1972 (1) TMI 35 - HC - Income Tax

Petition Granted: TRO Order Quashed, Properties Subject to Bank Claim, Encumbrances Disclosed

State Bank of Patiala Versus Union Of India And Others. (and Other Writ Petitions.

The court accepted the petition, quashing the Tax Recovery Officer's order and directing awaiting the civil suit decision or selling the properties ... Assessee's property was attached by the Tax Recovery Officer but it was already subject to mortgage and suit was pending on it - petition is accepted and the impugned order of the Tax Recovery Officer dated June 15, 1971, a copy of which is annexure 'Z' to the writ petition, is hereby quashed. The Tax Recovery Officer should await the decision of the civil suit or sell the attached properties subject to the claim of the petitioner-bank as may be found due in the civil suit. In the proclamation of sale, it is necessary to mention the encumbrances to which the attached properties, which are sought to be sold, are subject in order to enable the prospective purchasers to assess the proper value of the interest that is being sold. If the property is brought to sale, the whole claim of the bank must be mentioned in the proclamation of sale Issues Involved:1. Validity of the Tax Recovery Officer's order of attachment.2. Competence of the writ petition filed by the petitioner-bank.3. Admissibility of documents filed by the petitioner-bank.4. Principles of natural justice in the proceedings before the Tax Recovery Officer.Detailed Analysis:1. Validity of the Tax Recovery Officer's Order of Attachment:The petitioner-bank challenged the attachment order issued by the Tax Recovery Officer on April 30, 1970, under rule 48 of the Second Schedule to the Income-tax Act, 1961. The bank argued that the attached properties were already mortgaged with it and sought either the vacation of the attachment or a sale subject to its first charge. The Tax Recovery Officer dismissed the objections as unproved, citing the bank's failure to produce original documents or witnesses to prove the mortgage. The court found that the Tax Recovery Officer erred in proceeding to determine the objections despite being informed of a pending civil suit regarding the same matter. The court held that the Tax Recovery Officer should have awaited the civil court's decision, as per rule 11(6) of the Second Schedule to the Income-tax Act, 1961.2. Competence of the Writ Petition Filed by the Petitioner-Bank:The Tax Recovery Officer argued that the writ petition was not competent, suggesting that the petitioner-bank should file a suit in civil court under rule 11(6). The court rejected this argument, stating that forcing the bank to file another suit would be a mere duplication of the already pending suit. The court emphasized that there was no dispute regarding the properties being mortgaged with the bank, and thus, the writ petition was competent.3. Admissibility of Documents Filed by the Petitioner-Bank:The Tax Recovery Officer dismissed the bank's objections on the grounds that the documents filed were not admissible as evidence. The court noted that the Tax Recovery Officer should have allowed the bank time to produce certified copies and witnesses to prove the documents. The court cited the Supreme Court's ruling in Commissioner of Income-tax v. East Coast Commercial Co. Ltd., stating that income-tax authorities are not strictly bound by the rules of evidence. The court concluded that the Tax Recovery Officer's rejection of the documents without affording the bank an opportunity to prove them was unjustified.4. Principles of Natural Justice:The court found that the procedure followed by the Tax Recovery Officer was violative of the principles of natural justice. The bank's counsel had offered to file certified copies of the documents on the same day the order was pronounced, but the Tax Recovery Officer did not allow it. The court held that the Tax Recovery Officer's actions deprived the bank of a fair opportunity to present its case, rendering the order invalid.Conclusion:The petition was accepted, and the impugned order of the Tax Recovery Officer dated June 15, 1971, was quashed. The Tax Recovery Officer was directed to await the decision of the civil suit or sell the attached properties subject to the bank's claim as determined in the civil suit. The court emphasized the necessity of mentioning encumbrances in the proclamation of sale to enable prospective purchasers to assess the property's value accurately. No order was made as to costs.