1996 (10) TMI 3 - SC - Income Tax

Standing denied: Property purchase agreement void under Income-tax Act Rule 60.

K Basavarajappa Versus Tax Recovery Commissioner And Others

K Basavarajappa Versus Tax Recovery Commissioner And Others - [1997] 223 ITR 297 (SC), 1997 AIR 215, 1996 (7) Suppl. SCR 523, 1996 (11) SCC 632, 1996 (9) ... Issues Involved:1. Locus standi of the appellant to file an application under Rule 60 of the Second Schedule to the Income-tax Act, 1961.2. Validity of the agreement to sell the property in light of Rule 16(1) and Rule 51 of the Second Schedule to the Income-tax Act.3. The impact of the attachment of the property on the appellant's agreement to purchase.4. The appellant's legal interest in the property at the time of filing the application under Rule 60.Detailed Analysis:1. Locus Standi of the Appellant:The primary issue was whether the appellant had the locus standi to file an application under Rule 60 of the Second Schedule to the Income-tax Act, 1961, for setting aside the sale of immovable property of the defaulter income-tax assessee. The appellant, who had an agreement to purchase the property from the defaulter, filed the application within thirty days of the auction sale, supported by an authority letter from the defaulter's power-of-attorney holder. However, the Division Bench of the Karnataka High Court concluded that the appellant's application was not maintainable as he had no locus standi to file such an application. The Supreme Court upheld this view, stating that the appellant, being only a prospective purchaser, did not have a legal interest in the property at the time of the application.2. Validity of the Agreement to Sell:The appellant's agreement to purchase the property dated November 20, 1982, was challenged based on Rule 16(1) of the Second Schedule to the Income-tax Act, which prohibits the defaulter from dealing with any property after a notice under Rule 2 has been served, except with the permission of the Tax Recovery Officer. The Supreme Court found that the defaulter had bypassed this statutory requirement, making the agreement to sell void from the inception. The agreement was executed without the necessary permission, violating Rule 16(1).3. Impact of Attachment on Agreement:The property was attached on February 11, 1988, and as per Rule 51, this attachment related back to the date of service of notice, i.e., September 3, 1973. Thus, the agreement to sell dated November 20, 1982, was rendered void as it was contrary to the attachment. The Supreme Court emphasized that the attachment of the property took precedence over any subsequent agreements, thereby invalidating the appellant's claim based on the agreement.4. Legal Interest in the Property:The Supreme Court noted that mere agreement to sell does not create any legal interest or right in the property. The appellant's application under Rule 60 was based on his status as a prospective purchaser, which did not confer any legal interest in the property. The court also highlighted that the appellant's agreement was subject to the superior right of the Revenue to recover tax dues, and the appellant's transaction was hit by the provisions of Rule 16(1) and Rule 51. Therefore, the appellant had no legal standing to move an application under Rule 60 to set aside the auction sale.Conclusion:The Supreme Court dismissed the appeals, concluding that the appellant had no locus standi to file the application under Rule 60 of the Second Schedule to the Income-tax Act. The agreement to sell was invalid due to the statutory prohibition under Rule 16(1), and the attachment of the property related back to the date of the notice, nullifying the appellant's claim. The appellant's lack of legal interest in the property at the time of the application further supported the decision to dismiss the appeals. The court also noted that the defaulter and his power-of-attorney holder had acquiesced in the High Court's decision, leaving the appellant to pursue the case independently.