1981 (5) TMI 14 - HC - Income Tax

Court upholds legality of tax auction sale, emphasizes finality, dismisses challenge based on lack of demonstrated injury.

MR Anthony Swamy Versus Commissioner Of Income-Tax, Karnataka I, And Others

MR Anthony Swamy Versus Commissioner Of Income-Tax, Karnataka I, And Others - [1982] 135 ITR 424, 24 CTR 1, 7 TAXMANN 310 Issues Involved:1. Legality of the Tax Recovery Officer's order dated July 14, 1978.2. Legality of the Commissioner's order dated December 30, 1978.3. Alleged violations of rules under Schedule II of the Income Tax Act, 1961.4. Validity of the auction sale of the petitioner's property.5. Petitioner's claim of no saleable interest in the property.6. Alleged inadequate consideration for the property sold.7. Jurisdiction of the High Court under Articles 226 and 227 of the Constitution.Detailed Analysis:1. Legality of the Tax Recovery Officer's Order dated July 14, 1978:The petitioner challenged the order passed by the Tax Recovery Officer (TRO) under Rule 61 of Schedule II to the Income Tax Act, 1961, which dismissed the petitioner's application to set aside the sale of his property. The TRO's decision was based on the grounds that the petitioner did not deposit the tax claimed, as required under Rule 61(b) of Schedule II, and failed to prove substantial injury due to material irregularity in the sale process.2. Legality of the Commissioner's Order dated December 30, 1978:The petitioner also challenged the Commissioner's order dismissing his appeal under Rule 86(1)(c) of Schedule II. The petitioner argued that the order was made in violation of natural justice as the Commissioner refused to adjourn the hearing, thereby denying the petitioner adequate opportunity to present his case. However, the court found that the petitioner had ample opportunity to present his case and that the refusal to adjourn was justified.3. Alleged Violations of Rules under Schedule II of the Income Tax Act, 1961:The petitioner contended several violations:- Rule 15(2): The sale was adjourned multiple times beyond 30 days without issuing a fresh sale proclamation, constituting a material irregularity.- Rule 52: The sale proclamation was not published in the language of the district, which was refuted as the records showed publication in Kannada.- Rule 55: The sale took place more than 30 days after the proclamation was affixed, which the court found to be compliant with the rule.4. Validity of the Auction Sale of the Petitioner's Property:The petitioner argued that the auction sale was invalid due to material irregularities and inadequate consideration. The court noted that while there was a material irregularity (violation of Rule 15(2)), the petitioner failed to prove substantial injury caused by this irregularity. The property fetched Rs. 1,08,000 against a reserved price of Rs. 55,000, and the petitioner's valuation report lacked credibility.5. Petitioner's Claim of No Saleable Interest in the Property:The petitioner claimed he had no saleable interest in the property sold. However, the court did not find sufficient evidence to support this claim. The property was sold legally under the provisions of the Income Tax Act, and the petitioner had not demonstrated any legal impediment to the sale.6. Alleged Inadequate Consideration for the Property Sold:The petitioner contended that the sale price was far below the market value, causing substantial injury. The court found no substantial evidence to support this claim. The valuation report provided by the petitioner was undated and lacked corroborative details. The sale price, though lower than the petitioner's valuation, was not deemed unreasonable.7. Jurisdiction of the High Court under Articles 226 and 227 of the Constitution:The petitioner sought to invoke the High Court's jurisdiction under Articles 226 and 227 to set aside the sale. The court acknowledged its wide powers under these articles but emphasized that such powers are exercised sparingly, particularly when statutory remedies have been exhausted. The court held that the petitioner's failure to stay the assessment orders and the subsequent confirmation of the sale by the TRO and Commissioner precluded the High Court from intervening merely on grounds of hardship.Conclusion:The court dismissed the petition, upholding the orders of the TRO and the Commissioner. It ruled that while there was a material irregularity in the sale process, the petitioner failed to prove substantial injury resulting from it. The court also emphasized the importance of finality in auction sales for tax recovery, noting that setting aside such sales could undermine public confidence and deter potential bidders.