1972 (5) TMI 24 - HC - Income Tax

Tax Recovery Officer jurisdiction upheld, civil court lacks authority. Section 47 CPC not applicable.

The appeal was dismissed as not maintainable, with the court holding that the jurisdiction of the civil court was excluded in favor of the Tax Recovery ... Appellant-bank obtained a mortgage decree on the basis of an award which was made a rule of court against Messrs. B. Dharam Singh & Co. (P.) Ltd. and two of its directors - A garnishee order was issued against the tenants for recovery of taxes from out of the rent pending sale of the property - Whether this would be permissible Issues Involved:1. Execution of mortgage decree and sale of mortgaged property.2. Income-tax department's claim and attachment of property.3. Objections to notices under section 226 of the Income-tax Act.4. Jurisdiction of civil court versus Tax Recovery Officer.5. Applicability of Section 47 of the Civil Procedure Code.6. Priority of claims between decree-holder bank and income-tax department.7. Necessity of leave from the company court for recovery proceedings post winding-up order.Detailed Analysis:1. Execution of Mortgage Decree and Sale of Mortgaged PropertyThe appellant, Lakshmi Commercial Bank Ltd., obtained a mortgage decree based on an award against Messrs. B. Dharam Singh & Co. (P.) Ltd. and its directors. The decree-holder moved for the sale of the mortgaged property to realize the decretal amount. The property was ordered to be sold, with February 25, 1969, set as the auction date.2. Income-tax Department's Claim and Attachment of PropertyThe Union of India, through I.A. No. 353 of 1969, informed the executing court about substantial income-tax arrears against the judgment debtor and requested modification of the sale proclamation to discharge government dues. The execution sale was postponed, and the decree-holder contested the income-tax department's claim.3. Objections to Notices Under Section 226 of the Income-tax ActThe Income-tax Officer issued notices under section 226(2) to tenants occupying the mortgaged property. The decree-holder filed I.A. No. 787 of 1969, objecting to these notices and seeking to collect rents. This application was dismissed, and a review petition was also denied. The decree-holder's appeal against this dismissal forms the basis of the present case.4. Jurisdiction of Civil Court Versus Tax Recovery OfficerThe court examined whether the civil court had jurisdiction over the matter, considering the provisions of the Income-tax Act, particularly sections 222 and 226. The court noted that the jurisdiction of the civil court is excluded in matters of tax recovery, which are to be determined by the Tax Recovery Officer, except in cases of fraud, which was not alleged here.5. Applicability of Section 47 of the Civil Procedure CodeThe appellant-bank did not raise the issue of being a representative of the judgment-debtor or that the judgment-debtor was affected by the income-tax department's actions. The court held that without such a plea, the matter does not fall under section 47 of the Civil Procedure Code, which pertains to questions arising between parties to the suit relating to the execution, discharge, or satisfaction of the decree.6. Priority of Claims Between Decree-holder Bank and Income-tax DepartmentThe court observed that the appellant-bank's claim to rents from the mortgaged property does not override the statutory powers of the Income-tax Officer to recover tax dues. The notices issued to tenants under section 226(3) made them assessees in default, and any questions arising from this were to be determined by the Tax Recovery Officer.7. Necessity of Leave from the Company Court for Recovery Proceedings Post Winding-up OrderThe appellant-bank contended that after the winding-up order of the judgment-debtor company, recovery proceedings required leave from the company court. The court noted that this issue was not raised before the single judge and pertained to the merits of the appeal, which it did not address. The court emphasized that the appellant-bank's application for appointing a receiver to collect rents was dismissed, and no appeal was filed against that order.ConclusionThe appeal was dismissed as not maintainable, with the court holding that the jurisdiction of the civil court was excluded in favor of the Tax Recovery Officer for matters relating to tax recovery, and the appellant-bank's claims did not fall under section 47 of the Civil Procedure Code. The court also noted the lack of necessity for leave from the company court for recovery proceedings under the Income-tax Act.