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Kantilal Dahyabhai Shah K.D. Dasadia Vs. Tej Prakash, Tax Recovery Officer - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtGujarat High Court
Decided On
Judge
Reported in(1975)16GLR638
AppellantKantilal Dahyabhai Shah K.D. Dasadia
RespondentTej Prakash, Tax Recovery Officer
Cases ReferredIn Venakatachellamayya v. Neelakanta A.I.R.
Excerpt:
- .....society called akhandanand co-operative housing society and the two organizers took part in the auction sale of a vacant plot of land bearing survey no. 348 admeasuring 8712 square yards situated on the outskirts of nava wadaj village, ahmedabad city. this survey number was said to belong to one laxmichand ambaram gandhi in pursuance of certain tax liabilities of laxmichand ambaram gandhi the tax recovery officer on behalf of the income-tax department of the government of india put up survey no. 348 for sale and what was sought to be sold was the right, title and interest of laxmichand ambaram gandhi in the said survey number. the date for the auction sale as mentioned in the proclamation was originally september 13, 1972 but the sale was postponed to september 20, 1972. the.....
Judgment:

B.J. Divan, C.J.

1. The petitioner herein has challenged certain proceedings taken against him by the Tax Recovery Officer No. 1, the first respondent herein, under Rule 14 of the Second Schedule, Part 1, to the Income Tax Act, 1961.

2. The petitioner says that he is a citizen of India and claims protection of the fundamental rights under the Constitution. The petitioner and one Shambhukumar Keshavlal Patel were working as organizers of a proposed Co-operative Housing Society called Akhandanand Co-operative Housing Society and the two organizers took part in the auction sale of a vacant plot of land bearing Survey No. 348 admeasuring 8712 square yards situated on the outskirts of Nava Wadaj Village, Ahmedabad City. This Survey Number was said to belong to one Laxmichand Ambaram Gandhi In pursuance of certain tax liabilities of Laxmichand Ambaram Gandhi the Tax Recovery Officer on behalf of the Income-tax Department of the Government of India put up Survey No. 348 for sale and what was sought to be sold was the right, title and interest of Laxmichand Ambaram Gandhi in the said Survey Number. The date for the auction sale as mentioned in the proclamation was originally September 13, 1972 but the sale was postponed to September 20, 1972. The petitioner was the highest bidder at the auction sale and he was declared to be the highest bidder and the amount of the purchase price mentioned in the bid was Rs. 2,91,000/-. The Tax Recovery Inspector was the Officer who was delegated by the Tax Recovery Officer to hold the auction sale, At the time of the auction sale the petitioner paid a deposit of Rs. 1,000/- and thereafter the petitioner paid Rs. 72,000/- by a cheque drawn on the Central Bank of India, Nava Wadaj, Ahmedabad, but the payment of the cheque was stopped by the petitioner and thus the result was that instead of 25 per cent of the price at which the sale was knocked down to the petitioner being deposited with the officer holding the sale, only Rs. 1,000/- were paid by way of deposit. The petitioner did not pay either the full amount of 25 per cent of the purchase price as deposit nor did the petitioner pay within 15 days as required by the relevant Rules the remaining 75 per cent of the purchase price. Thereafter another sale was held and ultimately the property was sold at the resale of the property to the fourth respondent herein for Rs. 2,00,001/-. Within a few days of the date of the resale, the defaulting tax payer, Laxmichand Ambaram Gandhi applied to the 'Tax Recovery Officer praying that the shortfall in the price on resale, namely, Rs. 90,088/- being the deficiency of price on resale should be recovered from the petitioner and thereupon respondent No. 1, the Tax Recovery Officer, issued a notice of demand dated August 29, 1973 requiring the petitioner to pay the amount of Rs. 90.088/- as deficiency of purchase price on resale.

3. The petitioner has contended in the petition that on the date on which the auction sale was held, because of certain provisions of law, no valid sale of an open plot of land of this size could be made in Ahmedabad City in favour of any particular person and various other contentions regarding the validity of the sale proceedings at the auction sale and also the validity of the sale in favour of the fourth respondent have been set out in the petition. However, in our opinion, the entire matter can be disposed of on a very short ground and, therefore it is not necessary for us to go into the correctness or otherwise of the other contentions taken up in the petition.

4. Under Rule 56 of the Second Schedule to the Income-tax Act, 1961, the sale by the Tax Recovery Officer shall be by public auction to the highest bidder and shall be subject to confirmation by the Tax Recovery Officer. Under Rule 57 on every sale of immovable property, the person declared to be the purchaser shall pay, immediately after such declaration, a deposit of twenty-five per cent, on the amount of his purchase money] to the officer conducting the sale, and, in default of such deposit, the property shall forthwith be re-sold. The full amount of purchase money payable shall be payable by the purchaser to the Tax Recovery Officer on or before the fifteenth day from the date of the sale of the property Under Rule 58, in default of payment within the period mentioned in the preceding rule, the deposit may, if the Tax Recovery Officer thinks fit, after defraying the expenses of the sale, be forfeited to the Government, and the property shall be re-sold, and the defaulting purchaser shall forfeit all claims to the property or to any part of the sum for which it may subsequently be sold. Under Rule 14 of the Second Schedule any deficiency of price which might happen on resale by reason of the purchaser's default and all expenses attending such resale, shall be certified to the Tax Recovery Officer by the officer holding the sale, and shall, at the instance of either the Income-tax Officer or the defaulter (tax payable), be recoverable from the defaulting purchaser under the procedure provided by Schedule II, provided that no such application can be entertained unless filed within fifteen days from the date of resale. It may be pointed out that the provisions which we have referred to just now are in identical terms as provisions of Order 21 of the Code of Civil Procedure relating to sale of immovable property. The provisions of Rules 57 and 58 correspond to the provisions of Order 21 Rules 84, 85 and 86 and Order 21 Rule 71 corresponds to Rule 14 of the Second Schedule of the Income-tax Act.

5. In Manilal Mohanlal v. Sayed Ahmed : [1955]1SCR108 the Supreme Court has held that the provisions of Order 21 Rule 84 equivalent to Rule 57 of the Second Schedule of the Income-tax Act are mandatory and if the deposit is not made or if the balance of the purchase price is not paid as contemplated by these provisions, the sale shall be void and of no legal effect.

6. However, what is more material for the purposes of this judgment is a purely procedural aspect, namely, that before the Tax Recovery Officer treats any auction purchaser as a defaulting purchaser and issues a certificate for the recovery of the shortfall in the purchase price on resale, he should call upon the defaulting purchaser to show cause why the shortfall of the purchase price on resale should not be recovered from him.

7. In Venkatraman v. Mahabaleshwar A.I.R. 1941 Bombay 367, Madgavkar J. sitting singly, has held that in a proceeding on an application under Order 21 Rule 71, to recover the amount of deficiency from the defaulting purchaser, it is open to the defaulting purchaser to raise the point of defect in sale proclamation, and if the material defect in the proclamation is proved, the auction purchaser may escape liability.

8. It may be pointed out that unless the alleged defaulting auction purchaser gets an opportunity to show cause before proceedings for the recovery are taken against him, he will not be in a position to point out that there was a material defect in the proclamation or in holding the sale proceedings or any other defect on the basis of which he would be able to escape liability. Therefore, as a matter of procedure, it is desirable and indeed it is necessary that such an opportunity should be given to the alleged defaulting auction purchaser before proceedings under Order 21 Rule 71 of the Code of Civil Procedure or Rule 14 of the Second Schedule of the Income Tax Act, 1961 are taken against him.

9. In Gangadas Dayabhai v. Bai Suraj I.L.R. 36 Bom. 329 it was held that the liability of the defaulting purchaser was the creature of a statute relating to procedure and that statute laid down in very clear terms that in the proclamation of sale the proclamation should specify as fairly and accurately as possible the property to be sold. If the first proclamation of sale did not state either fairly or accurately the property to be sold, and it was sought to fix the liability upon the alleged defaulting auction purchaser by reason of the words of the statute, the alleged defaulting auction purchaser was entitled to appeal to the words of the section to show that the statute has not been complied with and it could not be said that there was a resale of the property which was put up in the first instance. This judgment in Gangadas Dayabhai v. Bai Suraj was by a Division Bench consisting of Sir Basil Scott, C. J. and Batchelor J., and that decision was followed by Madgavkar J., in Venkatraman v. Mahabaleshwar (supra).

10. In Venakatachellamayya v. Neelakanta A.I.R. 1919 Madras 1014, Kumarswami Sastri, J. who delivered a separate but concurring judgment observed at page 1024:

It is a principle of natural justice that a person should be given an opportunity of showing cause before an order adverse to him is passed and though Rule 71 does not expressly provide for the issue of a notice to the defaulting purchaser, it is the duty of the Court to give him notice and to hear and decide on his objections before it orders execution to issue against him. In all the cases decided under the old and the new Code the defaulting purchaser did appear and raise objections which were adjudicated upon by the Court, and he was held by the Calcutta and Madras High Courts to have a right of appeal.

We respectfully agree with these observations of Kumaraswami Sastri J. because, in our opinion, before the proceedings for the recovery of the deficiency of price on resale are adopted, natural justice and fairplay require that the alleged defaulting auction purchaser must be given an opportunity to show cause why the deficiency in price on resale of the property should not be recovered from him and after adjudicating upon his contentions, the further proceedings under Order 21 Rule 71 of the Code of Civil Procedure or Rule 14 of the Second Schedule of the Income-tax Act, 1961, as the case may be, can be taken.

11. It is common ground before us that such an opportunity had not been given to the petitioner before the Tax Recovery Officer, respondent No. 1 herein, proceeded to recover the alleged deficiency of price on re-sale of Rs. 90,388/-. A notice of demand was straightway issued on August 29, 1973 and the petitioner was informed that in case of default steps would be taken to realise the amount in accordance with the Second Schedule to the Income-tax Act, 1961. In our opinion, since the opportunity to show cause regarding the alleged deficiency on resale was not given, this notice of demand and proceedings consequential upon the notice of demand dated August 29, 1973 issued by the first respondent must be struck down and set aside as being violative of principles of natural justice and fairplay.

We wish to make it clear that we are not pronouncing upon the correctness or otherwise of any of the contentions set out in the petition herein which have not been specifically dealt with in the course of this judgment. We also do not wish to pronounce any opinion whatsoever regarding the alleged irregularities or illegalities in connection with the sale in favour of the fourth respondent and so far as we are concerned, we do not wish to pronounce any opinion regarding the validity of the title which the fourth respondent has acquired at the time of the re-sale.

12. Under these circumstances this Special Civil Application is allowed and prayer (B) of the Special Civil Application is granted. The order forfeiting the amount of Rs. 1000/- and the notice of demand issued by the first respondent are quashed and set aside. There will be no order as to costs of this Special Civil Application.


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