Attachment under income tax act relates back to and takes effect from the date of notice as per Rule 51. The High Court cannot be oblivious of the conduct of the party invoking the remedy under Article 226.

ABCAUS Case Law Citation:
ABCAUS 2241 (2018) (03) HC

A large amounts of income tax was due from a private limited company (the assessee/defaulter) in terms of their assessments under the Income Tax Act, 1961 (the Act). Pursuant to the Recovery Certificates issued by the Assessing Officer, the Tax Recovery Officer (TRO) served demand notices to the assessee directing it to pay arrears of tax with interest.

The assessee did not comply with the demands. Consequently, a property owned by the assessee was attached in terms of Rule 48 of the Second Schedule of the Act. Later, the attached property was brought for sale by the TRO.

Meanwhile, after the service of the notice but before the attachment of the property it was sold by the defaulter company to the father of the petitioner and the petitioner.

Attachment under income tax relates back to the date of notice

On coming to know of the proceedings for sale of the property, the petitioner along with his father preferred a claim petition invoking Rule 11 of the Second Schedule. The said claim petition was rejected by the Tax Recovery Officer holding among others, that the attachment over the property relates back to the dates on which the notices to pay the arrears have been served on the defaulter and that the petitioner and his father had no right over the property on the dates on which demand notices were served on the defaulter company.

The petitioner sought relief from the High Court but with no avail. Meantime the auction purchaser died making only part payments, and the matter travelled to the Court again. The High Court held that the successors of the auction purchaser are not entitled to obtain conveyance of the property in the light of the provisions contained in Rule 58 of the Second Schedule and consequently disposed of the writ petition permitting the petitioner to liquidate the tax arrears of the defaulter with the stipulation that if the petitioner fails to liquidate the tax arrears of the defaulter, the Tax Recovery Officer will be at liberty to proceed against the property.

There were several round of litigation again. Finally writ petition was filed challenging order of attachment and the notices on the ground that the property cannot now be proceeded against, in the light of the interdiction contained in Rule 68B of the Second Schedule which prohibits sale of immovable property under the Second Schedule, after the expiry of three years from the end of the financial year in which the order giving rise to the demand for the recovery of which the immovable property has been attached has become conclusive.

The Revenue contended that proceedings instituted by the petitioner are to be treated as proceedings falling within the scope of the expression ‘appeal’ contained in clause (iii) of sub rule (2) of Rule 68B and therefore the attachment initiated was not hit by Rule 68B of the Second Schedule.

The Hon’ble High Court opined that the writ petition filed by the petitioner, the review petition filed in the writ petition were proceedings in essence challenging the decisions of the Tax Recovery Officer under the Second Schedule. The purpose of sub-rule (2) of Rule 68B is to exclude the period during which the Tax Recovery Officer is prevented from continuing the proceedings for realisation of the tax arrears by virtue of orders passed by Courts as also the period during which it is inappropriate for the Tax Recovery Officer to continue the proceedings for realization of the tax arrears on account of the pendency of the proceedings challenging the decisions taken by the Tax Recovery Officer, irrespective of the fact as to whether there is any interim order in such proceedings or not, while computing the outer time limit provided for under sub-rule (1) of Rule 68B. Looking at the issue in the above perspective.

The Hon’ble Supreme Court opined that proceedings up to the stage when the petitioner was permitted to liquidate the tax arrears were liable to be treated as proceedings falling within the scope of the expression ‘appeal’ contained in Clause (iii) of subrule (2) of Rule 68B of the Second Schedule. Any other interpretation of the said provision would go against the principle that he who prevents a thing from being done shall not avail himself of the non-performance he has occasioned.

The Hon’ble High Court firther observed that in view of the provision contained in Rule 51 of the Second Schedule, the attachment effected over the property relates back to, and takes effect from the date of notice. The attachment over the property purchased by the petitioner took effect from the date on which the defaulter was served with the notice of demand by the Tax Recovery Officer.

The Hon’ble High Court opined that rhe sale deeds relied on by the petitioner and his father were therefore documents executed violating the provisions of sub-rule(1) of Rule 16, which interdicts the defaulter from alienating the properties. In terms of the said rule, the documents, on the basis of which the petitioner traces title of the property are void as against all claims enforceable under the attachment.

According to the Court, the petitioner was not entitled to file a writ petition challenging the proceedings under the Second Schedule on the basis of the said void documents, for it is implicit in the exercise of the extraordinary jurisdiction of this Court under Article 226 of the Constitution that the relief asked for must be one to enforce a legal right.

The Hon’ble High Court noted that in an earlier round of litigation, the petitioner had undertaken that he would liquidate the entire tax arrears of the defaulter and had the petitioner not made such an undertaking the Court would not have entertained the said writ. The Hon’ble High Court opined it cannot be oblivious of the conduct of the party invoking the remedy while exercising the jurisdiction under Article 226. Having obtained a favourable order in the writ petition, the petitioner changed his stand and refused to liquidate the tax arrears of the defaulter. In the aforesaid circumstances, it was not a fit case at all for exercise of the discretionary jurisdiction of this Court under Article 226 of the Constitution.

The writ petition was dismissed.

Attachment under income tax relates back to the date of notice

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