TaxTMI 
TaxTMI 
2005 (12) TMI 80
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....from interfering with the possession of GVFL Ltd. For convenience, the parties are referred to as in their rank in C. S. No. 454 of 2005. Earlier, by order dated August 22, 2005, G. V. Films Ltd. v. S. Priyadarshan [2006] 281 ITR 114 (Mad), F. M. Ibrahim Kalifulla J. has passed the order to restore status quo as it existed on July 13, 2005, to the applicant/plaintiff. To ensure restoration of possession in favour of the applicant/plaintiff-GVFL, Mr. M. Vijaya Raghavan was appointed as Advocate-Commissioner to restore possession to the plaintiff-GVFL. Later, F. M. Ibrahim Kalifulla J. has further heard the parties. Having regard to the stand of the respective parties, the court has directed the "Tax Recovery Officer(TRO) to hear the applicant/plaintiff as to his right to remain in possession and whether at all the applicant/plaintiff could be proceeded against for eviction by invoking rule 39 of the Income-tax (Certificate Proceedings) Rules, 1962, and the correctness of the said order can be examined by the court in the writ petition as well as in Application No. 543 of 2005". The learned judge has further observed, "to the suggestion that the matter has to be heard and deter....
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....of the ITCP Rules. In substance, the Tax Recovery Officer has held: "i. CVFL has been in possession of the property as an entity representing the defaulter as the lease agreement is only a facade to transfer the perpetual enjoyment of the property, even while avoiding the due process of law. ii. CVFL's claim to the property is based on a right, which has all the ingredients of title to the property created after attachment." As noted earlier, in the order dated September 15, 2005, F. M. Ibrahim Kalifulla J. has ordered that "the implementation of the said order shall await further orders in these proceedings". Accordingly, the matter and the impugned order of the Tax Recovery Officer dated September 29,2005, are before the court. Elaborate arguments were advanced on behalf of the parties. The hearing and arguments stretched over a couple of weeks. Before considering the elaborate contentions advanced by both the parties, it is essential to refer to certain aspects and the factual background of the contentions of both the parties. M/s. Sujatha Films Ltd. (SFL), No.4, Seshadri Road, Alwarpet, Chennai-600 018, was the owner of Coodluck Preview Theatre. SFL had not paid the....
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....ale dated February 7, 2005, as noted below: --------------------------------------------------------- After T.R. No. Date Asst. Certified reduction/ Year arrears collection) --------------------------------------------------------- 256/91-92 31.10.90 84-85 Rs. 64,99,442 (Surtax) 256/91-92 16.09.91 86-87 Rs. 1,97,93,873 Income-tax 256/91-92 11.09.91 87-88 Rs. 2,09,33,386 Income-tax 596/03-04 15.10.03 88-89 Rs. 1,36,72,494 Income-tax 597/03-04 15.10.03 89-90 Rs. 4,78,20,955 Income-tax 598/03-04 15.10.03 97-98 Rs. 16,98,289 Income-tax --------------------------------------------------------- Total Rs. 11,04,18,439 ----------------------------------....
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....he first 3 years-Rs. 5,000 (total Rs. l80,000) For the second 3 years-Rs. 10,000 (total Rs. 3,60,000) For the third 3 years-Rs. 15,000 (total Rs. 5,4O,000) The second lease deed dated December l 1990, has been written on Rs.20 stamp paper and the third lease deed dated August 20, 1999, has been written on Rs. 10 stamp paper. The alleged lease deeds are signed by C. Venkateswaran and his wife-Sujatha Venkateswaran as lessee and lessor, respectively. No witnesses have signed. Before the Tax Recovery Officer, the auction purchasers had raised a plea that in consideration of the close relationship of the directors of both the companies, the lease arrangements relied on are bogus and the transaction is a sham and nominal one. The auction purchasers have referred to the number of circumstances in support of their contention that the alleged lease arrangement has been created to defraud the lawful claim of the Department and the auction purchasers. The auction purchasers have also referred to the letter of CVFL dated March 11, 2005, wherein CVFL claimed ownership of the property claiming that Coodluck Preview Theatre was transferred in their name for which there was no liabili....
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....measures to evict GVFL in collusion with the auction purchasers and the impugned order of the Tax Recovery Officer is biased and cannot be implemented. The Tax Recovery Officer has improperly discarded the materials produced by GVFL proving that it is a tenant and such misreading of evidence led to the wrong conclusion. Supplementing the elaborate arguments on behalf of the applicant/plaintiff, written submissions were also submitted. Learned counsel for the applicant/plaintiff has also drawn the attention of the court to a number of decisions reported in Iax Recovery Officer v. Gangadhar Viswanath Ranade [1998] 234 ITR 188 (SC); [1998] 6 SCC 658, Dev Raj Dogra v. Gyan Chand Jain, AIR 1981 SC 981, Puran Chand and Co. v. Ganeshi Lal Tara Chand, AIR 2001 Delhi 175, A. Stephen Samuel v. Union of India [2004] 118 Comp Cas 82 (Mad) ; [2003] 2 MLJ 220 and a number of other decisions. Contentions of auction purchasers-defendants : Countering the arguments, learned senior counsel for the auction purchasers, Mrs. Nalini Chidambaram has drawn the attention of the court to the terms of the lease and contended that the terms of the lease deed are un-usual inevitably leading to the ....
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.... Contending that rule 39, ITCP Rules, applies, Ms. Pushya Sitaraman, learned senior standing counsel for the Income-tax Department has made the following submissions: Income-tax arrears for the year 1984-85 were cleared only on March 21, 1990, and rule 2 notice was issued on February 27, 1987. The lease deed after issuance of rule 2 notice is hit by rule 16. Form No. 13, ITCP Rules, is a prescribed form and there is no necessity either for manipulation or commission. The mistake that crept in the Tamil translation was only an inadvertent mistake of which the petitioner/plaintiff cannot take advantage. The same parties and family members were in managerial position having control over both the companies. Hence, it has become necessary for the Tax Recovery Officer to lift the corporate veil to look into the realities. The entries in the book, claimed are self-contradictory and are not complete. In view of clear indication of collusive arrangement to evade tax, the Tax Recovery Officer has elaborately gone into the details and found that the claim of tenancy is not proved. Exercising power under article 226, the High Court would not interfere with the findings of ....
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....ting that in default steps would be taken to realise the amount under this Schedule." The effect of the rule 2 notice is that under rule 16, the defaulter becomes incompetent to deal with the property owned by it by way of sale or lease. Rule 16 of Schedule II reads: "Private alienation to be void certain cases.-(1) Where a notice has been served on a defaulter under rule 2, the defaulter or his representative-in-interest shall not be competent to mortgage, charge, lease or otherwise deal with any property belonging to him except with the permission of the Tax Recovery Officer, nor shall any civil court issue any process against such property in execution of a decree for the payment of money. (2) Where an attachment has been made under this Schedule, any private transfer or delivery of the property attached or of any interest therein and any payment to the defaulter of any debt, dividend or other monies contrary to such attachment, shall be void as against all claims enforceable under the attachment." Rule 48 of the Second Schedule refers to attachment of immovable property of the defaulter by an order prohibiting the defaulter from transferring or charging the property....
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....,50,604 (rupees thirty five lakhs fifty thousand six hundred and four only). Thereafter, G. Venkateswaran as the chairman of SFL had executed a bond (Safurdanama) on March 20, 1990, undertaking that he would not sell or otherwise encumber the assets till the entire amount due from him is paid to the Tax Recovery Officer. The undertaking reads: "...I specify herein my assets as on this day (as per annexure), and I agree not to sell, give away, transfer, mortgage, or otherwise deviate or encumber these assets in any way until the entire amount due from me is paid to the Tax Recovery Officer-I (Central), Madras, in full. I agree that in the meanwhile, these assets may be continued to remain attached, if considered necessary..." Two things emerge: i. G. Venkateswaran has signed as the chairman of SFL, undertaking not to encumber the assets; ii. If really there had been lease on November 28, 1989, SFL would have certainly mentioned about the lease deed dated November 28, 1999. Non-mention about the lease deed in the bond (Safurdanama) executed by SFL probabilises the doubt about the first lease deed dated November 28, 1989. Further, SFL and G. Venkateswaran have undertake....
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....set off on the interest on the security deposit of Rs. 75,00,000 at 10 per cent. per annum. As discussed infra, the terms of the lease arrangement are unusual. It is quite unbelievable that for the monthly rent of Rs. 5,000 (Rs. 60,000 per annum), Rs. 10,000 (Rs. 1,20,000 per annum) Rs. 15,000 (Rs. 1,80,000 per annum), a huge security deposit of Rs. 75,00,000 was paid by GVFL to SFL. The bond (Safurdanama) had been executed by G. Venkateswaran on behalf of SFL relating to the arrears amounting to Rs. 2,77,44,312 due in respect of certificate Nos. T.R. 189/89, 190/90 dated February 27, 1987. The certificate T. R. No. 190/89-90 which is dated January 31, 1990, is also covered under the safurdanama. Though the date of that certificate is mentioned as February 27, 1987, the safurdanama is also in respect of certificate T. R. No. 190/89-90, which is dated January 31, 1990. Hence, the undertaking not to sell, alienate or encumber covers the notice dated January 31, 1990, also. Hence, the second lease deed dated December 1, 1990, which is subsequent to the safurdanama is in clear violation of the undertaking in the safurdanama. The unnaturalness of the terms and other features of....
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....te steps for evicting the tenant. Learned counsel for the plaintiff has also submitted that GVFL being a tenant which has never claimed title in the Goodluck Preview Theatre and hence rule 39, ITCP Rules, is not applicable and only rule 40, ITCP Rules, is applicable. Rule 39, ITCP Rules, deals with delivery of immovable property in occupancy of defaulter, which reads as under: "Delivery of immovable property in occupancy of defaulter.-(l) Where the immovable property sold is in the occupancy of the defaulter or of some person on his behalf or of some person claiming under a title created by the defaulter subsequently to the attachment of such property and a certificate in respect thereof has been granted under rule 65 of the principal rules, the Tax Recovery Officer shall, on the application of the purchaser, order delivery to be made by putting such purchaser or any person whom the purchaser may appoint to receive delivery on his behalf in possession of the property, and if need be, by removing any person who refuses to vacate the same. (2) For the purposes of sub-rule (1), if the person in possession does not afford free access, the Tax Recovery Officer may after giving ....
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...."Sale and proclamation of sale". Rule 52 reads: "Sale and proclamation of sale.-(l) The Tax Recovery Officer may direct that any immovable property which has been attached, or such portion thereof as may seem necessary to satisfy the certificate, shall be sold. (2) Where any immovable property is ordered to be sold, the Tax Recovery Officer shall cause a proclamation of the intended sale to be made in the language of the district." Rule 53 refers to the contents of the proclamation. Rule 53 reads: "Contents of proclamation.-A proclamation of sale of immovable property shall be drawn up after notice to the defaulter, and shall state the time and place of sale, and shall specify, as fairly and accurately as possible, (a) the property to be sold; (b) the revenue, if any, assessed upon the property or any part thereof; (c) the amount for the recovery of which the sale is ordered; (cc) the reserve price, if any, below which the property may not be sold; and (d) any other thing which the Tax Recovery Officer considers it material for a purchaser to know, in order to judge the nature and value of the property." Drawing the attention of the court to rules 52 a....
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....; bearing on its nature and value ----------------------------------------------------------------- (1) (2) (3) (4) (5) ------------....
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....bsp; Property Nungambakkam, tax charges Chennai 600 034. Rs. 94,540 Machinery items: Generator 62.5 K.V-l No. Projector 35mm -4 Nos. Lift-l No. (6 persons capacity) A. C. Plant &nbs....
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....n of column "5" must be * * *1 under which claim of CVFL to be the tenant ought to have been given. The mistake in the translated version of the proclamation of sale is only an inadvertent mistake. The building said to be under lease to GVFL is only a claim put forward to the property by GVFL which has been correctly shown in the English proclamation of sale column No.5. Much arguments advanced by the plaintiff that the Department is estopped from denying the tenancy of GVFL have no merit. A mistaken statement in the Tamil version of the proclamation cannot prevent the Tax Recovery Officer from holding the tenancy as sham and void. Under rule 52(2), the proclamation of sale is to be made in the language of the district. Hence, it is contended that the language of Chennai District being Tamil, only the Tamil proclamation shall govern the parties and that the Department cannot claim based upon the English version. This contention does not merit acceptance. The English version along with the Hindi version is the official format. Tamil proclamation and English proclamation.-Rule 22, ITCP Rules, deals with Forms, which shall be used for the purpose mentioned against each. Form ....
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....nbsp; bearing and any on its other persons nature and as co-owners value -------------------------------------------------------------- 1 2 3 &nbs....
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.... Year arrears collection) --------------------------------------------------------- 256/91-92 31-10-90 84-85 Rs. 64,99,442 (Surtax) 256/91-92 16-09-91 86-87 Rs. 1,97,93,873 Income-tax 256/91-92 11-09-91 87-88 Rs. 2,09,33,386 Income-tax 596/03-04 15-10-03 88-89 Rs. 1,36,72,494 Income-tax 597/03-04 15-10-03 89-90 Rs. 4,78,20,955 Income-tax 598/03-04 15-10-03 97-98 Rs. 16,98,289 Income-tax --------------------------------------------------------- Total Rs. 11,04,18,439 --------------------------------------------------------- By comparison of the Tamil and English proclamation, it is ....
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.... recoverable together with interest in accordance with section 220(2) of the said Act; and the costs, charges and expenses of the proceedings for the recovery thereof; And whereas the undersigned has ordered the sale of the attached property mentioned in the annexed schedule in satisfaction of the said certificate; And whereas on the............day of............ 19 .....(the date fixed for the sale) there will be due thereunder a sum of Rs................ including costs and interest..." Thus, the total amount due from the defaulter and the details of the certified copy of the certificate under section 223(2) of the Income-tax Act specifying that amount to be recovered from the defaulter are to be stated. Accordingly, in the Tamil proclamation, the total amount due from SFL has been stated as Rs. 11,04,18,437. The amount due including interest and other expenses is stated as Rs. 19,57,78,191. Certificate T. R. No. 256/91-92 relates to three assessment years as under: --------------------------------------------------------- &nb....
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.... in the Tamil proclamation. For example, we may refer to the court proceedings of sale wherein the proclamation is issued (Order 21, rule 66, of the CPe). In the proclamation of sale issued by the court, the split up details of the decree amount, subsequent interest and the cost are not separately shown. Only the total amount due is stated in the proclamation. The contention advanced that T. R. No. 256/91-92 dated January 31, 1990, for the assessment year 1984-85 has been deliberately included has no force and the same is to be brushed aside. The contention of the plaintiff is that the auction purchasers had purchased the property with open eyes very well knowing that the property is subject to tenancy and that they cannot seek to dispossess the tenant with the assistance of the Income-tax Officers. It is also contended that the auction purchasers had only stepped into the shoes of the defaulter/landlord. It is also contended that as per rule 6(1} of Schedule II, the auction purchasers are only entitled to the right, title and interest of the defaulter and they cannot claim any such right or privilege merely because they are auction purchasers. Rule 6(1} of the Second Sche....
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....er than the defaulter, he shall direct that the applicant be put into possession of the property. Rule 47 deals with the right to file a suit by a person other than the defaulter to establish the right which he claims to be in possession of the property in question. Learned counsel for the plaintiff drew parallel from the Code of Civil Procedure, Order 21, rule 95, and Order 21, rule 96, c.P.c. and contended that the auction purchasers would be entitled to possession only in accordance with rule 40, ITCP Rules, and the delivery contemplated under rule 39, ITCP Rules, cannot be effected. Drawing the attention of the court to the abovesaid rules of the ITCP Rules and Order 21, rule 95, and Order 21, rule 96, C.P.C. learned counsel for the applicant/plaintiff has contended that the auction purchasers can only claim symbolical possession and that the tenants cannot be evicted by the Recovery Officer. In support of his contention, learned counsel for the plaintiff has relied upon the decision reported in A. Stephen Samuel, Proprietor M/s. Industrial Security Agency v. Union of India [2004] 118 Comp Cas 82 (Mad) ; [2003] 2 MLJ 220. In comparison of the ITCP Rules with the Civil Pro....
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....f such property, but he would not be entitled to claim that the tenants should be directed to hand over actual possession of the respective portions of the property in their possession. In our view, it is impermissible for the auction purchaser to get actual possession of the property by throwing the tenants out of the property. The auction purchaser, in our view, will be entitled to possession in accordance with rule 40 of the ITCP Rules and the delivery contemplated in the rule is not actual delivery, but symbolical delivery of the property to the auction purchaser." The case before the Division Bench was a case where the persons in occupation were the lawful tenants nor did they claim title to be in occupation of the properties under a title created by the judgment-debtor subsequent to the attachment by the recovery officer. In the factual circumstances of the case, the Division Bench has observed that the auction purchaser would not be entitled to claim that the tenant should be directed to hand over vacant possession and that rule 40, ITCP Rules, is onlyapplicable. In the case in hand, the alleged tenancy between the husband and wife raised doubts about the genuineness of t....
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....1962. The Tax Recovery Officer has passed the order that none of the lease deeds are registered and that the lease arrangement is invalid and not enforceable. The Tax Recovery Officer has further held that the terms and conditions of payments are doubtful and that serious doubts arise as to the genuineness of the transactions since the property was already under order of attachment by the Department. After elaborately considering the facts and circumstances, the Tax Recovery Officer has held that the lease arrangements are sham and nominal and are invalid and not legally enforceable. The order of the Tax Recovery Officer is vehemently attacked contending that the Tax Recovery Officer has no jurisdiction to decide the question and that his jurisdiction under rule 39 is limited only to three instances thereon and the finding of the Tax Recovery Officer as to the validity of the lease agreements is beyond the jurisdiction of the Tax Recovery Officer. It is further contended that the Tax Recovery Officer had only limited jurisdiction to determine whether the obstructors claim as a tenant is bona fide or not and that the Tax Recovery Officer has no jurisdiction to further go into the....
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....over in this case is an interested party as it is in the interests of the Revenue to make such a declaration and proceed to recover the vendor's arrears of tax from such person. 7. The Supreme Court of India in its recent decision rendered in the case of TRO v. Gangadhar Viswanath Ranade [1998] 234 ITR 188 has held that if the Department finds that the assessee has transferred a property to a third party with the intention to defraud the Revenue, the Revenue will have to file a suit under rule 11(6) of Schedule II to the Income-tax Act to have the transfer declared void under section 281 of the Income-tax Act. 8. It is, therefore, clear that the Income-tax Officer had no jurisdiction to declare the transaction of sale to which the petitioners were parties as purchasers, as void. The impugned order, in so far as it affects the petitioners' interest in the property is, therefore, set aside.The writ petitions are allowed accordingly." Mainly placing reliance upon the above decision, it is submitted that the adjudication regarding the validity of the lease agreement is the domain of the court and that any adjudication regarding the validity of the transaction must be sought on....
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....onsidered the submissions and found that even though the veracity of the lease deeds and the tenancy rights are not going to, be decided by him, it has become essential to make an observation and finding based on the documents produced and the submissions made during the hearing as to whether GVFL is a tenant of SFL, which has a bearing on the question with regard to the applicability of rule 39 of the ITCP Rules. The Tax Recovery Officer derives his powers under the Second Schedule and the Income-tax (Certificate Proceedings) Rules under section 136 of the Income-tax Act. All proceedings before the Tax Recovery Officer are judicial proceedings. Under rule 82 officers are deemed to be acting judicially. Under rule 83, officers shall have the powers of a civil court. Apart from the above, the Tax Recovery Officer derives jurisdiction from the fact that the court directed him to hold enquiry to see whether rule 39 would apply. The Tax Recovery Officer has therefore acted in accordance with law following due process of law and the finding as to the applicability of rule 39, ITCP Rules, does not suffer from any irregularity in approach. Maintainability of the suit: Directing the ....
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....o the result of such suit (if any), the order of the Tax Recovery Officer shall be conclusive." In the suit, the claimant or the objector has to therefore establish that the property is not liable to be attached or sold in execution of a certificate. The suit filed by the plaintiff for bare injunction insisting upon "due process of law" attacking the order of the Tax Recovery Officer dated May 4, 2005, cannot be construed as a suit under rule 11(6). Under section 293 of the Income-tax Act, such a civil suit against any proceedings or order of the officer is barred. Section 293 of the Income-tax Act is as under: "Bar of suits in civil courts.-No suit shall be brought in any civil court to set aside or modify any proceeding taken or order made under this Act, and no prosecution, suit or other proceeding shall lie against the Government or any officer of thEUR Government for anything in good faith done or intended to be done under this Act." The plaintiff has filed the suit for permanent injunction restraining the defendants from interfering with the plaintiff's peaceful possession and enjoyment of the property. Under section 293 of the Income-tax Act, no suit shall be bro....
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....stion belonged to his step-mother who beq¥eathed the same for the benefit of the children of the plaintiff and other children that would be born to the second wife of his father. This version did not find favour with the Income-tax Officer and he was not satisfied that the gold ornaments in question did not belong to Babulal. It was, therefore, not necessary for him to issue any notice under sub-section (7) of section 132 of the Act to the plaintiff. In any case, the plaintiff was well aware of the proceedings before the Income-tax Officer and she could have also filed objection to the order made by the Income-tax Officer under section 132(5) of the Act to the Chief Commissioner or Commissioner under sub-section (11) thereof, of which remedy she did not avail. Considering the whole gravamen of the plaint in the suit and the law on the subject, we are of the opinion that the subordinate judge and the High Court were not correct in rejecting the, contennon of the Revenue and holding that the suit was not barred under section 293 of the Act..." The decision reported in Malabar Produce and Rubber Co. Ltd. v. TRO [1990] 184 ITR 275 before the Kerala High Court is a case of identi....
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....proceeding is taken under an ultra vires provision. We will now consider the scope of the other relevant provisions of the Income-tax Act and the Income-tax (Certificate Proceedings) Rules. Rule 9 of the Second Schedule to the Income-tax Act limits the jurisdiction of the civil court to decide questions arising between the Income-tax Officer and the defaulter or the representatives, relating to the execution, discharge or satisfaction of the certificate duly filed under the Income-tax Act, or relating to the confinnation or setting aside by an order under the Act of the sale held in execution of such certificate. Such disputes shall be determined only by the order of the Tax Recovery Officer. The proviso added to this rule, however, recognises the rights of a party to institute a suit before a civil court in respect of any such question upon the ground of fraud. What are the questions that can be determined by the Tax Recovery Officer after investigation are enumerated under rule 11. This rule provides that where any claim is preferred to, or any objection is made to the attachment or sale of, any property in execution of a certificate, on the ground that such property is not liabl....
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....xcluded. That is the effect of section 293 also. If that be so, the suit filed by GVFL is neither under rule 11(6) of the Second Schedule nor under rule 47 of the ITCP Rules and the same is not maintainable. W. P. No. 17576 of 2005 is filed to quash the order of the Tax Recovery Officer in letter No. Auction/05-06 dated May 4,2005, and also for injunction restraining the Department from interfering with the petitioner (GVFL) physical possession of the premises-Goodluck Preview Theatre. In this writ petition, the subsequent order passed by the Tax Recovery Officer on September 29, 2005, is also now sought to be quashed. The question arises to what extent the order of the Tax Recovery Officer could be challenged under the writ jurisdiction. In a writ petition under article 226 of the Constitution of India, the High Court does not exercise appellate jurisdiction. Holding that the High Court does not exercise appellate jurisdiction under article 226 of the Constitution of India, in the decision reported in Indian Overseas Bank v. I. O. B. Staff Canteen Workers' Union [2000] 96 FJR 629 ; [2000] 4 SCC 245, the Supreme Court has held: "The learned single judge seems to have undertak....
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....ere is some legal evidence on which the findings is based the adequacy or even reliability of that test is not a matter for canvassing before the High Court. While exercising the jurisdiction under article 226 of the Constitution of India, the High Court would interfere only when there is violation of the principles of natural justice or violation of statutory requirements prescribing the mode of such enquiry or the order is so arbitrary that no reasonable person could have arrived at such a conclusion. Exercising jurisdiction under article 226 of the Constitution of India, the High Court does not act as a court of appeal over the findings recorded by the competent authority. The finding cannot be reappreciated for sufficiency or satisfactory. Since before the Tax Recovery Officer, the parties had ample opportunities and made their elaborate submissions and also adduced numerous evidence, there is no question of violation of principles of natural justice. The correctness of the decision of the Tax Recovery Officer (dated September 29, 2005) has to be seen in the light of : i. acted upon irrelevant considerations; ii. refusing to take into account admissible evidence and re....
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....p; managing director Management of Co.'s affairs ----------------------------------------------------------- ----------------------------------------------------------- Qualification & Date of commencement Last experience of employment employment ----------------------------------------------------------- B. Com., F.C.A. 01-09-1989 &nb....
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....issued by the Income-tax Department in respect of the account of SFL. ii. G. Venkateswaran has only requested the Department to withdraw the prohibitory order, but has not stated anything about the lease deed dated November 28, 1989. iii. G. Venkateswaran signed as the chairman of SFL. Thus, it is clear that G. Venkateswaran was acting two faceted. In GVFL, G. Venkateswaran was acting as the chairman and managing director by himself. In SFL, G. Venkateswaran was acting in the name of his wife while he himself was transacting the business of SFL. Under such circumstances, the Tax Recovery Officer was well justified in lifting the corporate veil to ascertain the realities. On behalf of the plaintiff, it is mainly contended that the Tax Recovery Officer has no jurisdiction to go beyond the documents shown to him and cannot conduct any further enquiry. This contention has no substance. The Tax Recovery Officer derives his powers under the Second Schedule and the Income-tax (Certificate Proceedings) Rules. Under section 136, Income-tax Act, all proceedings before the officer shall be judicial proceeding. Under rule 82 of the Second Schedule, every officer acting under this S....
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....only an alter ego or corporate reflection of the tenant-firm and that two were one for all practical purposes having substantial identity. Though the observation was made in a different context (finding that there was no sub-letting of the premises by the firm to the company, so as to attract section 14(1)(b) of the Rent Control Act), the observation applies to the case in hand. Both the companies of SFL and GVFL having separate legal entity actually operating from the same place-Sujatha Centre, No.4, Seshadri Road, Alwarpet, Chennai 600 018. G. Venkateswaran was acting on behalf of both GVFL and SFL. From the facts and circumstances and the conduct of the parties, it is clear that GVFL and SFL are only the alter ego or corporate reflection of one another. Holding that the court could lift the veil, in the decision reported in CIT v. Sri Meenakshi Mills Ltd. [1967] 63 ITR 609 (SC) ; [1967] 1 SCR 934, the Supreme Court observed has held: "The Appellate Tribunal has, upon examination of the evidence, found that the transference of funds from Pudukottai to Madurai was made as part of the basic arrangement between the bank and the assessee-companies and that Thyagaraja Chettiar w....
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....bunal also found that there was only a change of personnel in the' managing agency and not a change in office and that the assessee had no right of compensation for any loss of office. In a matter of this description it is well-established that the income-tax authorities are entitled to pierce the veil of corporate entity and look at the reality of the transaction. It is true that from juristic point of view the company is a legal personality entirely distinct from its members and the company is capable of enjoying rights and being subjected to duties which are not the same as those enjoyed or borne by its members." The Supreme Court has further observed: "But, in certain exceptional cases, the court is entitled to lift the veil of corporate entity and to pay regard to the economic realities behind the legal facade. For example, the court has power to disregard the corporate entity if it is used for tax evasion or to circumvent tax obligation or to perpetrate fraud." Thus, it is well-established that in exceptional cases, the court/Income-tax Department is entitled to lift the veil of corporate entity and to pay regard to the economic realities behind the corporate entity.....
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....writing. Such unregistered document cannot be looked into to prove the terms of the partition. But, however the same is inadmissible in evidence for the purpose of creating, declaring, assigning, limiting or extinguishing a right to immovable property. The expression 'collateral purposes' is no doubt a very vague one and the court must decide in each case whether the parties who seek to use the unregistered document for a purpose which is really a collateral one or as is to establish the title to the immovable property conveyed by the document. But, by the simple devise of calling it 'collateral purpose', a party cannot use the unregistered document in any legal proceedings to bring about indirectly the effect which it would have had if it registered." Apart from the fact that the lease deeds are hit by rule 16 of the Second Schedule, the lease deeds being unregistered are void. The lease deeds being unregistered, it is impossible to look into the deeds for the purpose of ascertaining. For want of registration, the unregistered documents are to be discarded and the plaintiff cannot seek protection of possession under due process of law. The unregistered deed of lease cannot be t....
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....said property, the same could not be attached for the dues of the assessee. Thereafter, after issuing a show-cause notice under section 281 (as it then stood) of the Income-tax Act, the Income-tax Officer declared on May 9, 1974, that the transfer of the said property was void under section 281. On September 17, 1981, the Tax Recovery Officer overruled the objections filed by the objectors and declared the trust deed and the conveyance of the property to be illegal and void and the property, liable to attachment. The High Court set aside this order of the Tax Recovery Officer. The question before the Supreme Court was whether in a proceeding under rule 11 of the Second Schedule to the Income-tax Act, the Tax Recovery Officer could himself declare a transfer as void under section 281. On such factual circumstances of the case, the Supreme Court has held: "The Tax Recovery Officer has to examine who is in possession of the property and in what capacity. He can only attach property in possession of the assessee in his own right, or in possession of a tenant or a third party on behalf of/for the benefit of the assessee. He cannot declare any transfer made by the assessee in favou....
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....imant is in his own right or on behalf of the assessee. It is further submitted that if the Tax Recovery Officer comes to the conclusion that the plaintiff is in possession in his own right, the Tax Recovery Officer has to raise the attachment. It is very much urged that if the Department desires to have the transaction of transfer declared void under section 281, the Department being in the position of a creditor will have to file a suit for declaration that the transaction of transfer is void under section 281 of the Act. On behalf of the plaintiff it is also contended that the Tax Recovery Officer could not have examined the validity or otherwise of the lease deeds and showing that the lease deeds are void and the adjudication of the Tax Recovery Officer finding that the lease deeds are not valid is without jurisdiction and has to be set aside. This contention has no force for more than one reason. In the said case before the Supreme Court, the trust deed was executed in favour of the wife and daughter of the assessee on February 21, 1969. Rule 2 notice was issued long thereafter on October 23, 1972. The trust deed was executed at least three years prior to issuance of rule 2 no....
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....ember 1, 1990, is said to be for a period of nine years ending on November 30, 1999. The security deposit is alleged to have been increased to Rs. 75,00,000. This lease deed having been executed after rule 2 notice is void. The terms of the lease are again unusual. The lease deposit is alleged to have been increased to Rs. 75,00,000. -Rs. 15,00,000 already paid under the earlier agreement-Rs. 38,00,000 (Rs. 15,00,000 on September 17, 1990, another Rs. 15,00,000 on October 27, 1990, Rs. 2,00,000 on November 21, 1990, and Rs. 6,00,000 on November 28, 1990) Rs. 22,00,000 paid under mutually convenient instalment. The alleged lease rent is: First 3 years-Rs. 5,000, i.e., December 1, 1990, to November 30, 1993. Second 3 years-Rs. 10,000, i.e., December 5, 1993, to November 30, 1996. Third 3 years-Rs. 15,000 from December 1, 1996, to November 30, 1999. To prove the alleged additional security deposit of Rs. 60,00,000, before the Tax Recovery Officer, GVFL has produced ledger pages as corroborative evidence. The balance-sheet as on March 31, 1991, is relied upon to prove the payments. Learned counsel for the plaintiff has drawn the attention of the court to the annual....
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...., he was in a personal financial turmoil. It is further stated that under such financial crisis, he raised funds from third party and in consideration of which, he conveyed the property at Kodaikanal, which was in the name of Sujatha Estates P. Ltd. (SEPL), a defunct company, whose shares were held by him and members of his family. It is further alleged that to avoid stamp duty of conveyance, C. Venkateswaran transferred all the shares in SEPL to the buyer of the said property and while doing so, he found that Rs. 50,00,000 was shown as due to SEPL by CVFL. It is further alleged that to ensure that the third party buyer does not acquire the book debt against CVFL, C. Venkateswaran is said to have made adjustment entries in the account books of CVFL as if a sum of Rs. 50,00,000 was credited from SFL-the defaulter company and in turn debited to SEPL and in view of that entry, the lease deposit of CVFL with SFL got reduced to Rs. 25,00,000 against the actual figure of Rs. 75,00,000. Contending that in view of such book entry, the lease deposit has reduced, learned counsel for the plaintiff has submitted that CVFL has explained the reduction of the lease amount and the reduction of the....
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....L is in possession of Goodluck Preview Theatre as an entity representing the defaulter. An identical case arose before the Supreme Court in the decision reported in Subra Mukherjee v. Bharat Coking Coal Ltd. [2000] 101 Comp Cas 257 ; [2000] 3 SCC 312. In the said case, directors of a private coal mining company executing sale deed in respect of property (bungalow and lands) owned by company on March 20, 1972, and the Coal Mines (Nationalisation) Act, 1973, coming into force on May 1, 1973. Pointing out that the purchasers of the property were the wives of the two directors of the company having no independent income, the Supreme Court found that the sale in favour of the appellants was not bona fide and thus conferred no rights on them. Rejecting the contention of the appellant that company is a separate legal entity, which is independent of its directors and shareholders, the Supreme Court held: "... The principle laid down in Salomon's case more than a century ago in 1897 by the House of Lords that the company is at law a different person altogether from the subscribers who have limited liability, is the foundation of joint stock company and a basic incidence of incorporati....
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.... has no tenancy rights over the property and they are not the tenants of SFL. We may sum up the conclusion as: i. Lease deeds being unregistered cannot be looked into for any purpose. ii. Alleged lease deeds after issuance of rule 2 notice are hit by rule 16 of the Second Schedule. iii. Terms of the lease deeds are unusual. iv. The alleged lease deposit of huge amount of Rs. 75,00,000 is quite improbable. v. The lease deeds being rent free (in lieu of interest of Rs. 75,00,000) is equally unbelievable. For the foregoing reasons, there is every reason to presume that the alleged deeds are a deliberation of C. Venkateswaran, who himself was an erstwhile chartered accountant to avoid tax. Under such facts and circumstances of the case, the Tax Recovery Officer justifiably lifted the corporate veil to discard the lease deeds and was right in finding that "GVFL" has been in possession of the property as an entity representing the defaulter as the lease arrangement is only a facade to transfer the perpetual enjoyment of the property. Now, we may briefly refer to the innumerable arguments advanced on behalf of the plaintiff, which stretched over for a couple of weeks.....
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....ng the writ jurisdiction, the High Court cannot interfere with the finding of the Tax Recovery Officer except where it is perverse in the sense that it is based on no material whatsoever. The High Court would interfere only if the order is vitiated like refusal of admissible evidence and erroneously admitting inadmissable evidence and there is misreading of evidence and the like. The power cannot be used to correct a finding, which is based on the materials. In proper appreciation of the evidence and materials placed, the Tax Recovery Officer has rightly passed the order that only rule 39, ITCP Rules, would apply and that GVFL is not a tenant. That order of the Tax Recovery Officer is neither perverse nor unreasonable nor suffers from any irregularity or illegality of procedure warranting interference. The lease deeds are created deliberately adding the clauses to stall the legitimate proceedings of the Department against Goodluck Preview Theatre owned by SFL. Insistence of due process of law is dubious. If the plea of GVFL that they could be evicted only under due process of law is accepted, it would seriously impair the departmental proceedings and the interest of the auction ....
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.... clause (c) of Order 6, rule 16, of the Code is confined to cases where the abuse of the process of the court is manifest from the pleadings; and that this power is unlike the power under section 151 whereunder courts have inherent power to strike out pleadings or to stay or dismiss proceedings which are an abuse of their process. In the present case, the High Court has held the suit to be an abuse of the process of court on the basis of what is stated in the plaint. 43. The Supreme Court Practice 1995 published by Sweet and Maxwell in paragraph 18/19/33 explains the phrase "abuse of the process of the court" thus: 'This term cannotes that the process or the court must be used bona fide and properly and must not be abused. The court will prevent improper use of its machinery and will in a proper case, summarily prevent its machinery from being used as a means of vexation and oppression in the process of litigation... The categories of conduct rendering a claim frivolous, vexatious or an abuse of process are not closed but depend on all the relevant circumstances. And for this purpose considerations of public policy and the interests of justice may be very material". 44. On....
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....operty sold is in the occupancy of the defaulter or of some person on his behalf or of some person claiming under a title created by the defaulter subsequently to the attachment of such property and a certificate in respect thereof has been granted under rule 65 of the principal rules, the Tax Recovery Officer shall, on the application of the purchaser, order delivery to be made by putting such purchaser or any person whom the purchaser may appoint to receive delivery on his behalf in possession of the property, and if need be, by removing any person who refuses to vacate the same. (2) For the purposes of sub-rule (1), if the person in possession does not afford free access, the Tax Recovery Officer may, after giving reasonable warning and facility to any woman not appearing in public according to the customs of the country to withdraw, remove or open any lock or bolt or break open any door or do any other act necessary for putting the purchaser, or any person whom the purchaser may appoint to receive delivery on his behalf, in possession." Thus, it is incumbent on the Tax Recovery Officer to effect delivery of the possession of the auction purchasers. If need be by removing ....
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....nly in the interest of justice immediate delivery of possession is ordered. In case, if the plaintiff succeeds, in the appeal, the plaintiff could very well invoke section 144, C.P.C. seeking for restoration of possession. Hence, the immediate delivery of possession ordered cannot be kept in abeyance as prayed for by learned counsel for the plaintiff. Before we part with the matter, we may mention the repeated arguments advanced by the plaintiff alleging collusion between the Department and the auction purchaser. Learned counsel for the plaintiff has referred to the Department taking delivery of possession on July 13, 2005, which has been followed by F. M. Ibrahim Kalifulla J., order dated August 22, 2005. At that time, the Department has submitted that in view of rule 39, ITCP Rules, possession was taken by the Department on July 13, 2005. F. M. Ibrahim Kalifulla, J., has found that the Department was not justified in doing so. The contention of the plaintiff alleging collusion between the Department and the auction purchaser has no force in view of rule 39(2), ITCP Rules, and rule 9 of the terms and conditions of the auction. Be that as it may, it is to be noted that in fac....