Court denies relief in writ petition, directs Tax Recovery Officer under Income Tax Act. Tax priority over SARFAESI Act.

The court rejected the relief sought in the writ petition and directed the petitioner to approach the Tax Recovery Officer for adjudication under Schedule II Rule 11 of the Income Tax Act. The court emphasized the constitutional priority of tax dues over other claims, including secured creditors under the SARFAESI Act. The writ petition was disposed of, with no costs awarded.

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Issues Involved:
1. Validity of the income tax recovery proceedings dated 27.12.2007.
2. Priority of mortgage versus tax arrears.
3. Jurisdiction and authority of the Income Tax Department to declare transactions void.
4. Applicability of Section 281 of the Income Tax Act and Section 26E of the SARFAESI Act.
5. Adjudication of disputed facts in writ proceedings versus alternative remedies.

Issue-wise Detailed Analysis:

1. Validity of the income tax recovery proceedings dated 27.12.2007:
The petitioner challenged the proceedings dated 27.12.2007, which aimed to recover income tax arrears from M/s. NEPC Agro Foods Ltd. and its directors. The property in question was already under the lawful possession of the petitioner bank since 19.12.2007, affirmed by various judicial bodies. The petitioner argued that the mortgage existed since 16.10.2002, predating the tax attachment by the Income Tax Department on 18.06.2003. The court concluded that the petitioner bank must approach the Tax Recovery Officer under Schedule II Rule 11 of the Income Tax Act for adjudication of these facts.

2. Priority of mortgage versus tax arrears:
The petitioner asserted that the mortgage predates the tax attachment and thus holds priority over the tax arrears. Citing Section 26E of the SARFAESI Act and Section 31B of the Recovery of Debts and Bankruptcy Act, the petitioner argued that secured creditors have priority over government dues. The court acknowledged the conflicting provisions but emphasized the constitutional priority of tax dues, highlighting that tax arrears hold precedence due to their importance in enabling the State to function as a sovereign entity.

3. Jurisdiction and authority of the Income Tax Department to declare transactions void:
The petitioner argued that the Income Tax Department lacks the authority to declare civil transactions void, as this power is vested in the civil courts. The court agreed, referencing previous judgments that upheld this principle. However, the court also noted that the Tax Recovery Officer has the authority to investigate claims under Schedule II Rule 11 of the Income Tax Act.

4. Applicability of Section 281 of the Income Tax Act and Section 26E of the SARFAESI Act:
Section 281 of the Income Tax Act declares certain transactions void if made during the pendency of tax proceedings. The court emphasized that this provision takes precedence over Section 26E of the SARFAESI Act when tax proceedings are pending at the time of the transaction. The court concluded that any mortgage or transfer made during the pendency of tax proceedings is void, and thus the petitioner bank's claim of priority based on the SARFAESI Act cannot be upheld.

5. Adjudication of disputed facts in writ proceedings versus alternative remedies:
The court highlighted that disputed facts, such as the timing of the mortgage and the pendency of tax proceedings, cannot be adjudicated in writ proceedings. The appropriate forum for such adjudication is the Tax Recovery Officer under Schedule II Rule 11 of the Income Tax Act. The court directed the petitioner to approach the Tax Recovery Officer for a detailed investigation and resolution of these disputed facts.

Conclusion:
The court rejected the relief sought in the writ petition and directed the petitioner to approach the Tax Recovery Officer for adjudication under Schedule II Rule 11 of the Income Tax Act. The court emphasized the constitutional priority of tax dues over other claims, including secured creditors under the SARFAESI Act. The writ petition was disposed of, with no costs awarded.

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