The division bench of the Delhi High Court has recently nullified an attachment order issued by the Income Tax Department for the recovery of income tax dues by finding that against the same property, the proceedings under the SARFAESI Act was initiated before the order of the Department. The facts and the relevant portion of the decision are below.
The petitioner, through public auction conducted by the IDBI Bank, purchased a property. Earlier it was revealed that, against the property purchased by the petitioner,the Tax Recovery proceedings were pending in respect of the income tax dues owed by the owner of the property. The property in question was mortgaged to IDBI Bank by the owner. The Bank initiated the proceedings under the SARFAESI Act against the mortgaged property in 2012 since the owner failed to repay the amount due to them. In 2013, the Tax Recovery officer has also passed an attachment order against the owner to attach the said property. In 2014, the Bank took possession of the property. Later, on receiving the information about the tax recovery proceedings, the Bank wrote to the TRO seeking authentication of the impugned order. The Bank also apprised the TRO about the mortgage, the pending proceedings under the SARFAESI Act and the fact of IDBI having taken possession of the property in question.On 2015, a public auction of the property in question was conducted by the Bank after issuing an advertisement in the newspaper. Thereafter, the petitioner purchased the property. During the course of all these proceedings, the Bank has frequently wroteto the TRO intimating them about the ground floor of the property in question having been sold to the Petitioner.
On 16th March 2015 a letter was written by the TRO, CIT-12 to the IDBI requiring the latter to send a demand draft in favour of the TRO for amount of Rs. 1,59,60,770 including interest and Rs. 10,06,080 for the arrears of tax dues of the owner of the property for Assessment Years 2009-10 and 2010-11 respectively. On 13th April 2015 the balance sale consideration of 75% of the bid amount totallingRs. 1,13,96,000 was credited by the Petitioner to the account of IDBI by RTGS. IDBI charged interest @ 15.25% amounting to Rs. 1,30,293 on account of the delay in payment.
On 21st April 2015 a sale certificate under the SARFAESI Act in respect of the ground floor of the property in question was issued by the IDBI in favour of the Petitioner. Physical possession of the property in question was handed over to the Petitioner on the execution of sale deed. Under the column „List of encumbrances‟ appearing in the sale certificate, it was stated: „Nil as per knowledge of the authorized officer‟. However, by this time the IDBI was aware of the attachment order of the Income Tax Department (ITD) but failed to mention it.
On 30th April 2015 the Petitioner was handed over the original chain documents in respect of the ground floor of the property in question by the IDBI. On 22nd May 2015 the Petitioner and a representative of the IDBI approached the Sub-Registrar, NCT Delhi for registration of the sale document in respect of the ground floor of the property in question. The Sub-Registrar declined to register the sale deed and asked for Non-objection Certificate from the TRO. Thereafter, the Bank wrote to the TRO seeking cancellation of the attachment order.
The petitioner, at this juncture, wrote several letters were written to IDBI to either refund the money paid by him together with interest or get the sale deed registered in the Petitioner‟s name. In the meanwhile, the TRO clarified that that no NOC could be issued till the outstanding tax liability was paid by IDBI out of the sale proceeds. Thereafter, the Bank issued a letter to the Petitioner refusing to refund the money deposited by the Petitioner. All the efforts of the petitioner to cancel the attachment order were also failed. Aggrieved with all these, he filed a writ petition before the High Court challenging the order of the TRO. The petitioner also prayed before the Court to issue a direction to the Sub-Registrar to register the sale deed executed by the IDBI Bank Ltd. in favor of the petitioner.
The bench comprising of Justices S. Muralidhar and Najmi Waziri found that the notice issued by IDBI under Section 13 (2) of the SARFAESI Act was prior to the impugned order dated 25th November 2013 passed by the ITD attaching the property in question.It was observed that IDBI was entitled, in terms of Section 13 (2) read with Section 35 of the SARFAESI Act, to proceed to bring to sale by way public e-auction the property in question on 25th February 2015 notwithstanding that the ITD had passed the impugned attachment order dated 25th November 2013. The Court following the decision in Bombay Stock Exchange v. V.S. Kandalgaonkar, held that the Income Tax Department is precluded from relying on the proviso to Section 281 of the IT Act to prevent the registration of the sale deed executed in favour of the Petitioner in respect of the ground floor of the property in question. Its instructions to the contrary to the Sub-Registrar are, therefore, unsustainable in law. Consequently, the Attachment order passed by the TRO was set aside by the Court.
Read the full text of the Judgment below.
