Agreement to sell after recovery notice does not create legal interest to challenge tax auction sale

An agreement holder whose claimed interest arose only from a post-notice agreement to sell could not invoke rule 60 of the Second Schedule to set aside a tax recovery auction sale. A mere agreement to sell does not create a legal interest in the property, and an arrangement entered into after service of notice under rule 2 is hit by rule 16(1); the later attachment regime under rules 48 and 51 also applies. Because the claimant was neither the defaulter nor an authorised representative, the statutory right to seek setting aside of the sale was unavailable, and rejection of the application was legally justified.

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Issues: Whether a person holding only an agreement to purchase property, entered into after notice of recovery under the Income-tax Act and contrary to the restrictions on dealing with attached or recoverable property, had locus standi and legal interest to apply under rule 60 of the Second Schedule to set aside an auction sale by depositing the tax dues.

Analysis: Rule 60 permits the defaulter or any person whose interests are affected by the sale to seek setting aside of the sale within thirty days on the prescribed deposit. The appellant was not the defaulter or his authorised representative filing the application; he was asserting his own claim as an agreement holder. A mere agreement to sell does not create any legal interest in the property. The agreement was entered into after service of notice under rule 2 and was hit by rule 16(1); in any event, the subsequent attachment operated in the manner contemplated by rules 48 and 51. Allowing an agreement holder who had bypassed the statutory prohibition to invoke rule 60 would defeat the recovery scheme.

Conclusion: The appellant had no locus standi and no legal interest to maintain the application under rule 60, and the rejection of the application was in law.

Ratio Decidendi: A person whose alleged interest in the property arises only from an agreement to sell hit by the statutory bar on dealing with the defaulter's property does not acquire a legal interest sufficient to invoke rule 60 of the Second Schedule to the Income-tax Act, 1961, to set aside a tax recovery auction sale.

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