Court rules purchaser as absolute owner of property in tax dispute, invalidating tax notices post-sale.

The court ruled in favor of the petitioner, finding that the notices issued under section 226(3) and rule 26(1)(i) of the Income-tax Act were invalid after the sale of the property. The Tax Recovery Officer's permission for the sale shifted any attachment to the sale proceeds, and the lack of a tax clearance certificate did not affect the validity of the sale. The petitioner, as the purchaser, was deemed the absolute owner of the property free from any tax-related encumbrances, limiting the Income-tax Department's claims to the sale proceeds.

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Issues Involved:
1. Validity of notices under section 226(3) of the Income-tax Act, 1961.
2. Validity of notices under rule 26(1)(i) of the Second Schedule to the Income-tax Act.
3. Effect of Tax Recovery Officer's permission on the sale of the property.
4. Requirement of tax clearance certificate under section 230A of the Income-tax Act.
5. Rights of the purchaser vis-`a-vis the Income-tax Department's claims.

Detailed Analysis:

1. Validity of Notices under Section 226(3) of the Income-tax Act, 1961
The petitioner challenged the notices issued under section 226(3) of the Income-tax Act, 1961, arguing they were illegal and without jurisdiction. The court found that after the sale of the property, the tenants were obligated to pay rent to the new owner, i.e., the petitioner, and not to the original landlord. Consequently, the Income-tax Department ceased to have any jurisdiction to continue with the proceedings under section 226(3) of the Act concerning the rent payable to the petitioner.

2. Validity of Notices under Rule 26(1)(i) of the Second Schedule to the Income-tax Act
The petitioner also contested the notices issued under rule 26(1)(i) of the Second Schedule to the Income-tax Act. The court held that the attachment of rent by the Tax Recovery Officer was no longer valid after the sale of the property. The tenants were required to pay the rent to the new owner, and thus, the attachment notices could not be enforced against the petitioner.

3. Effect of Tax Recovery Officer's Permission on the Sale of the Property
The court noted that the Tax Recovery Officer had given permission for the sale of the property and that this permission effectively shifted any attachment or charge to the sale proceeds. The Tax Recovery Officer's letter dated August 28, 1981, indicated that the bank should proceed with the sale and use the proceeds to meet the tax arrears, with any remaining balance to be appropriated against the bank's dues. This permission was crucial in determining that the property was sold free from encumbrances.

4. Requirement of Tax Clearance Certificate under Section 230A of the Income-tax Act
The court addressed the issue of whether a tax clearance certificate under section 230A was necessary for the sale. It was held that even if the receiver did not obtain the certificate, the registration of the conveyance was valid, and the purchaser became the owner of the property. The court cited the Supreme Court's dismissal of a special leave petition against a similar judgment, reinforcing that the lack of a tax clearance certificate did not invalidate the sale.

5. Rights of the Purchaser vis-`a-vis the Income-tax Department's Claims
The court concluded that the petitioner, having purchased the property through a court-appointed receiver and with the Tax Recovery Officer's permission, was the absolute owner of the property free from any encumbrances related to the tax dues of the deceased previous owner. The Income-tax Department's claims were limited to the sale proceeds, and they could not attach the rent payable to the petitioner or claim sums from illegal occupants.

Conclusion
The court quashed the proceedings under section 226(3) and rule 26(1)(i) of the Income-tax Act, directing that the receiver should pay the Income-tax Department any rents or occupation charges realized before October 7, 1983, with the balance to be paid to the petitioner. The sale of the property was upheld as valid, and the petitioner was confirmed as the absolute owner, free from the tax-related encumbrances of the previous owner.

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