Skip to content


M.R. Anthony Swamy Vs. Commissioner of Income-tax, Karnataka-i and ors. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKarnataka High Court
Decided On
Case NumberWrit Petition No. 221 of 1979
Judge
Reported in(1981)24CTR(Kar)1; [1982]135ITR424(KAR); [1982]135ITR424(Karn); [1981]7TAXMAN310(Kar)
ActsIncome Tax Act, 1961 - Sections 61 and 264
AppellantM.R. Anthony Swamy
RespondentCommissioner of Income-tax, Karnataka-i and ors.
Appellant AdvocateR. Venkateshwar Rao, Adv.
Respondent AdvocateS.R. Rajasekharamurthy and ;C.S. Kothavale, Advs.
Excerpt:
- karnataka scheduled castes & scheduled tribes (prohibition of transfer of certain lands) act, 1978, sections 3(e) & 4: [arali nagaraj,j] usufructuary mortgage of granted land validity - suit for permanent injunction against defendants restraining them from interfering with taking of the yield of fruits from mango trees grown in the lands in question - defendants suit for declaration that the registered sale deed dated 18.2.1987 as null and void - transfer of land covered under the ptcl act - held, though the said transaction is described as sale and though the document is described as sale deed in substance the said transaction was one of usufructuary mortgage with possession of the said land and the said mango trees grown thereon entitling the plaintiff to enjoy te fruits of the.....chandrakantaraj urs, j.1. the petitioner in this writ petition has assailed the legality of the order date july 14, 1978, passed by the tax recovery office-iii, bangalore (2nd respondent herein), passed under r. 61 of sch, ii to the i.t. act, 1961 (hereinafter referred to as 'the act'), as well as the order date december 30, 1978, passed under sub-r. 1(c) of r. 86 of sch. ii to the act, in appeal, by the 1st respondent, commissioner of income-tax, karnataka-i. 2. the petitioner is a contractor by profession and is also an assessee borne on the file of the ito, assessment-2 circle ii, bangalore. he was assessed to income-tax for the relevant assessment years 1968-69 and 1972-73. aggrieved by the assessment orders, he preferred appeals the aac partly allowed the appeal relating to the.....
Judgment:

Chandrakantaraj Urs, J.

1. The petitioner in this writ petition has assailed the legality of the order date July 14, 1978, passed by the Tax Recovery Office-III, Bangalore (2nd respondent herein), passed under r. 61 of Sch, II to the I.T. Act, 1961 (hereinafter referred to as 'the Act'), as well as the order date December 30, 1978, passed under sub-r. 1(c) of r. 86 of Sch. II to the Act, in appeal, by the 1st respondent, Commissioner of Income-tax, Karnataka-I.

2. The petitioner is a contractor by profession and is also an assessee borne on the file of the ITO, Assessment-2 Circle II, Bangalore. He was assessed to income-tax for the relevant assessment years 1968-69 and 1972-73. Aggrieved by the assessment orders, he preferred appeals the AAC partly allowed the appeal relating to the assessment year 1968-69 and in respect of the assessment year 1972-73, he confirmed the assessment order made by the ITO. Aggrieved by the orders of the AAC, the petitioner preferred revision petitions to the 1st respondent-Commissioner of Income-tax, Karnataka-I, Bangalore, under s. 264 of the Act on November 17, 1977, which were pending on the date of the filing of this petition. The ITO, in the meanwhile, and issued the recovery certificate on June 17, 1975, in respect of the petitioner to recover the arrears of tax of Rs. 4,10,372. The petitioner had made several requests to keep the recovery proceeding pending till the disposal of the revision petition. It is necessary to state that there was no stay of the recovery proceedings obtained by the petitioner from the Commissioner of Income-tax in the revision petitions pending before him. The TRO, 2nd respondent, proceeding under Pt. I of Sch. II to the Act brought to sale certain immovable property of the petitioner situated in Bangalore City. The proclamation of sale was issued on October 19, 1977, and the date of sale was fixed as 18th November, 1977. The sale was postponed from time to time and the property was sold by public auction on April 20, 1978. The reserved price was fixed at Rs. 55,000 and the property at the auction fetched the highest bid of Rs. 1,08,000. The property consisted of a vacant site measuring approximately 339 sq. yds. situated in what is now a commercial area known as 'Unity Commercial Complex' in the Mission Compound in Bangalore City. The property was purchased by the 3rd respondent - R. Shivashankar - a businessman. On the 3rd respondent-purchaser depositing the full amount, the sale came to be confirmed on July 31, 1978, by the 2nd respondent, though the issuance of the sale certificate was stayed by the 1st respondent on September 4, 1978.

3. The petitioner, soon after the sale, applied to the 2nd respondent under r. 61 of Sch. II to the Act praying for setting aside the sale , inter alia, contending :

(1) That the arrears were disputed in appeal and, therefore, the sale violated the principles of natural justice.

(2) That the petitioner had no saleable interest in the site sold.

(3) That the sale was held within 30 days after the issue of the sale proclamation contrary to r. 15(2) of Sch. II to the Act.

(4) That the sale was conducted without affording a reasonable opportunity to the petitioner.

(5) That the site was sold for a price far below the market value prejudicial affecting the interests of the petitioner as well as the revenue.

(6) That the site was sold deliberately out of vested interest.

4. The 2nd respondent-TRO in his proceedings under r. 61 of Sch. II to the Act dismissed the application made by the petitioner of setting aside the sale by a detailed order which is produced at Ex. B to the petition. Aggrieved by that order the petitioner preferred the appeal against the same under r. 86(1)(c) of Sch. II to the Act which also came to be dismissed by a considered order which is produced at Ex. A to the petition.

5. Aggrieved by the aforementioned orders of respondents Nos 2 and 1, respectively, the petitioner had questioned the validity of the same in this petition under arts. 226 and 227 of the Constitution, inter alia, contending that there had been a violation of r. 15(1) of Sch. II to the Act and further that the same was invalid as the proclamation of sale was not in the language of the district as required under r. 52 of Sc. II to the Act. It is further contended that there is non-compliance with r. 55 of Sch. II to the Act and that the sale was void for inadequacy old consideration. It is useful to mention now that after the rule was issued in his case, the Commissioner exercising his jurisdiction under s. 264 of the Act has set aside the assessment orders in question and demanded the same for fresh assessment and,therfore with the permission of the court a further ground was urged and that is that the sale was a nullity inasmuch as in the absence of assessments there were no tax arrears due for the relevant assessment years.

6. The department as well as the 3rd respondent have resisted the petition. It is contended for them that the grounds urged in the petition by the petitioner are not tenable grounds at all and that the petitioner is trying to make a futile attempt to get a sale set aside which has otherwise in law become final, title having vested in the 3rd respondent on the confirmation of sale in terms of r. 63 of Sch. II to the Act and nothing remains to be done except the mere formality of issuing the sale certificate which had been stayed by the 1st respondents that there has been no violation of any of the rules in Sch. II to the Act relating to the sale and even if this court were to hold that there was any material irregularity in the conduct of the sale, such material irregularity soul have caused substantial injury to the petitioner to hold that sale invalid, and that the petitioner had not placed any material before the court or the respondents to show that substantial injury had been caused to him. It is also contended for the respondent s that the application of the petitioner under r. 61 of Sch. II to the Act was correctly dismissed by the 2nd respondent-TRO inasmuch as there was no compliance with the mandatory requirement of depositing the tax claimed as required under r. 61(b) of Sch. II of the Act.

7. Mr. R. Venkateshwar Rao, learned counsel appearing for the petitioner, has first attacked the order of the 1st respondent dated December 30, 1978, which is at Ex. A to the petition on the sole ground that the said order is one made in violation of the rules of natural justice. According to the learned counsel, the refusal by the 1st respondent to adjourn the hearing of the appeal to another date was not justified resulting in the petitioner-appellant not having adequate opportunity to present his case when his counsel wanted time for submitting the arguments in support of the appeal. I do not think this attack should be sustained. Paragraph 3 of the order of the 1st respondent dated December 30, 1978, clearly sets out the reason why the 1st respondent was not willing to adjourn the hearing of the appeal. The petitioner had opportunity on December 16, 1978, but he remained absent on that date. It was only thereafter, the case was adjourned to December 30, 1978, and fresh notice sent to the petitioner which was served on December 22, 1978. Having regard to the fact that the notice was served on December 22, 1978, I must presume that the petitioner had ample opportunity to instruct a counsel and take him for the hearing of the appeal on December 30, 1978. Failure of the counsel to submit the arguments on all points on December 30, 1978, is an act for which the 1st respondent cannot be blamed. Evidently the petitioner as well his counsel do not appear to have approached the problem of the petitioner's appeal with the seriousness it deserved. On seeing the records and perusing the order of the 1st respondent, I am satisfied that the petitioner had ample and adequate opportunity to present his case. If he did not make use of that opportunity, he alone is to be blamed.

8. Next, Mr. Venkateshwar Rao has contended that under the provisions contained in r. 15(2) of Sch, II to the Act, it is mandatory that three should have been a fresh sale proclamation, as the sale did not take place on the date fixed in the original proclamation of sale but was adjourned from time to time beyond the period of 30 days. From the records it is seen that nearly six months lapsed between the date of sale proclamation and the actual date of sale on April 20, 1978. It is also seen from the records that no fresh sale proclamation was issued after the sale proclamation bearing the date October 15, 1977. Thus, it is seen that there has been a valuation of the provisions contained in sub-r. (2) of r. 15 of Sch. II to the Act. Therefore, the petitioner has established that there was material irregularity in the conduct of the sale. The question is whether the material irregularity is sufficient to set aside the sale under r. 61 of Sch. II to the Act in so far as the 2nd respondent is concerned. Rule 61 of Sch. II to the Act is as follows :

'61. Application to set aside sale of immovable property on ground of non-service of notice or irregularity. - Where immovable property has been sold in execution of a certificate, the Income-tax Officer, the defaulter, or any person whole interests are affected by the sale, may, at any time within thirty days from the date of the sale, apply to the Tax Recovery Officer to set aside the sale of the immovable property on the ground that notice was not served on the defaulter to pay the arrears as required by this Schedule or on the ground of a material irregularity in publishing or conduction the sale :

Provided that -

(a) no sale shall be set aside on any such ground unless the Tax Recovery Officer is satisfied that the applicant has sustained substantial injury by reason of the non-service or irregularity; and

(b) an application made by a defaulter under this rule shall be disallowed unless the applicant deposits the amount recoverable from him in execution of the certificate.'

9. From prov. (a) above it is clear that no sale shall be set aside on the ground of any material irregularity in publishing or conducting the sale unless the applicant satisfied the TRO that he has sustained substantial injury by reason of such material irregularity in the conduct of the sale. The Supreme Court in the case of Radhey Shyam v. Shyam Behari Singh, : [1971]1SCR783 , while construing O. 21, r. 90 of the CPC held that, in order to set aside an auction sale, mere proof of a material irregularity such as the one under r. 69 and inadequacy of the price realised in such a sale, in other words, injury, was not sufficient. It, however, held that what had to be established was that there was not only inadequacy of the price but that inadequacy was caused by reason of the material irregularity or fraud, thus establishing a connection between the inadequacy of the price and the material irregularity. In the instant case, the petitioner has not established that connection. No doubt in this court as well as before the respondents he has urged the ground that the sale was bad for want of adequate consideration. But the site had been sold on April 20, 1978, for the sum of Rs. 1,08,000. The site measures just about 340 sq. yds. There is no material placed before the court other than Ex. D, a valuation report by one H. G. Kashipathi, consulting engineer and engineering contractor and registered valuer for income-tax, wealth-tax, gift-tax and estate duty, under the Ministry of Finance (Revenue and Insurance), Government of India, New Delhi. That certificate does not bear any date. It, however, certifies that the petitioner's site sold on April 20, 1978, as on March 31, 1978, would be fairly of the value of Rs. 2,03,400. But from the records it is seen that the reserved price fixed was at Rs. 55,000. The petitioner has neither co-operated as borne out by the impugned order of the 2nd respondent in the preparation of the sale proclamation so that a fair market value could be fixed for the site even by consent. Not having done that, it is difficult to accept the valuation report which appears to have been produced only in these proceedings. An undated valuation report cannot normally be relied upon to fix the fair market value of the property. Even the report states that the site could be developed as a commercial area and it is only the opinion of the valuer that Rs. 600 per sq. yd. is reasonable. He does not appear to have taken the value of the adjoining property sold, if any. No attempt appears to have been made to ascertain the value of the adjoining properties sold in the recent past as the report is silent on the aspect.

10. Rule 61 of Sch. II to the Act is in pari material with r. 90 of O. 21 of the CPC. Therefore, having regard to the ruling of the Supreme Court referred to supra, I am of the view that tough the petitioner has demonstrated that there has been a material irregularity in the conduct of the sale in contravention of sub-r. (2) of r. 15 of Sch. II to the Act, he has not proved substantial injury as a result of such material irregularity. Therefore, the 2nd respondent was justifies in rejecting that contention urged before him.

11. It was next contended that there was a gross violation of r. 52 of Sch. II to the Act inasmuch as the sale proclamation was not published in the language of the district. This contention has to be noticed only to be rejected inasmuch as the records disclose that the sale proclamation was published in Kannada, the language of the district, as well.

12. Mr. Venkateshwar Rao next urged that there was non-compliance with the requirements of r. 55 of Sch. II to the Act. Rule 55 of Sch. II to the Act is as follows :

'55. Time of sale. - No sale of immovable property under this Schedule shall, without the consent in writing of the defaulter, take place until after the expiration of at least thirty days calculated from the date on which a copy of the proclamation of sale has been affixed on the property or in the office of the Tax Recovery Officer, whichever is later.'

13. It is easily see from the above rule that the bar is for a sale before 30 days after a copy of the proclamation of sale has been affixed on the property to be sold or in the office of the TRO. It is seen from the records that the sale proclamation was issued as early as in October, 1977, and served on the petitioner. He had knowledge of the sale time and again as the same came to be postponed on more than one occasion. It is not his case that the sale has not taken place after the laps of 30 days after affixing the copy of the sale proclamation on the property. All that the above rule provides for is a sale to be held 30 days after a copy of the proclamation of sale has been affixed on the property or on notice board of the TRO and also before such time if the defaulter has permitted in writing for a sale before the expiry of thirty days. Therefore, there is n substance in this contention and the same is rejected.

14. The next contention urged for the petitioner is that the sale is liable to be set aside by this court inasmuch as the sum of Rs. 1,08,000 was inadequate. While discussing the first contention advanced by the petitioner I have discussed the inadequacy of consideration as well. I do not find any material by which this court can reasonably come to the conclusion that the consideration is inadequate. In the absence of material to the contrary, the price fetched, which is a little over 50 per cent. of the value fixed by the registered valuer at Ex. D, appears to be not unreasonable in the instant case on the assumption that the registered valuers appraisal is slightly exaggerated and not based on any tangible material for the reasons I have given.

15. In support of the contention of adequacy of consideration as a result of material irregularity in the conduct of sale, the learned counsel for the petitioner relied upon the decision of the Punjab and Haryana High Court in the case of Kishan Chand Aggarwal v. Union of India [FB]. No doubt, the Full Bench of that High Court did interfere on the facts of that case and set aside the sale on the ground that the auction sale was held in preface of a proclamation which was so vague and silent about the material particulars of the property and, therefore, the sale was a farce and a substantial injury was caused to the assessee therein. The facts in the Punjab case are different from the facts of the case of the petitioner as borne out by the records. The Full Bench decision of that High Court is not of much assistance to the petitioner.

16. Lastly, Shri Venkateshwar Rao, learned counsel for the petitioner, has argued that the petitioner has a subsisting legal right to get the sale in question set aside on the ground that the very basis of the sale, that is, the assessment orders for the relevant assessment years, have come to be set aside by the 1st respondent exercising his jurisdiction under s. 254 of the Act and, therefore, there was no liability to pay tax as yet. It has been his argument that even though the 2nd respondent confirmed the sale on July 31, 1978, that would not come in the way of this court exercising jurisdiction under art. 226 of the Constitution to set aside the sale. For this proposition, he has relied upon two decisions, one of the Bombay High Court and another of the Madras High Court.

17. The decision of the Bombay High Court was relied upon in support of the proposition that the High Court under art, 226 of the Constitution has very wide powers and an exercise the same to set aside the sale as in the instant case. A Division Bench of that High Court in the case of J. S. Parkar v. V. B. Palekar : [1974]94ITR616(Bom) held as follows (p. 617) :

'Nothing in the Income-tax Act can override the powers of the High Court under art. 226 of the Constitution to issue a writ or direction in an appropriate case. Citizens are entitled to invoke the extraordinary jurisdiction of the High Court where the impugned orders involve a question of patent lack of jurisdiction, or the question of gross violation of the principles of natural justice, or the question of deciding the vires of an Act or rules, or where the impugned order seeks to levy or collect some amount from the citizens without the authority of law.'

18. One cannot have any quarrel with the above ruling. It is now well settled that indeed the powers of the High Court under art. 226 of the Constitution are very wide and can be so used to render justice to the citizens. But the court nevertheless have imposed restrictions on the use of such power to ensure justice to the individual and also safeguard public interest. Thus balanced it can be safely said that the High Courts will not, except in exceptional cases, interfere, under art, 226 of the Constitution if larger public interest is to be saved by refraining to do so. In the instant case, what the learned counsel for the petitioner has overlooked is that the jurisdiction of this court was not invoked in the very first instance, i.e., when the sale took place. He apparently could not, as this court would have, in such a proceeding, tested its maintainability both on the question of lack of jurisdiction of court in holding up the sale or on the existence of an alternative remedy. That does not arise now as it is nobody's case that the 2nd respondent had no jurisdiction to order the sale as at the relevant time the assessment orders were in force and that had not been stayed by the appellate authorities at any time. The petitioner himself chose the remedy within the statute, that is, to make an application user r. 61 of Sch. II to the Act. On failure, the petitioner preferred and appeal to the appellate authority under r. 86 of Sch. II to the Act. On failure to get the sale set aside even by the appellate authority, he has approached this court. In other words, the petitioner wants this court to exercise jurisdiction under art. 226 of the Constitution as court of appeal which is not permissible. When there are demonstrable errors of jurisdiction or error or law apparent on the face of the record, only then the impugned orders of the 1st and the 2nd respondents are liable to be set aside under art. 226 of the Constitution. This court at this stage cannot overlook the existence of the two statutory orders passed by respondents Nos. 1 and 2 set aside the sale as if these orders did not exist.

19. However that may be it is still worthwhile in examining the second argument that even after the sale is confirmed, the same is liable to be set aside, though this argument could have been usefully employed before the 1st respondent when the appeal was heard by him.

20. Reliance has been place by the learned counsel for the petitioner on the decision of the Madras High Court in the case of Pandurangan v. Dasu Reddy, : AIR1973Mad107 . In that case, the property of the judgment-debtor was brought to sale and sold for Rs. 701 while it was claimed that the property was worth about Rs. 7,000. The application of the judgment-debtor before the District Munsiff,Chingleput,for setting aside the sale was dismissed on the ground that there were no infirmities in the sale proclamation and the procedure adopted for the sale of the property. On appeal to the District Judge, Chingleput, the district judge found several infirmities in the sale proclamation and set aside the sale in spite of the objections filed by the auction-purchase and the decree-holder. On appeal to the High Court, the learned single judge of that High Court held that under 0. XXI, r. 90 of the CPC, an application lies to set aside the sale even after the sale was confirmed and the sale certificate issued. A number of decision have been discussed including the decision of the Supreme Court in the case of Janak Raj v. Gurdial Singh, : [1967]2SCR77 , and the conclusion was reached that on the facts of the case there and regard being had to the ruling of the Division Bench of that High Court and the decision of the Supreme Court, the sale was liable to be set aside. A part from the facts not being identical with those of the instant case, all that can be said is that that case is more an authority for the proposition that mere confirmation of sale is not a bar for setting aside the sale, if there are other illegalities in the conduct of the sale which require that such sale should be set aside.

21. On the other hand, learned counsel for the 3rd respondent-auction purchase had place d strong reliance on the decision of the Supreme Court in the case of Janak Raj v. Gurdial Singh, : [1967]2SCR77 , to which reference has been made earlier in the course of this order, as one of the case discussed by the learned single judge of the Madras High Court in Pandurangan's case, : AIR1973Mad107 . The case before the Supreme Court arose in the following manner. An ex parte decree was obtained by the plaintiff against the defendant for Rs. 519. That decree was executed and the house belonging to the defendant-judgment-debtor was attached. Subsequently the property attached was brought to sale and was purchased for Rs. 5,100 by an auction-purchaser. The defendant-judgment-debtor, subsequent to the sale, applied for setting aside the ex parte decree which came to be allowed. He filed an objection petition against the sale of his property on the ground that the property was worth Rs. 25,000 while it had been auctioned for only Rs. 5,000 and that the sale had not been conducted in proper manner inasmuch as there was no due publication. While the application for setting aside the ex parte decree was pending, the execution proceedings had been stayed. When the application came to be allowed, the decree-holder made an application for revival of the execution proceedings under O. XXI, r. 92 of the CPC. The defendant-judgment-debtor filed objections contending that the same was not maintainable as the decree itself had been set aside. However, the executing court overruled the objection and proceeded to confirm the sale. The 1st appellate court affirmed the order of the executing court. On second appeal to a single judge of the Punjab High Court, the auction-purchase lost the day. The learned single judge of that High Court allowed the appeal and the same was confirmed by the Division Bench of the High Court on Letters Patent Appeal. The action-purchase brought the matter to the Supreme Court by way of an appeal on certificate by the High Court. It is to be noticed that the facts of the Punjab case are somewhat similar in certain details to the facts of the case of the petitioner herein inasmuch as subsequent to the sale, the decree itself had come to be set aside. Even in such a case the Supreme Court came to the conclusion that the appeal was liable to be allowed and allowed the appeal. In doing so, the Supreme Court noticed the decision of the Madras High Court in the case of Chokalingam v. N. S. Krishna Iyer, : AIR1964Mad404 , in which it had been ruled that if the purchaser were to lose the benefit of his purchase on the contingency of the subsequent reversal of the decree, there would be no inducement to the intending purchasers to buy at execution sales and, consequently, the property would not fetch its proper price at such sales and the net result would be that the judgment-debtor would be the ultimate sufferer. It further observed that that the wise policy of protecting the title of the stranger purchase, even though in any individual case it may work some hardship, was clearly conceived in the interests of the general body of judgment-debtors so that purchasers will freely bid at the auction without any fear of later objections. Mrs. Srinivasan, learned counsel for the respondent, has placed strong reliance on the observation of the Division Bench of the Madras High Court which was noticed with approval by the Supreme Court in Janak Raj's case, : [1967]2SCR77 , in support of his contention, that Sch. II to the Act now contained a special procedure for tax recovery and the public policy underlying the execution proceedings under the CPC should as well apply to the procedure of sale for the realisation of tax dues. It has been his argument that the application of the petitioner came to be dismissed among other reasons for not depositing the tax due on the relevant date in accordance with the mandatory requirements of prov. (b) of r. 61 of Sch. II to the Act. Therefore, it is his case that a third party who has acquired rights in the property and in whose favour the sale is confirmed is entitled to maintain that right irrespective of what may become of the assessment order which was on the date of sale a legal and valid order. There is some force in this argument. The Act provides for numerous remedies against an assessment order. If while pursing those remedies the assessee has not taken adequate steps and precautions to get the assessment orders stayed, it necessarily follows that the amounts due under the assessment orders are liable to be recovered in accordance with the procedure laid down in Sch. II to the Act. If pursuant to the provisions contained in Sch. II to the Act, the tax due is recovered by the sale of immovable property, a stranger who purchased in such an auction, held in accordance with the provisions contained in Sch. II to the Act, cannot be made to restitute to the assessee even in cases where the assessment orders are set aside after the sale has taken place. This form of restitution cannot be permitted from a stranger. Nor it would be fair to hold so merely because provision is made for the payment of interest by way of solution to the auction-purchaser in the event of the sale being set aside. If such restitutions were to be permitted, then there is no sanctity whatever to the auction of properties held for recovery of tax dues from an assessee as no auction-purchase would come forward to bid at such auction when there is no certainty of his acquiring title to the property.

22. For these reasons, this petition is liable to be rejected though it may cause hardship to the petitioner. All that he would be entitled to is the amount deposited by the auction-purchaser and no more, unless fresh assessment orders for the relevant year have been completed and the amount is adjusted against such dues as may be found. Rule is discharged and the petition is dismissed.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //