Calcutta High Court
Kanakia Trading Co. vs Income-Tax Officer And Ors. on 28 April, 1986
Equivalent citations: [1987]164ITR204(CAL)
JUDGMENT Ajit Kumar Sengupta, J.
1. The petitioner is a partnership firm consisting of two partners--Sri Hemant Dhirajlal Kanakia and Smt. Sonal Ashok Kanakia. The petitioner became the owner of premises No. 9, Pollock Street, Calcutta, which is a partly one-storeyed and partly two-storeyed building, on October 7, 1983, under the circumstances mentioned hereafter. The said premises was initially purchased in the year 1947 by one Sri Jatindra Kumar Doss and Smt. Tarangini Bala Dassi. Smt. Taran-gini Bala Dassi died on March 12, 1969, leaving her husband the said Sri Jatindra Kumar Doss, as her sole heir and legal representative. On or about July 11, 1969, Mercantile Bank Limited instituted a suit against the said Sri Jatindra Kumar Doss in this court in its original side being Suit No. 1883 of 1969, inter alia, for a decree for Rs. 2,09,004.39, interim interest and interest on judgment and for various other reliefs mentioned in the plaint filed therein. During the pendency of the said suit, Sri Jatindra Kumar Doss also died on or about May 21, 1978, leaving him surviving no heir or heiress or legal representative. Thereafter, pursuant to an application made by the said Mercantile Bank Ltd., the Administrator-General of West Bengal was substituted as the defendant in place and stead of the said Sri Jatindra Kumar Doss in the said pending suit being Suit No. 1883 of 1969. Subsequently, by a decree dated April 25, 1980, the said suit was decreed in favour of the said Mercantile Bank Limited. On or about September 10, 1981, the said decreeholder, Mercantile Bank Ltd., made an application before this court for execution of the said decree dated April 25, 1980. On the said application, Dipak Kumar Sen J. by an order made on September 22, 1982, appointed Mr. Tarapada Das, barrister-at-law, as receiver with directions to him to sell the said premises either by public auction or by private treaty, subject to confirmation by the court. Pursuant to the said order dated September 22, 1981, passed by Dipak Kumar Sen J., the receiver caused advertisements for sale of the said premises to be published once in The Statesman and once in the Ananda Bazar Patrika on October 23, 1981, and October 27, 1981, respectively. Ultimately, the offer of Rs. 2,40,000 given by Mrs. Sonal Ashok Kanakia, one of the partners of the petitioner firm, was found to be the highest and accordingly the said receiver duly accepted the said offer. The said Smt. Sonal Ashok Kanakia duly caused a sum of Rs. 60,000 only being the amount equivalent to 25% of the agreed sale price to be paid and/or deposited with the said receiver through her solicitors and advocates towards earnest money and/or part payment of the agreed consideration money as per the "conditions of sale" of the receiver. Thereafter, by an order dated December 23, 1981, Dipak Kumar Sen J. confirmed the sale of the said premises in favour of the said Smt. Sonal Ashok Kanakia or her nominee or nominees and directed the receiver to complete the sale in accordance with law. The said Smt. Sonal Ashok Kanakia thereafter nominated the petitioner firm as her nominee to purchase the said property and thereafter the said property was sold to the petitioner by the said receiver by and under an indenture of conveyance dated October 7, 1983. The petitioner duly paid the entire consideration of Rs. 2,40,000 to the said receiver.
2. The case of the petitioner is that before the said property was purchased by the petitioner as aforesaid, it had enquired as to whether there was any encumbrance or charge of any nature on the said property and was informed that there were some outstanding income-tax dues of late Sri Jatindra Kumar Doss and that for realisation of the said outstanding dues, the Income-tax Authorities had initiated certificate proceedings which were pending. The petitioner \yas further informed that the Tax Recovery Officer had, however, given permission to the Mercantile Bank Limited for selling the said property. The petitioner was also given copy of a letter dated August 28, 1981, addressed by the Tax Recovery Officer to the Mercantile Bank Limited, wherein it was stated, inter alia, that the bank should proceed to sell the said property and after meeting the tax arrears, the bank should appropriate the balance of the sale proceeds against its dues. It was further stated in the said letter that in case the bank could prove that under a court order, its demand had a priority claim over the claim of the Income-tax Authorities, then the bank may, under intimation to the Tax Recovery Officer, realise its demands from the sale proceeds and remit the balance to the Tax Recovery Officer against tax arrears of late Sri Jatindra Kumar Doss. The petitioner was further informed that the Income-tax Officer had also issued notices under Section 226(3) of the Income-tax Act, 1961, to the various tenants of the said property, inter alia, requiring them to pay to the Income-tax Officer any amount due from the said tenants to or held by them for and on account of the said Sri Jatindra Kumar Doss and also to pay any money which may subsequently become due from the tenants to the said Sri Jatindra Kumar Doss or which the tenants may subsequently hold for or on account of him. The petitioner was informed that in view of the fact that the Tax Recovery Officer had granted permission for sale of the said property, there is or can be no question of the said notices under Section 226(3) being given effect to after the said property was purchased by the petitioner and that the charge of the Income-tax Authorities, if any, would stand shifted to the sale proceeds. In the circumstances, the petitioner was informed that there was no encumbrance or charge on the said property in so far as the outstanding tax dues of late Jatindra Kumar Doss are concerned. The petitioner had purchased the said property in view of the said permission granted by the Tax Recovery Officer for sale of the said property.
3. At the time of the purchase of the said premises by the petitioner, there were twelve or thirteen tenants in the said premises having valid tenancies. Besides the said tenants, portions of the said premises were also occupied by about fifteen or more persons, who had no tenancies or any other right to occupy the said premises. According to the petitioner, the said persons were and are trespassers and liable to be evicted. It was also claimed that the price paid by the petitioner for the said premises, no portion of which was vacant, was more than its fair market value.
4. Simultaneously with the completion of sale in respect of the said property and the execution and registration of the said indenture of conveyance dated October 7, 1983, the said receiver duly delivered possession of the said property to the petitioner by issuing letters of attornment addressed to the said tenants in respect of the said property in the manner as aforesaid. The receiver also made over all the title deeds, documents and papers relating to the said property to the petitioner. After purchase of the said property, the petitioner duly addressed letters to the said tenants therein informing them, inter alia, about the said purchase and requesting them to pay rent aud other dues in respect of their respective tenancies to the petitioner. The grievance of the petitioner is that the Income-tax Authorities even after purchase of the said property by the petitioner continued to issue notices under Section 226(3) of the said Act to the tenants of the said property seeking to attach the rent payable by them to the petitioner. Notices were also issued by the Income-tax Authorities under Section 226(3) of the Income-tax Act, 1961, to the illegal occupants of the said premises who had no valid tenancies. The Tax Recovery Officer had also issued various notices under Rule 26(1)(i) of the Second Schedule to the said Act.
5. On December 5, 1983, the petitioner addressed a letter to respondent No. 3, the Commissioner of Income-tax, inter alia, pointing out all the relevant facts and stating that after the purchase of the said property, the petitioner was and is the absolute owner of the said property and that the said property does not belong to the said Sri Jatindra Kumar Doss, since deceased and that the income-tax dues of the said late Jatindra Kumar Doss cannot be realised from the said property. It was further stated that the Income-tax Officer had no right, authority or jurisdiction to attach the rent payable by the tenants of the said property to the petitioner for realisation of outstanding tax dues of late Jatindra Kumar Doss. Copy of the said letter was forwarded to respondent No. 1, the Income-tax Officer. The said respondent was requested to forthwith withdraw and/or cancel the said purported notices under Section 226(3) of the said Act issued upon the various tenants of the said property.
6. The case of the petitioner is that the petitioner had purchased the said property in view of the permission granted by the Tax Recovery Officer for sale of the said property and the charge of the Income-tax Authorities, if any, stood shifted to the sale proceeds. The petitioner has, therefore, challenged the said notices issued under Section 226(3) of the said Act and the various notices issued under Rule 26(1)(i) of the Second Schedule to the said Act issued upon the tenants or the trespassers or the illegal occupants as being illegal and without jurisdiction.
7. The contention of the petitioner is that the petitioner who purchased the said property from the receiver appointed by this court as aforesaid, is the absolute owner of the said property after the said purchase, The tenants of the said property are the tenants of the petitioner and not the tenants of late Jatindra Kumar Doss. The said Jatindra Kumar Doss or any other person has no right, title or interest in the said property after the purchase thereof by the petitioner as aforesaid. The rent is payable by the tenants to the petitioner. The petitioner alone has the right to claim damages from the illegal occupants of the said premises. The respondents have no right, authority or jurisdiction to attach the rent payable by the tenants of the said property to the petitioner and/or claim any sum from the illegal occupants of the said premises for realisation of the alleged outstatiding demands of late Jatindra Kumar Doss.
8. It is contended by Mr. R. N. Bajoria, the learned advocate appearing for the petitioner, that the petitioner purchased the property after it was released by the Tax Recovery Officer and it was purchased free from all encumbrances and the rents cannot be attached by the Income-tax Officer for the tax liability of late Jatindra Kumar Doss. The attachment, if any, stands shifted to the sale proceeds and it is a matter now between the Mercantile Bank Limited and the Income-tax Department with regard to the priority of payment out of the sale proceeds. But that cannot be the ground for continuing the proceeding against the property in question. On the other hand, it is contended by Mr. S. K. Mitra, the learned advocate for the respondents, that there was an attachment before sale. No certificate under Section 230A was obtained by the receiver and the petitioner has purchased the property subject to the attachment of the Income-tax Department. It was not sold free from all encumbrances. The right, title and interest of late Jatindra Kumar Doss only was purchased and his right, title and interest were subject to the attachment of the Income-tax Department.
9. I have considered the rival contentions.
10. It appears from the records that on February 18, 1978, M/s. Sander-sons and Morgans, Advocates-on-Record for Mercantile Bank Ltd., had discussed with the Tax Recovery Officer and pursuant to the said discussion, certified true copies of the mortgage deed and conveyance in respect of 9, Pollock Street, Calcutta, had been forwarded to the said Tax Recovery Officer. It is also on record that on March 8, 1978, the Tax Recovery Officer submitted a report to the Inspecting Assistant Commissioner, Range-X, Calcutta, wherein it has been stated as follows :
"The C. Dr. mortgaged the property to the Mercantile Bank of India, Calcutta, on February 20, 1948, for obtaining overdraft facility to the extent of rupees five lakhs. The principal amount of loan advanced aforesaid is long overdue. The bank is not willing to proceed with the sale as, according to them, the property may not fetch even Rs. 6,00,000. From the perusal of certificate records, it appears that if the Department proceeds to sell the property, nothing will remain after meeting the mortgage charge of this bank. If it can be established by the Income-tax Officer that Section 281 is applicable and the mortgage is declared void by the competent court, the Department may proceed to sell the property and may recover the proceeds towards certificated demand. "
11. On July 24, 1981, Mercantile Bank Limited made an application to the Tax Recovery Officer for permission to sell the house property at No. 9, Pollock Street, Calcutta. Pursuant to the said letter, the Tax Recovery Officer, by his letter dated August 28, 1981, informed the Mercantile Bank Ltd., inter alia, as follows :
"As certain amount is due to you from the above estate, I would suggest that you proceed to sell the above property and after meeting the tax arrears, appropriate the balance of the sale proceeds against your dues. In case you can prove that under a court's order your demand has a priority claim over ours, you may, under intimation to this office, realise your demand from the sale proceeds and remit the balance to this office against tax arrears of late J. K. Doss. "
12. It would appear from the said report and letter that the Tax Recovery Officer was fully aware of the mortgage created in favour of the bank and the Tax Recovery Officer released the property for sale and the charge of the Income-tax Department, if any, consequently, shifted to the sale proceeds.
13. The receiver was appointed in execution of the decree passed in Suit No. 1883 of 1969 and the receiver after causing advertisements for sale of the said property in The Statesman and Ananda Bazar Patrika on October 23, 1981, and October 27, 1981, respectively, sold the said property to the petitioner. The respondents had actual and constructive notice of the said sale not only because the advertisements were inserted regarding the sale of the said property but also the Tax Recovery Officer himself released the said property from attachment.
14. The conveyance which was executed and registered by and between the receiver and the purchaser, inter alia, provides as follows :
"TO HAVE AND TO HOLD the 'said property', more fully described in the Schedule hercunder written and all and singular the premises hereby sold, transferred, conveyed, assigned and granted or otherwise assured and confirmed or expressed or intended so to be with all their rights, members and appurtenances unto and to the use of the purchaser absolutely and for ever as and for an absolute indefeasible and perfect estate analogous and equivalent to an estate of inheritance in fee simple in possession without any manner of condition use trust and other things whatsoever to alter defeat encumber or make void the same and free from all encumbrances whatsoever and also free from charges and/or mortgages of the Mercantile Bank Ltd. but otherwise on ' as is ' basis AND subJECT to the purchaser paying the arrears of Corporation taxes in respect of the 'said property'."
15. In the case of Dinendronath Sannial v. Ramkumar Ghose [1880-81] ILR 7 Cal 107, 119; 8 IA 65, Sir Barnes Peacock observed:
"There is a great distinction between a private sale in satisfaction of a decree and a sale in execution of a decree. In the former, the price is fixed by the vendor and purchaser alone; in the latter, the sale must be made by public auction conducted by a public officer, of which notice must be given as directed by the Act, and at which the public are entitled to bid. Under the former, the purchaser derives title through the vendor, and cannot acquire a better title than that of the vendor. Under the latter, the purchaser, notwithstanding he acquires merely the right, title and interest of the judgment-debtor, acquires that title by operation of law adversely to the judgment-debtor, and freed from all alienations or incumbrances effected by him subsequently to the attachment of the property sold in execution."
16. Thus, the property was purchased by the petitioner free of all encumbrances. Even if there was any attachment levied by the Income-tax Department before sale, the attachment had shifted to the sale proceeds in view of the permission granted by the Tax Recovery Officer for the sale of the said property by the receiver in satisfaction of the decree obtained by the Mercantile Bank Limited. The receiver did not say that the sale was subject to the attachment of the Income-tax Department. In that event, the sale notices would have indicated such a condition and the court would have also directed the receiver to specify such condition in the conditions of sale. As a matter of fact, the Income-tax Department could not have raised such a contention as the order for sale was passed by this court on September 22, 1982, after the Tax Recovery Officer granted permission to the bank on September 28, 1981, to have the property sold. Encumbrance means a claim, lien, charge or liability attached to and binding immovable property, e.g., a mortgaged ejectment or right of way, accrued and unpaid taxes. Therefore, there could not have been any charge on account of any dues of income-tax of the erstwhile owner of the said property. The Income-tax Officer did not intervene in the execution proceeding filed by the Mercantile Bank Limited. On the contrary, the Tax Recovery Officer directed the sale of the said property with the condition that the priority between the Mercantile Bank Limited and the Income-tax Department would be decided later. This can only mean that the property was made free of all charges and encumbrances before sale of the property with the tenants took place.
17. In any event, in this case, no attachment appears to have been levied by the Income-tax Department on the property in question. The Tax Recovery Officer levied the attachment of rent under Rule 26(1)(i) of the Second Schedule to the Income-tax Act. The attachment in this case was made by prohibiting the landlord from recovering the rent and the tenant from making payment thereof until further order of the Tax Recovery Officer. After the sale, nothing was payable by the tenants to the original landlord and accordingly the Tax Recovery Officer could not proceed with the said notices of attachment issued under Rule 26(1)(i) of the Second Schedule to the Income-tax Act. Similarly, under Section 226(3) of the Act, the Income-tax Officer may, at any time or from time to time, by notice in writing require any person from whom money is due or may become due to the assessee or any person who holds or may subsequently hold money for or on account of the assessee to pay to the Income-tax Officer such money. Notices under the aforesaid provision were issued to the tenants of the original landlord and the tenants were obliged not to make any payment of the rent to the original landlord. They were required to pay the rent to the Income-tax Officer. After the sale, no money by way of rent was due to the original landlord from the tenants. The tenants were under an obligation to pay the rent to the purchaser of the property and the receiver gave notices to the tenants to attorn the tenancy in favour of the purchaser, the new landlord, i.e., the petitioner. Thus, after the sale of the premises in question was completed in favour of the petitioner, the Income-tax Department ceased to have any jurisdiction either to continue with the proceedings under Section 226(3) of the Act or Rule 26(1)(i) of the Second Schedule in respect of the rent which is payable to the purchaser.
18. The other contention which has been raised is that the receiver did not obtain any tax clearance certificate under Section 230A. Even if the receiver did not obtain the tax clearance certificate, once the conveyance was registered, the purchaser becomes the owner of the said property. It was for the registering authority to allow or not to allow registration without the certificate under Section 230A of the Income-tax Act, 1961, but even if registration of the conveyance was made without the clearance certificate, the sale is not void nor is the right of the purchaser affected. Section 230A of the Act does not render the transaction void because of non-furnishing of the tax clearance certificate. Section 230A(l)(b) provides that the registration of the document will not prejudicially affect the recovery of any existing liability, inter alia, under the Income-tax Act, 1961. Thus registration with or without the tax clearance certificate under Section 230A does not affect any charge on such property. The right of the Income-tax Department is in no way affected even if the registration was made without the tax clearance certificate. The transferee cannot contend that since registration was effected, the liability, if any, attached to the property has also been extinguished. This is not the case here. In the instant case, the sale took place with the express permission of the Tax Recovery Officer. Accordingly, it was immaterial whether the tax clearance certificate was obtained under Section 230A or not. The intention was that the attachment would be shifted to the sale proceeds. It appears from a note in [1984] 146 ITR (St.) 5, that the Supreme Court dismissed on January 20, 1984, a special leave petition by the Department against the judgment dated March 23, 1981, of the Karnataka High Court whereby the High Court dismissed the writ appeals by the Income-tax Officer against the judgment of a single judge of the High Court allowing, following a decision of the Bombay High Court in the case of Ajit Investment Co. Pvt. Ltd. v. K. G. Malvandkar [1974] 95 ITR 546, the writ petition by the transferee of immovable property belonging to an assessee who was in arrears of tax where the transfer of the property was registered without obtaining the requisite tax clearance certificate. Thus the registration without the tax clearance certificate could not be a ground for holding that the property sold is still available to the Income-tax Department for realisation of the outstanding dues of the deceased assessee.
19. It is then contended by Mr. Bajoria that, in any event, Section 230A will have no application in a case where the sale is made by the court or a receiver appointed by the court. Reliance has been placed in this connection on a judgment of the Delhi High Court in the case of C. S. Loganathan v. P. L. Kapur [1972] 83 ITR 430. There, the Delhi High Court held that the provisions of Section 230A of the Income-tax Act, 1961, which require that no registering officer shall register a document which purports to transfer, assign, limit or extinguish the right, title or interest of any person to or in any property (other than agricultural land) valued at more than Rs. 50,000 unless the certificate prescribed therein has been obtained, are confined to cases of voluntary deeds executed by the assessees. They have no application whatever to involuntary acts resulting in transfer, assignment, limitation or extinguishment of rights in property by the force of law or under an order of the court or under a decree (whether based on a compromise or otherwise).
20. The Division Bench of this court in the case of Durgesh Kumari Devi v. Bimal Kumar Jhajharia. [1982] 86 CWN 283, considered the distinction between a voluntary sale and an involuntary sale. In that case, the question which fell for consideration before the Division Bench was whether having regard to the provisions of Section 26 of the Urban Land (Ceiling and Regulation) Act, 1976, in the absence of permission of the Competent Authority, the land sold in execution of a decree for specific performance could be conveyed to the purchaser. The Division Bench held that execution of a conveyance for the sale of land in execution of a decree for specific performance of an agreement for sale of such land is not a private sale of land and consequently Section 26 of the Urban Land (Ceiling and Regulation) Act, 1976, would not apply. In that context, the court also considered the judgment of the Delhi High Court in the case of C. S. Loga-nathan [1972] 83 ITR 430 and observed thus :
"Another contention was raised on behalf of the appellant, that is to say, in view of Section 230A of the Income-tax Act, 1961, this conveyance could not be registered without the certificate under Section 230A of the Income-tax Act, 1961. Now this question was examined by the learned single judge of the Delhi High Court. There, the learned judge observed that the provisions of Section 230A of the Income-tax Act, 1961, which required that no registering officer should register a document which purported to transfer, assign, limit or extinguish the right, title or interest of any person to or in any property (other than agricultural land) valued at more than Rs. 50,000 unless the certificate prescribed therein was obtained, had no application to involuntary acts resulting in transfer, assignment, limitation or extinguishment of rights in property by the force of law or under an order of the court or under a decree (whether based on a compromise or otherwise). This judgment of the learned single judge of the Delhi High Court was noted by a Division Bench of this court consisting of R. M. Datta and C. K. Banerji JJ. in Appeal No. 8 of 1981, arising out of Suit No. 1270 of 1959 (Rameshwar Saraf v. Hongkong & Shanghai Banking Corpn.), judgment delivered on February 24, 1981. There was no contrary decision of any High Court. But it is not necessary for our present purpose to decide this question finally as this problem would arise only at the time of registering the conveyance.
Therefore, this objection to the execution on behalf of the appellant cannot also be sustained."
21. In the premises, it must be held that the sale of the mortgage property in execution of a decree passed by this court by the receiver would not be a voluntary sale and accordingly the tax clearance certificate under Section 230A would not be required particularly when the permission had already been given by the Tax Recovery Officer for such sale. The Income-tax Department, having notice and knowledge of such sale being made by the receiver or Registrar, chose not to intervene in the proceeding.
22. For the aforesaid reasons, this application succeeds. The rule is made absolute. The proceedings under Section 226(3) of the Income-tax Act and Rule 26(1)(i) of the Second Schedule to the said Act are quashed. It may be mentioned that pursuant to the order of the court of appeal, Mr. B. K. Jain, advocate, was appointed as receiver to collect the rent of premises No. 9, Pollock Street, Calcutta. The receiver is directed to pay to the Income-tax Department all rents or occupation charges if realised by him from any person, for any period prior to October 7, 1983. The balance amount shall be paid to the petitioner.
23. It is stated by Mr. S. K. Mitra, the learned advocate on behalf of the respondents, that although the property was sold with the permission of the Tax Recovery Officer and it was also known to them, they have not yet applied before this court for determination of the priority of their claim. It is also stated that the receiver has already paid the entire sale proceeds to the bank towards pro tanto satisfaction of the decree and the Income-tax Department did not take any steps against the bank. The respondents will be at liberty to apply before the appropriate court, if they are so advised, in respect of the money realised out of the sale proceeds.
24. Upon payment as aforesaid, the receiver will stand discharged.
25. There will be no order as to costs.