In a recent ruling, the Madras High Court granted relief to the City Union Bank by deferring the Income Tax Department’s dues until the bank has fully recovered its debts.
The case involved City Union Bank Limited, the petitioner provided a loan to Bharath Paper Boards (3rd respondent) with the property of the 5th respondent, A. Jyothi, serving as security. The registration was in the way of the deposit of title deeds dated 06.02.2017 and registered in the favour of the petitioner-City Union Bank.
Get a Copy of Income Tax Act, Click here
Upon inquiring with the second respondent about the encumbrance on the property, the petitioner discovered that the Income Tax Department had issued an attachment order on June 1, 2017, against the 3rd respondent’s property due to unpaid taxes.
The main issue of this case is whether the attachment by the Income Tax Department on June 1, 2017, affects the bank’s ability to sell the property to recover the loan.
The petitioner’s counsel represented by Sivaraman R argued that the petitioner is the first charge holder of the property since it was mortgaged by way of a deposit of title deeds on 06.02.2017, whereas the Income Tax Department created the charge on 01.06.2017 for entitlement as a priority mortgagor.
The counsel submitted that the petitioner bank faced difficulties selling the property due to the Income Tax Department’s attachment, which prevented potential buyers from participating in the auction. The petitioner’s counsel prayed the court to lift the attachment, arguing that the petitioner’s bank was the first charge holder.
The Respondent’s counsel represented by B. Ramaswamy (senior standing counsel for the Income Tax Department) acknowledged that the bank’s mortgage predated their attachment and agreed that the bank should be allowed to sell the property first to recover its dues and any remaining funds after the bank’s dues are settled should be used to clear the tax liabilities.
Get a Copy of Income Tax Act, Click here
A single bench led by Justice Krishnan Ramasamy observed City Union Bank’s difficulties in selling the property due to the charge created by the Income Tax Department, as reflected in the encumbrance certificate, which hindered potential buyers from participating in the auction. The court declared City Union Bank as the first charge holder, allowing it to proceed with the sale of the property. After the bank’s dues are settled, any remaining funds must be paid to the Income Tax Department (the first respondent).
Therefore, the writ petition was disposed of with no costs and related miscellaneous petitions were closed.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
