Madras High Court
G.V. Films Ltd. vs S. Priyadarshan And Anr. on 5 December, 2005
Equivalent citations: [2006]287ITR561(MAD)
Author: R. Banumathi
Bench: R. Banumathi
JUDGMENT R. Banumathi, J.
C.S. No. 454 of 2005:
1. Suit filed by the applicant/plaintiff-G. V. Films Ltd. (GVFL) for permanent injunction restraining the defendants-auction purchasers and their men from interfering with the applicant's/plaintiff's peaceful possession and enjoyment of the plaint schedule property, except by due process of law.
Application No. 543 of 2005:
2. Application filed by GVFL for temporary injunction on the above lines.
3. W. P. No. 17576 of 2005 was filed by the applicant/plaintiff (GVFL) challenging the order of the Tax Recovery Officer (TRO) under Rule 39 of the Income-tax (Certificate Proceedings) Rules, 1962 ("ITCP Rules"), and to issue a writ of prohibition restraining the Income-tax Department from interfering with the possession of GVFL Ltd.
4. For convenience, the parties are referred to as in their rank in C. S. No. 454 of 2005.
5. Earlier, by order dated August 22, 2005, G.V. Films Ltd. v. S. Priya-darshan [2006] 281 ITR 114 (Mad), F. M. Ibrahim Kalifulla J. has passed the order to restore status quo as it existed on July 13, 2005, to the applicant/plaintiff. To ensure restoration of possession in favour of the applicant/plaintiff-GVFL, Mr. M. Vijaya Raghavan was appointed as Advocate-Commissioner to restore possession to the plaintiff-GVFL. Later, F. M. Ibrahim Kalifulla J. has further heard the parties. Having regard to the stand of the respective parties, the court has directed the "Tax Recovery Officer (TRO) to hear the applicant/plaintiff as to his right to remain in possession and whether at all the applicant/plaintiff could be proceeded against for eviction by invoking Rule 39 of the Income-tax (Certificate Proceedings) Rules, 1962, and the correctness of the said order can be examined by the court in the writ petition as well as in Application No. 543 of 2005". The learned judge has further observed, "to the suggestion that the matter has to be heard and determined by the Tax Recovery Officer, both the applicant/plaintiff as well as the respondents/defendants and also standing counsel for the Income-tax Department had no objection and agreed that the Tax Recovery Officer to hear the application and determine the applicability of Rule 39 of the Income-tax (Certificate Proceedings) Rules". On September 15, 2005, F. M. Ibrahim Kalifulla J. has passed the following order:
... After hearing the applicant as well as the respondents/defendants, the Tax Recovery Officer shall pass his orders as to the applicability of Rule 39 of the Income-tax (Certificate Proceedings) Rules, 1962, to the case of the applicant and such order shall be passed on or before September 29, 2005.... The implementation of the said order shall await further orders in these proceedings.
6. Pursuant to the order of the court, the Tax Recovery Officer has afforded sufficient opportunities to all the parties and heard the parties at length. With regard to the applicability of Rule 39, Income-tax (Certificate Proceedings) Rules, in consideration of the arguments and the submissions of the parties, the Tax Recovery officer has formulated three questions:
(i) Whether GVFL is a tenant of SFL ?
(ii) Whether GVFL has tenancy rights ?
(iii) Whether the provisions of Rule 39, Income-tax (Certificate Proceedings) Rules, are applicable in this case ?
7. Before the Tax Recovery Officer, the only claim of GVFL is the tenancy rights to the property pursuant to the lease arrangement claimed to have been entered into with SFL. In consideration of the materials placed and submissions of both parties, the Tax Recovery Officer has found that "the lease arrangement is a collusive and sham arrangement entered into only to defeat the purpose of law and the lease deposit claimed to have been made under the lease arrangement is itself in serious doubt and remains unsubstantiated". The Tax Recovery Officer has further held that GVFL cannot be recognized as a valid tenant in view of the provisions of Rule 2 read with Rule 16 of Schedule II, i.e., for the reason that SFL was not competent to contract at the time of the alleged first lease arrangement dated November 28, 1989. The Tax Recovery Officer has categorically found that GVFL has no tenancy rights over the property-Goodluck Preview Theatre and that it is not a tenant of SFL and that GVFL falls under Rule 39 of the ITCP Rules. In substance, the Tax Recovery Officer has held:
i. GVFL has been in possession of the property as an entity representing the defaulter as the lease agreement is only a facade to transfer the perpetual enjoyment of the property, even while avoiding the due process of law.
ii. GVFL's claim to the property is based on a right, which has all the ingredients of title to the property created after attachment.
8. As noted earlier, in the order dated September 15, 2005, F. M. Ibrahim Kalifulla J. has ordered that "the implementation of the said order shall await further orders in these proceedings". Accordingly, the matter and the impugned order of the Tax Recovery Officer dated September 29, 2005, are before the court. Elaborate arguments were advanced on behalf of the parties. The hearing and arguments stretched over a couple of weeks. Before considering the elaborate contentions advanced by both the parties, it is essential to refer to certain aspects and the factual background of the contentions of both the parties.
9. M/s. Sujatha Films Ltd. (SFL), No. 4, Seshadri Road, Alwarpet, Chennai-600 018, was the owner of Goodluck Preview Theatre. SFL had not paid the demand of income-tax for several years. Hence, SFL had become a defaulter as per the provisions of the Income-tax Act. The tax arrears were certified by the Tax Recovery Officer on various dates for recovery of the same. Notices of demand under Rule 2 of the Income-tax Act were issued from the year 1983-84, as and when the respective arrears were certified for recovery. SFL is in default of income-tax for more than 15 years aggregating to more than Rs. 19,00,00,000 (rupees nineteen crores only) (Rs. 11.04 crores plus interest for delayed period of payment). On February 27, 1987, Rule 2 notice under Schedule II to the Act was issued to SFL notifying the dues. As a recovery measure, Good-luck Preview Theatre was placed under attachment as per the provisions of the Income-tax Act on September 30, 1992. After adhering to all the formalities and the rules prescribed, the property was put to auction sale. The proclamation of sale was issued on February 7, 2005. Objections were received from GVFL and the objections were negatived and the property was auctioned on March 17, 2005. The defendants were declared the successful bidders. The sale was also confirmed as per the procedure enshrined in ITCP Rules.
10. The companies, GVFL and SFL, are the family concerns of G. Venkates-waran. Relating to the year 2002, SFL has issued 2,40,000 equity shares of Rs. 10 each, of which the holding of G. Venkateswaran is 2,07,500 equity shares. His wife-Sujatha Venkateswaran holds 1,000 equity shares. G. Sri-nivasan-brother of Venkateswaran holds 1,000 shares, Mrs. Sandhya Srini-vasan-wife of Srinivasan and sister-in-law of G. Venkateswaran holds another 1,000 shares. By lifting the veil of SFL, the majority of the shares are held by the family of G. Venkateswaran. Holding the major portion of shares, viz., 2,07,500 equity shares out of 2,40,000 equity shares, it is clear that G. Venkateswaran had control over the management of SFL. Similarly, relating to GVFL, G. Venkateswaran, his brother-Manirathnam, and another brother-G. Srinivasan and one C. L. Narasa Reddy constitute the board. In both the companies, there are common directors and are the family members. G. Venkateswaran was in managerial position and control of both the companies.
11. SFL is a defaulter and is due of tax arrears of a sum of Rs. 19,57,78,191. The details of tax arrears due have been stated in the proclamation of sale dated February 7, 2005, as noted below:
T.R. Date Asst. Certified (After reduction/ No. Year arrears collection) 256/91-92 31.10.90 84-85 Rs. 64,99,442 (Surtax) 256/91-92 16.09.91 86-87 Rs. 1,97,93,873 Income-tax 256/91-92 11.09.91 87-88 Rs. 2,09,33,386 Income-tax 596/03-04 15.10.03 88-89 Rs. 1,36,72,494 Income-tax 597/03-04 15.10.03 89-90 Rs. 4,78,20,955 Income-tax 598/03-04 15.10.03 97-98 Rs. 16,98,289 Income-tax ________________ Total Rs. 11,04,18,439
12. GVFL claims to be a tenant in occupation of Goodluck Preview Theatre alleging that GVFL was inducted as a tenant in the Goodluck Preview Theatre in the year 1989 under unregistered lease deed dated November 28, 1989. It is relevant to note that both the companies-GVFL and SFL, are having their corporate office at the same place, viz., No. 4, Seshadri Road, Alwarpet, Chennai 600 018.
13. The issue now raised is with respect to the applicability of Rule 39 or Rule 40 of the ITCP Rules and the power of the Tax Recovery Officer to decide the tenancy or otherwise. Only in the background of the above facts and the contentions of both the parties, the submissions and arguments advanced are to be analysed.
14. The contention of the plaintiff is that GVFL is only a tenant under a defaulter-SFL. As noted earlier, the contention of GVFL is that it is only a tenant in occupation of Goodluck Preview Theatre and that it was inducted as a tenant in the year 1989 under the unregistered lease deed dated November 28, 1989. The lease is said to be for a period of 12 months from December 1, 1989. A sum of Rs. 15,00,000 (rupees fifteen lakhs only) is alleged to have been paid as lease deposit by cheque. The monthly rental is alleged to be Rs. 5,000. The alleged unregistered lease deed (November 28, 1989) is signed by G. Venkateswaran and his wife-Sujatha Venkateswaran. Both the lessor and the lessee have the same address at Sujatha Centre, No. 4, Seshadri Road, Alwarpet, Chennai-600 018. None of the witnesses had signed in the alleged lease deed as attestors.
15. The subsequent lease deeds dated December 1, 1990, and August 20, 1999, are said to be renewal deeds. The second lease deed--December 1, 1990, is said to be fresh lease agreement for nine years ending on November 30, 1999. It is a composite lease of building and machinery. Here again the renewal lease deed is not registered. As per the terms of the lease deed, for a rent of Rs. 5,000 (rupees five thousand only) per month, Rs. 75,00,000 (rupees seventy five lakhs only) deposit is said to have been paid. Rs. 15,00,000 already paid under the earlier agreement and Rs. 38,00,000 said to have been paid on various dates in 1990. The huge amount of Rs. 75,00,000 (rupees seventy five lakhs only) is to be kept as security deposit with interest at 10 per cent, on the deposit. The alleged lease rent is:
For the first 3 years--Rs. 5,000 (total Rs. 1,80,000) For the second 3 years--Rs. 10,000 (total Rs. 3,60,000) For the third 3 years--Rs. 15,000 (total Rs. 5,40,000)
16. The second lease deed dated December 1, 1990, has been written on Rs. 20 stamp paper and the third lease deed dated August 20, 1999, has been written on Rs. 10 stamp paper. The alleged lease deeds are signed by G. Venkateswaran and his wife--Sujatha Venkateswaran as lessee and lessor, respectively. No witnesses have signed.
17. Before the Tax Recovery Officer, the auction purchasers had raised a plea that in consideration of the close relationship of the directors of both the companies, the lease arrangements relied on are bogus and the transaction is a sham and nominal one. The auction purchasers have referred to the number of circumstances in support of their contention that the alleged lease arrangement has been created to defraud the lawful claim of the Department and the auction purchasers. The auction purchasers have also referred to the letter of GVFL dated March 11, 2005, wherein GVFL claimed ownership of the property claiming that Goodluck Preview Theatre was transferred in their name for which there was no liability to pay the rent.
18. In consideration of the submissions of both the parties, the Tax Recovery Officer has found that GVFL claims to the property based on a right which has all the ingredients of title to the property created after attachment. The plea of GVFL that it is in occupation of the property as a tenant of the defaulter-SFL was rejected by the Tax Recovery Officer. The Tax Recovery Officer has also found that GVFL has no tenancy rights over the property.
Contention of the applicant/plaintiff/writ petitioner:
19. Assailing the impugned order, learned Counsel for GVFL, Mr. Ravi has made elaborate submissions, inter alia, raising the following contentions:
Even in the proclamation of sale, the Department has stated that GVFL is a lessee under SFL and that GVFL holds the leasehold right and the Department is estopped from denying the tenancy rights of GVFL.
Since the GVFL holds the leasehold right under SFL, Rule 39, ITCP Rules, is not applicable and only Rule 40, ITCP Rules, is applicable.
The scope of the tenancy cannot be summarily determined by the Tax Recovery Officer.
Only in the civil suit, the legal validity of the tenancy could be gone into. The Tax Recovery Officer has no jurisdiction to declare the lease invalid or otherwise.
The Department could only effect symbolic delivery of possession which has been effected on May 4, 2005.
The defendants are only auction purchasers and they only step into the shoes of the defaulter and the plaintiff could be evicted only under due process of law.
Rules framed under the ITCP Rules mostly correspond to the relevant rules occurring under Order 21 of the Code of Civil Procedure relating to execution of a decree by sale of immovable property. Rule 40 of the ITCP Rules corresponds to Order 21, Rule 96, C. P.C. and the tenant cannot be evicted by the Tax Recovery Officer by issuing an order directing it to vacate the properties forfeiting its rights under the relevant provisions of the Rent Control Act.
The auction purchasers being outsiders cannot challenge the validity of the tenancy before the Tax Recovery Officer and the Tax Recovery Officer has no jurisdiction to declare the lease invalid, void or otherwise.
Since GVFL is a tenant under SFL, Rule 39, ITCP Rules, is not applicable and only Rule 40, ITCP Rules, alone would apply.
The Income-tax Department has taken coercive measures to evict GVFL in collusion with the auction purchasers and the impugned order of the Tax Recovery Officer is biased and cannot be implemented.
The Tax Recovery Officer has improperly discarded the materials produced by GVFL proving that it is a tenant and such misreading of evidence led to the wrong conclusion.
20. Supplementing the elaborate arguments on behalf of the applicant/plain- tiff, written submissions were also submitted. Learned Counsel for the applicant/plaintiff has also drawn the attention of the court to a number of decisions reported in Tax Recovery Officer v. Gangadhar Viswanath Ranade Dev Raj Dogra v. Gyan Chand Jain , Puran Chand and Co. v. Ganeshi Lal Tara Chand , A. Stephen Samuel v. Union of India and a number of other decisions.
Contentions of auction purchasers--defendants:
21. Countering the arguments, learned senior counsel for the auction purchasers, Mrs. Nalini Chidambaram has drawn the attention of the court to the terms of the lease and contended that the terms of the lease deed are un-usual inevitably leading to the conclusion that the lease arrangement is a sham and fraud played upon the Revenue authorities to escape paying huge arrears of income-tax. Contending that the corporate veil is to be lifted to appreciate the conduct of the parties, learned senior counsel has, inter alia, raised the following contentions:
The majority of equity shares of SFL is held by G. Venkateswaran. The annual report and the directors report and the conduct of the affairs of the company clearly show that G. Venkateswaran was in control and management of SFL.
Goodluck Preview Theatre is in occupation of GVFL only on behalf of the defaulter-SFL and not as a bona fide tenant. Hence, only Rule 39, ITCP Rules, would be applicable to the facts of this case.
Both the companies have not followed the provisions of Section 293 as well as Section 299 of the Companies Act. Consequently, the contract, i.e., lease deed dated November 28, 1989, entered into by the husband and wife is not valid in the eye of law.
On February 27, 1987, Rule 2 notice under Schedule II of the Act was issued to SFL. After issuance of Rule 2 notice under Rule 16, the defaulter becomes incompetent to deal with the property owned by it by way of sale or lease and only to defraud the Revenue, the husband and wife have created the relationship of landlord and tenant among the two companies.
Since the object of the lease agreement is unlawful, it is void under Sections 23 and 24 of the Contract Act.
The Tax Recovery Officer has jurisdiction to decide whether the immovable property sold is in the occupancy of the defaulter or of some person on his behalf. The Tax Recovery Officer has rightly held that the property is held by G. V. Films Limited on behalf of the defaulter-Sujatha Films Limited. GVFL claims leasehold right created by the defaulter after issuance of Rule 2 notice.
The parameters of interference, mala fide, bias, arbitrariness to the extent of perversity as laid down in Tata Cellular v. Union of India [1994] 6 SCC 651 are not attracted warranting interference.
The order of the Tax Recovery Officer that Rule 39, ITCP Rules, alone would apply does not suffer from any flaw or perversity of approach calling for interference.
Learned counsel for the auction purchasers has relied upon a number of decisions which we would refer to at the appropriate place.
Contentions of the Income-tax Department:
22. Contending that Rule 39, ITCP Rules, applies, Ms. Pushya Sitaraman, learned senior standing counsel for the Income-tax Department has made the following submissions:
Income-tax arrears for the year 1984-85 were cleared only on March 21, 1990, and Rule 2 notice was issued on February 27, 1987. The lease deed after issuance of Rule 2 notice is hit by Rule 16.
Form No. 13, ITCP Rules, is a prescribed form and there is no necessity either for manipulation or commission. The mistake that crept in the Tamil translation was only an inadvertent mistake of which the petitioner/plaintiff cannot take advantage.
The same parties and family members were in managerial position having control over both the companies. Hence, it has become necessary for the Tax Recovery Officer to lift the corporate veil to look into the realities.
The entries in the book claimed are self-contradictory and are not complete.
In view of clear indication of collusive arrangement to evade tax, the Tax Recovery Officer has elaborately gone into the details and found that the claim of tenancy is not proved.
Exercising power under Article 226, the High Court would not interfere with the findings of the Tax Recovery Officer unless it suffers from fundamental flaws like refusal of admissible evidence or erroneously admitting inadmissible evidence or misreading of evidence.
Since GVFL is not a tenant and is in possession only on behalf of the defaulter, Rule 39, ITCP Rules, is to be invoked to order immediate delivery of possession and that delivery of possession has to be ordered by the court.
Terms of the lease deeds:
23. Before proceeding to consider the contentions of the parties, we may refer to certain features of the alleged lease agreement. The alleged lease deeds are unregistered signed by G. Venkateswaran and his wife-Sujatha Venkateswaran. Both the lessee and the lessor have the same address as:
Sujatha Films Limited, Sujatha Centre, No. 4, Seshadri Road, Madras 600 018. and G. V. Films Limited, Sujatha Centre, No. 4, Seshadri Road, Madras 600 018.
24. The first lease deed (November 28, 1989) is not attested by any of the witnesses. The deed of lease renewal (December 1, 1990) has been written on Rs. 20 stamp paper. For charging of stamp duty on agreements at Rs. 20 was only with effect from July 11, 2001. But, the lease agreement of the year 1990 has been written on Rs. 20 stamp paper. For a lease rent of Rs. 5,000 per month, a huge deposit of Rs. 75,00,000 (rupees seventy five lakhs only) is said to have been made as lease deposit. As discussed infra, the alleged lease deeds and the terms of the lease deeds and other features are unusual and throw considerable doubt about the authenticity of the documents.
Effect of Rule 2, Schedule II, notice:
25. SFL has been in arrears of income-tax from the assessment year 1984-85 onwards. The Income-tax Department has issued Rule 2 notice (February 27, 1987) for recovery of Rs. 3,83,90,359 as the income-tax arrears for the assessment year 1984-85. Rule 2 of Schedule II to the Income-tax Act, 1961, deals with issuance of notice requiring the defaulter to pay the amount specified in the certificate. Rule 2 of Schedule II reads:
Issue of notice.--When a certificate has been drawn up by the Tax Recovery Officer for the recovery of arrears under this Schedule, the Tax Recovery Officer shall cause to be served upon the defaulter a notice requiring the defaulter to pay the amount specified in the certificate within fifteen days from the date of service of the notice and intimating that in default steps would be taken to realise the amount under this Schedule.
26. The effect of the Rule 2 notice is that under Rule 16, the defaulter becomes incompetent to deal with the property owned by it by way of sale or lease. Rule 16 of Schedule II reads:
Private alienation to be void certain cases.--(1) Where a notice has been served on a defaulter under Rule 2, the defaulter or his representative-in-interest shall not be competent to mortgage, charge, lease or otherwise deal with any property belonging to him except with the permission of the Tax Recovery Officer, nor shall any civil court issue any process against such property in execution of a decree for the payment of money.
(2) Where an attachment has been made under this Schedule, any private transfer or delivery of the property attached or of any interest therein and any payment to the defaulter of any debt, dividend or other monies contrary to such attachment, shall be void as against all claims enforceable under the attachment.
27. Rule 48 of the Second Schedule refers to attachment of immovable property of the defaulter by an order prohibiting the defaulter from transferring or charging the property in any manner. The property of SFL-Good-luck Preview Theatre was attached on September 30, 1992. Under Rule 51, the attachment relates back to the date of the Rule 2 notice, viz., February 27, 1987. Rule 51 reads as under:
Attachment to relate back from the date of service of notice.-- Where any immovable property is attached under this Schedule, the attachment shall relate back to, and take effect from the date on which the notice to pay the arrears, issued under this Schedule, was served upon the defaulter.
28. Thus, the order of attachment on September 30, 1992, relates back to February 27, 1987.
29. In response to Rule 2 notice in T. R. No. 3118/86-87 dated February 27, 1987, the defaulter-SFL has sent its clarification (by its letter dated February 28, 1987) stating that they were successful with regard to the appeal for the previous assessment year 1983-84 and expressed hope that the appeal for the assessment year 1984-85 would also result in favour of the assessee. The issuance of Rule 2 notice for recovery of tax amount of Rs. 3,83,90,359 and the amount thereon was thus disputed by SFL. In the letter dated March 22, 1990, SFL had referred to the payments--sum of Rs. 3,50,033 (rupees three lakhs fifty thousand and thirty three only) made on March 21, 1990, towards the tax due for the assessment year 1984-85. In the said letter (dated March 22, 1990), SFL has stated:
... as you are aware that M/s. Sujatha Films Limited have yesterday paid a sum of Rs. 3,50,033. With this payment the entire arrears of Sujatha Films Limited and Aruna International Private Limited up to the assessment year 1984-85 has been cleared....
30. Thus, it is clear that the arrears due for 1984-85 (covered under Rule 2 notice dated February 27, 1987) were cleared only on March 21, 1990. As on November 28, 1989, when the first lease deed is said to have been entered into, SFL was in arrears of tax for which Rule 2 notice was already issued. SFL-defaulter was not competent to lease or otherwise deal with its property. No permission was also obtained from the Tax Recovery Officer for entering into the lease agreement.
31. Notice of demand under Rule 2 in TR. No. 190/Cent. DC I/89-90 was sent on January 31, 1990, for the assessment year 1984-85 claiming arrears of Rs. 72,19,442 (rupees seventy two lakhs nineteen thousand four hundred and forty two only), including surtax of Rs. 35,50,604 (rupees thirty five lakhs fifty thousand six hundred and four only). Thereafter, G. Venkateswaran as the chairman of SFL had executed a bond (Safurdanama) on March 20, 1990, undertaking that he would not sell or otherwise encumber the assets till the entire amount due from him is paid to the Tax Recovery Officer. The undertaking reads:
... I specify herein my assets as on this day (as per annexure), and I agree not to sell, give away, transfer, mortgage, or otherwise deviate or encumber these assets in any way until the entire amount due from me is paid to the Tax Recovery Officer-I (Central), Madras, in full. I agree that in the meanwhile, these assets may be continued to remain attached, if considered necessary....
32. Two things emerge:
i. G. Venkateswaran has signed as the chairman of SFL, undertaking not to encumber the assets ;
ii. If really there had been lease on November 28, 1989, SFL would have certainly mentioned about the lease deed dated November 28, 1999. Non-mention about the lease deed in the bond (Safurdanama) executed by SFL probabilises the doubt about the first lease deed dated November 28, 1989.
33. Further, SFL and G. Venkateswaran have undertaken not to encumber the assets in any manner till the entire amount is paid to the Tax Recovery Officer. The subsequent renewal lease deed (dated December 1, 1990) is a clear violation of such undertaking.
34 The deed of renewal dated December 1, 1990, is said to be a fresh lease agreement for nine years ending on November 30, 1999. Under this unregistered lease deed, the lessee-GVFL is said to have paid Rs. 75,00,000 towards security deposit. The recitals in the deed of lease renewal are as under:
The lessee hereby agree and undertake to pay to the lessor a sum of Rs. 75,00,000 (rupees seventy five lakhs only) towards security deposit in the following manner:
i. Rs. 15,00,000 (Rupees fifteen lakhs only) adjusted against the security deposit paid by the lessee for the original lease.
ii. Rs. 38,00,000 (Rupees thirty eight lakhs only) already paid by way of cheques as detailed below :
(a) Rs. 15,00,000 paid on February 17, 1990
(b) Rs. 15,00,000 paid on October 27, 1990
(c) Rs. 2,00,000 paid on November 21, 1990.
(d) Rs. 6,00,000 paid on November 28, 1990.
iii. Rs. 22,00,000 (Rupees twenty two lakhs only) to be paid in mutually convenient ______________ instalments.
Rs. 75,00,000 The lessor make it clear that the said sum of Rs. 75,00,000 shall be kept as security deposit and the same shall be refunded in one lump sum when the lessee vacate and hand over the vacant premises of the demised building and machineries such as projectors AIRconditioners, lift, telephone, furniture, fittings etc. The lessor agree to pay interest at 10 per cent, per annum on the said security deposit of Rs. 75 lakhs.
35. Rs. 75,00,000 (rupees seventy five lakhs only) is to be kept as security deposit. The lessors to pay interest of 10 per cent, per annum on the security deposit of Rs. 75,00,000 which comes to around Rs. 62,500. The deed of lease renewal is again said to have been renewed on August 20, 1999, for a period of nine years. Under this arrangement, there is no liability for the lessee to pay rent to the Goodluck Preview Theatre. The rent payable is to be set off on the interest on the security deposit of Rs. 75,00,000 at 10 per cent, per annum.
36. As discussed infra, the terms of the lease arrangement are unusual. It is quite unbelievable that for the monthly rent of Rs. 5,000 (Rs. 60,000 per annum), Rs. 10,000 (Rs. 1,20,000 per annum) Rs. 15,000 (Rs. 1,80,000 per annum), a huge security deposit of Rs. 75,00,000 was paid by GVFL to SFL.
37. The bond (Safurdanama) had been executed by G. Venkateswaran on behalf of SFL relating to the arrears amounting to Rs. 2,77,44,312 due in respect of certificate Nos. T.R. 189/89, 190/90 dated February 27, 1987. The certificate T. R. No. 190/89-90 which is dated January 31, 1990, is also covered under the safurdanama. Though the date of that certificate is mentioned as February 27, 1987, the safurdanama is also in respect of certificate T. R. No. 190/89-90, which is dated January 31, 1990. Hence, the undertaking not to sell, alienate or encumber covers the notice dated January 31, 1990, also. Hence, the second lease deed dated December 1, 1990, which is subsequent to the safurdanama is in clear violation of the undertaking in the safurdanama.
38. The unnaturalness of the terms and other features of the lease deed are : further elaborated while considering the correctness of the order of the Tax Recovery Officer. At this juncture, suffice it to point out that the unregistered lease deeds are after the issuance of the Rule 2 notices for the various assessment years beginning from 1984-85 (February 27, 1987 and subsequent notices). Under Rule 16 to Schedule II, it shall not be competent for the defaulter to mortgage, charge, lease or otherwise deal with any property belonging to him except with the permission of the Tax Recovery Officer. The alleged lease deed dated November 28, 1989, and the renewal deed dated December 1, 1990, written after issuance of the Rule 2 notice has no validity in the eye of law. The renewal lease deed is also in violation of the undertaking given in the safurdanama.
39. Whether the auction purchasers are entitled only to symbolic delivery : under Rule 40, ITCP Rules.--The main contention of the applicant/plaintiff is that GVFL is only a tenant in occupation of the property and that the Department could only give simple symbolic delivery to the auction purchaser under Rule 40, ITCP Rules, and there is no reason to hand over physical possession effecting delivery of possession under Rule 39, ITCP Rules, since it is established that GVFL is in occupation of the premises as a tenant. It is the further contention of learned Counsel for the plaintiff that the question of fact to be decided by the Tax Recovery Officer is whether GVFL claims title to the property created subsequent to the attachment. The main contention of the plaintiff is that the question of law between the parties whether GVFL is a tenant by holding over and the validity of the lease agreement could be determined only in the civil court and the Tax Recovery Officer is not competent to adjudicate upon those issues.
40. The stand of the Income-tax Department and the auction purchasers that the lease was created for preventing tax realization is very much assailed by the plaintiffs. It is the further contention that the Department has realized full consideration of the property and that GVFL has not filed any objection to the sale of the property and that GVFL is asserting its tenancy rights and does not deny that the purchaser has become its landlord. It is also submitted that the purchaser steps into the shoes of the defaulter and that the defaulter has to take appropriate steps for evicting the tenant. Learned Counsel for the plaintiff has also submitted that GVFL being a tenant which has never claimed title in the Goodluck Preview Theatre and hence Rule 39, ITCP Rules, is not applicable and only Rule 40, ITCP Rules, is applicable.
41. Rule 39, ITCP Rules, deals with delivery of immovable property in occupancy of defaulter, which reads as under:
Delivery of immovable property in occupancy of defaulter.--(1) Where the immovable property sold is in the occupancy of the defaulter or of some person on his behalf or of some person claiming under a title created by the defaulter subsequently to the attachment of such property and a certificate in respect thereof has been granted under Rule 65 of the principal rules, the Tax Recovery Officer shall, on the application of the purchaser, order delivery to be made by putting such purchaser or any person whom the purchaser may appoint to receive delivery on his behalf in possession of the property, and if need be, by removing any person who refuses to vacate the same.
(2) For the purposes of Sub-rule (1), if the person in possession does not afford free access, the Tax Recovery Officer may, after giving reasonable warning and facility to any woman not appearing in public according to the customs of the country to withdraw, remove or open any lock or bolt or break open any door or do any other act necessary for putting the purchaser, or any person whom the purchaser may appoint to receive delivery on his behalf, in possession.
42. Rule 40 reads as under:
Delivery of immovable property in occupancy of tenant.--Where the immovable property sold is in the occupancy of a tenant or other person entitled to occupy the same and a certificate in respect thereof has been granted under Rule 65 of the principal rules, the Tax Recovery Officer shall, on the application of the purchaser, order delivery to be made by affixing a copy of the certificate of sale in some conspicuous place on the property, and proclaiming to the occupant by beat of drum or other customary mode, at some convenient place, that the interest of the defaulter has been transferred to the purchaser.
43. Rule 39 of the ITCP Rules applies where the immovable property sold is in the occupancy of:
(a) the defaulter,
(b) or of some person on his behalf,
(c) or of some person claiming under a title created by the defaulter.
44. Only then, the Tax Recovery Officer can take delivery of the property sold in auction by removing the obstructors. The main contention of the plaintiff is that even in the proclamation of sale (February 7, 2005) issued by the Tax Recovery Officer, in the last column of the Schedule, there is a clear mention that the property is in the occupation of GVFL as tenant. The main contention of the applicant/plaintiff is that the Department having admitted the leasehold rights of GVFL in the proclamation sale, cannot now turn round and say that GVFL is not a tenant. On behalf of the plaintiff, two-fold contentions are raised:
i. Doctrine of estoppel operates against the Department;
ii. The auction purchaser having bid the property with open eyes knowing about the leasehold rights of GVFL and that the property has been purchased for a low price since it is subject to tenancy, the auction purchasers ought to take steps firstly to terminate the tenancy in a manner known to law and then seek possession through a competent court of law.
45. For appreciation of the contentions urged, it is apposite to refer to Rule 52 of the Second Schedule to the Income-tax Act. Rule 52 deals with "Sale and proclamation of sale". Rule 52 reads:
Sale and proclamation of sale.--(1) The Tax Recovery Officer may direct that any immovable property which has been attached, or such portion thereof as may seem necessary to satisfy the certificate, shall be sold.
(2) Where any immovable property is ordered to be sold, the Tax Recovery Officer shall cause a proclamation of the intended sale to be made in the language of the district.
46. Rule 53 refers to the contents of the proclamation. Rule 53 reads:
Contents of proclamation.--A proclamation of sale of immovable property shall be drawn up after notice to the defaulter, and shall state the time and place of sale, and shall specify, as fairly and accurately as possible,--
(a) the property to be sold ;
(b) the revenue, if any, assessed upon the property or any part thereof ;
(c) the amount for the recovery of which the sale is ordered ;
(cc) the reserve price, if any, below which the property may not be sold ; and
(d) any other thing which the Tax Recovery Officer considers it material for a purchaser to know, in order to judge the nature and value of the property.
47. Drawing the attention of the court to Rules 52 and 53, it is contended that the Tax Recovery Officer has considered the leasehold rights of GVFL as a material fact for the purchaser to know and hence, the same was referred to in the column V of the proclamation. In the prescribed sale proclamation, the schedule of property has been described as under:
____________________________________________________________________ Of Description of Revenue assessed Details of Claims, if any, lot property to be upon the property any encum- to which have sold with the or any part thereon brances been put forwa-
names of the which the rd to the prop-
other co-owners property erty, and any
where the property is liable other known
belongs to the particulars
defaulter and any bearing on its
other persons as nature and value
co-owners
____________________________________________________________________ (1) (2) (3) (4) (5) ____________________________________________________________________ Land in R.S. No. Within the The building is 795 measuring 3762 knowledge presently leased sq. ft. and of the to M/s. G. V. building thereon Income-tax Films Ltd., No. known as 'Good-luck Department. 4, Seshadri Preview Theatre -Nil- Road, Alwarper, Complex', Chennai.Property Old No. 18, New tax charges No. 30, 5th Cross Rs. 94,540 Street, Lake Area, Nungambakkam, Chennai 600 034.
Machinery items :
Generator 62.5 K.V.-1 No. Projector 35mm -4 Nos. Lift-1 No. (6 persons capacity) A. C. Plant-30 tons with furniture 1 + 2) floors ____________________________________________________________________
48. The Tamil version of the proclamation is as noted below:
1*** *** *** Column IV of the English version is : Details of any encumbrances to which the property is liable The correct Tamil Translation is:
* * * Mistakenly shown as Column V in Tamil translated version Column V of the English version is Claims, if any, which have been put forward to the property and any other known particulars bearing on its nature and value *** The correct Tamil translation is:
Mistakenly stated as Column 4 in Tamil translated version
49. Due to mistake, column "5" is wrongly stated as * * * * * * * *
50. Due to mistake, the caption is columns "4" and "5" in the Tamil version have been interchanged. The correct translation of column "5" must be under which claim of GVFL to be the tenant ought to have been given.
51. The mistake in the translated version of the proclamation of sale is only an inadvertent mistake. The building said to be under lease to GVFL is only a claim put forward to the property by GVFL which has been correctly shown in the English proclamation of sale column No. 5. Much arguments advanced by the plaintiff that the Department is estopped from denying the tenancy of GVFL have no merit. A mistaken statement in the Tamil version of the proclamation cannot prevent the Tax Recovery Officer from holding the tenancy as sham and void.
52. Under Rule 52(2), the proclamation of sale is to be made in the language of the district. Hence, it is contended that the language of Chennai District being Tamil, only the Tamil proclamation shall govern the parties and that the Department cannot claim based upon the English version. This contention does not merit acceptance. The English version along with the Hindi version is the official format.
53. Tamil proclamation and English proclamation.--Rule 22, ITCP Rules, deals with Forms, which shall be used for the purpose mentioned against each. Form number ITCP 13 relates to proclamation of sale which reads:
Form No. ITCP 13, for issuing a proclamation of sale of movable or immovable property under Rule 38 or Rule 52(2) of the principal rules.
54. The columns in the prescribed Form No. 13 are as under:
____________________________________________________________________ Of Description of Revenue assessed Details of Claims, if any, lot property to be upon the property any encum- to which have sold with the or any part thereon brances been put forwa-
names of the which the rd to the prop-
other co-owners property erty, and any
where the property is liable other known
belongs to the particulars
defaulter and any bearing on its
other persons as nature and value
co-owners
____________________________________________________________________ (1) (2) (3) (4) (5) ____________________________________________________________________ ____________________________________________________________________
55. The format with the above columns is the authorised format. While so, the plaintiff cannot raise any objections to the English proclamation produced by the Department. The Tamil version is a translated version wherein inadvertent mistake has crept in. The applicant/plaintiff cannot take advantage of such mistake in the translated version of the Tamil proclamation of sale taking shelter under Rule 52(2) of the Second Schedule.
56. As per the Official Languages Act, 1963, English and Hindi would be used for all official purposes of the Union. These documents of the Government of India would be either in Hindi or English or both. The conditions in Rule 52(2) of the Second Schedule to the Income-tax Act that the proclamation of sale is to be published in the local language can only be read to mean, in addition to the official language. Learned senior standing counsel for the Department has submitted that the proclamation in English was pasted on the notice board in the Tax Recovery Officer's office. The copy of the proclamation in English is also said to have been served on the defaulter. When the proclamation in English is said to have been pasted on the Tax Recovery Officer's office, the plaintiff cannot raise any objection for the proclamation in English, which is an official format as per Form No. 13, ITCP Rules.
57. Proclamation of sale : Whether there is variance between Tamil proclamation and English proclamation as alleged.--In the Tamil proclamation, the total tax due from SFL is stated as Rs. 11,04,18,437. That amount relates to the certificates T. R. No. 256/91-92 to 258/03-04. The split up figures are not given in the Tamil proclamation. The split up figures are given in the English proclamation as noted under:
____________________________________________________________________ T.R. No. Date Asst. year Certified arrears (After reduction/ (Rs.) collection) ____________________________________________________________________ 256/91-92 31-01-90 84-85 64,99,442 (Surtax) 256/91-92 16-09-91 86-87 1,97,93,873 Income-tax 256/91-92 11-09-91 87-88 2,09,33,386 Income-tax 596/03-04 15-10-03 88-89 1,36,72,494 Income-tax 597/03-04 15-10-03 89-90 4,78,20,955 Income-tax 598/03-04 15-10-03 97-98 16,98,289 Income-tax Total 11,04,18,439
58. By comparison of the Tamil and English proclamation, it is seen that the certificate T. R. No. 256/91-92 dated January 31, 1990, for the assessment year 1984-85 has not been stated in the Tamil proclamation. Much arguments were advanced contending that the property was auctioned only for the notice covered under the proclamation. It is further contended that the proclamation covers only the certificate dated September 11, 1991, September 16, 1991 and October 15, 2003 and does not relate to the certificate T. R. No. 256/91-92 dated January 31,. 1990. On behalf of the plaintiff, it is contended that both the lease deeds are prior to September 11, 1991. The lease deeds are not hit by the Rule 2 notice. The stand of the Department that the lease had been created after the attachment (relating back to the issuance of Rule 2 notice dated February 27, 1987) is very much assailed contending that the proclamation cannot traverse beyond what is stated in the proclamation. Much contention is advanced that the proclamation could be only for the certificates of notice dated September 11, 1991, September 16, 1991 and October 15, 2003.
59. Learned Counsel for the plaintiff had also gone a step further attacking the English proclamation contending that the English proclamation has been manipulated by the Department, at a later stage, when the enquiry was pending before the Tax Recovery Officer, the Department clandestinely included the certificate of notice T. R. No. 256/91-92 dated January 31, 1990, for the assessment year 1984-85. The argument advanced might appear to be correct ; but a careful consideration would disclose that the contention has no force. It is not as if the English proclamation has been hurriedly written or included as contended. Form No. 13 is the format stipulated under the ITCP Rules 22(xii). Form No. 13 of the ITCP Rules stipulates the contents as under:
... Whereas the [Tax Recovery Officer]... had forwarded the certificate No. dated....to the [undersigned],...for the recovery of the sum of Rs. from... [defaulter]...; and whereas the said Tax Recovery Officer has sent to the undersigned on the... day of...19.... a certified copy of the certificate under Section 223(2) of the Income-tax Act, 1961, specifying that an amount of Rs. is to be recovered from the defaulter ; which sum is recoverable together with interest in accordance with Section 220(2) of the said Act; and the costs, charges and expenses of the proceedings for the recovery thereof;
And whereas the undersigned has ordered the sale of the attached property mentioned in the annexed schedule in satisfaction of the said certificate ;
And whereas on the... day of...19...(the date fixed for the sale) there will be due thereunder a sum of Rs. ..including costs and interest ...
60. Thus, the total amount due from the defaulter and the details of the certified copy of the certificate under Section 223(2) of the Income-tax Act specifying that amount to be recovered from the defaulter are to be stated.
61. Accordingly, in the Tamil proclamation, the total amount due from SFL has been stated as Rs. 11,04,18,437. The amount due including interest and other expenses is stated as Rs. 19,57,78,191. Certificate T. R. No. 256/91-92 relates to three assessment vears as under:
__________________________________________________________________ T.R. No. Date Asst.year Certified arrears (After reduction/ (Rs.) collection) __________________________________________________________________ 256/91-92 31-01-90 84-85 64,99,442 (Surtax) 256/91-92 16-09-91 86-87 1,97,93,873 Income-tax 256/91-92 11-09-91 87-88 2,09,33,386 Income-tax __________________________________________________________________
62. In the Tamil proclamation, the assessment year 1984-85 T. R. No. 256/91-92 (dated January 31, 1990) has been omitted to be mentioned. Due to omission, it cannot be concluded that T. R. No. 256/91-92 dated January 31, 1990, for the assessment year 1984-85 has been included in the proclamation at a later point of time.
63. The omission is clear while we go by the arithmetic calculations. The total tax due from SFL as per English proclamation is Rs. 11,04,18,437. In the Tamil proclamation also, the total tax arrears due from SFL are stated as Rs. 11,04,18,437. That amount could be arrived at only if the tax arrears/surcharge amount due for the year 1984-85 as per the certificate T. R. No. 256/1991-92 dated January 31, 1990--Rs. 64,99,442 is included. The total amount will not tally if that amount for the assessment year 1984-85 has not been included. The contention that T. R. No. 256/1991-92 dated January 31, 1990, has been included later in the English proclamation has no force.
64. The reason for not giving the split up figure of tax arrears in the Tamil proclamation is obvious. As per Rule 52 to Schedule II, the proclamation has to be in the language of the district. The proclamation is drawn up stating the time and place and the sale shall also accurately specify the amount due from the defaulter. Since the proclamation is meant for advertising to the public about the intention to sale, it may not have insisted to give split up figure in the Tamil proclamation. For example, we may refer to the court proceedings of sale wherein the proclamation is issued (Order 21, Rule 66, of the CPC). In the proclamation of sale issued by the court, the split up details of the decree amount, subsequent interest and the cost are not separately shown. Only the total amount due is stated in the proclamation. The contention advanced that T. R. No. 256/91-92 dated January 31, 1990, for the assessment year 1984-85 has been deliberately included has no force and the same is to be brushed aside.
65. The contention of the plaintiff is that the auction purchasers had purchased the property with open eyes very well knowing that the property is subject to tenancy and that they cannot seek to dispossess the tenant with the assistance of the Income-tax Officers. It is also contended that the auction purchasers had only stepped into the shoes of the defaulter/landlord. It is also contended that as per Rule 6(1) of Schedule II, the auction purchasers are only entitled to the right, title and interest of the defaulter and they cannot claim any such right or privilege merely because they are auction purchasers. Rule 6(1) of the Second Schedule provides:
Purchaser's title.--(1) Where property is sold in execution of a certificate, there shall vest in the purchaser merely the right, title and interest of the defaulter at the time of the sale, even though the property itself be specified.
66. It is further submitted on behalf of the plaintiff that the Department having received the full sale consideration from the auction purchaser, the Department has no further role to play especially when in accordance with Rule 40, the Department has already delivered symbolic possession to the auction purchaser on May 4, 2005.
67. For better appreciation of this contention, it is necessary to have an understanding of the relevant rules of the ITCP Rules. Rule 39 of the Income-tax (Certificate Proceedings), Rules, 1962, deals with the delivery of immovable property in occupation of defaulter or of some person on his behalf or of some person claiming under a title created by the defaulter subsequent to the attachment of the property. Rule 40 deals with delivery of immovable property in occupation of the tenant. Rule 41 deals with the application to be preferred by the purchaser of the immovable property when there is resistance or obstruction in obtaining possession of immovable property. Rule 42 deals with the resistance or obstruction by the defaulter or by some other person at his instigation. Rule 43 deals with the power of the Tax Recovery Officer when there is resistance or obstruction by a bona fide claimant. Under Rule 43, where the Recovery Officer is satisfied that the resistance or obstruction was occasioned by any person other than the defaulter claiming in good faith to be in possession of the property on his own account or on account of some person other than the defaulter, the Tax Recovery Officer shall make an order dismissing the application. Rule 44 deals with dispossession by the purchaser and that rule provides that where any person other than the defaulter is dispossessed of immovable property sold in execution of a certificate by the purchaser, he is empowered to file an application before the Tax Recovery Officer complaining of such dispossession and the Tax Recovery Officer is required to investigate into the matter. Rule 45 provides that where the Tax Recovery Officer is satisfied that the applicant was in possession of the property on his own account or on account of some person other than the defaulter, he shall direct that the applicant be put into possession of the property. Rule 47 deals with the right to file a suit by a person other than the defaulter to establish the right which he claims to be in possession of the property in question.
68. Learned Counsel for the plaintiff drew parallel from the Code of Civil Procedure, Order 21, Rule 95, and Order 21, Rule 96, C.P.C. and contended that the auction purchasers would be entitled to possession only in accordance with Rule 40, ITCP Rules, and the delivery contemplated under Rule 39, ITCP Rules, cannot be effected.
69. Drawing the attention of the court to the abovesaid rules of the ITCP Rules and Order 21, Rule 95, and Order 21, Rule 96, C.P.C. learned Counsel for the applicant/plaintiff has contended that the auction purchasers can only claim symbolical possession and that the tenants cannot be evicted by the Recovery Officer. In support of his contention, learned Counsel for the plaintiff has relied upon the decision reported in A. Stephen Samuel, Proprietor Industrial Security Agency v. Union of India . In comparison of the ITCP Rules with the Civil Procedure Code, in , a Division Bench of this court has held (page 86 of Comp Cas):
We find that the Rules framed under the ITCP Rules largely correspond to the relevant Rules occurring under Order 21 of the Code of Civil Procedure relating to the execution of a decree. Rule 39 of the ITCP Rules corresponds to Order 21, Rule 95 of the Code of Civil Procedure which deals with the delivery of possession in occupancy of judgment debtor and Rule 40 of the ITCP Rules corresponds to Order 21, Rule 96 of the Code of Civil Procedure. We are of the view that Rule 40 of the ITCP Rules dealing with the case where the property is in occupation of the tenant or other person entitled to occupy the same in his own right contemplates only symbolical possession to the auction purchaser and the tenants cannot be evicted by the Recovery Officer by issuing an order directing them to vacate the properties forfeiting their rights under the relevant provisions of the Rent Control Law.
70. Contending that only symbolical possession could be ordered, learned Counsel for the plaintiff has relied upon the decision reported in A. Stephen Samuel, Proprietor Industrial Security Agency v. Union of India . The said case arose relating to the properties sold in the possession of the tenant wherein a Division Bench has observed that the auction purchasers would be entitled to symbolical possession of such property and that the auction purchaser would not be entitled to claim that the tenants should be directed to hand over vacant possession. Referring to the decision reported in Brahmdeo Chaudhary v. Rishikesh Prasad Jaiswal the Division Bench has held thus (page 87 of Comp Cas):
The appellants herein are not defaulters to the bank. They do not claim to be in occupation of the properties under a title created by the judgment debtor subsequent to the attachment of the properties by the Recovery Officer, nor do they claim that they entered into possession subsequent to the recovery certificate issued by the Recovery Officer. There is no doubt that the appellants are the lawful tenants of the defaulter to the bank even before the initiation of the proceedings by the bank against the defaulter. Therefore, when the property was in the occupation of tenants at the time when it was sold, the auction purchaser would be entitled to symbolical possession of such property, but he would not be entitled to claim that the tenants should be directed to hand over actual possession of the respective portions of the property in their possession. In our view, it is impermissible for the auction purchaser to get actual possession of the property by throwing the tenants out of the property. The auction purchaser, in our view, will be entitled to possession in accordance with Rule 40 of the ITCP Rules and the delivery contemplated in the rule is not actual delivery, but symbolical delivery of the property to the auction purchaser.
71. The case before the Division Bench was a case where the persons in occupation were the lawful tenants nor did they claim title to be in occupation of the properties under a title created by the judgment-debtor subsequent to the attachment by the recovery officer. In the factual circumstances of the case, the Division Bench has observed that the auction purchaser would not be entitled to claim that the tenant should be directed to hand over vacant possession and that Rule 40, ITCP Rules, is only applicable. In the case in hand, the alleged tenancy between the husband and wife raised doubts about the genuineness of the tenancy and the contention of the plaintiff that Rule 40 is applicable has no force.
72. In support of the contention that the auction purchasers would be entitled to only symbolical possession, further reliance is also placed upon Dev Raj Dogra v. Gyan Chand Jain . In the said case, the Supreme Court has referred to the written submissions of the petitioner that they are not in occupation of the property on behalf of the judgment-debtor and that they are also not claiming occupation under a title created by the judgment-debtor subsequent to the attachment of the property. In the said case before the Supreme Court, there was no attachment nor title created after the attachment. The ratio of the said decision cannot be applied to the case in hand where the lease is hit by Rule 16, Second Schedule, and violative of the undertaking given under the safurdanama.
73. In Puran Chand and Co. v. Ganeshi Lal Tara Chand , the Delhi High Court following the decision of Dev Raj Dogra's case , held that the auction purchaser is entitled only to symbolical possession. The case before the Delhi High Court was also not a case of the tenant holding possession after the attachment of the property. The said case deals with the rights of the auction purchaser. In the present case, the issue is with reference to the powers of the Tax Recovery Officer and the person claiming to be in occupation purporting under the lease deeds.
74. The above decisions would have bearing only if GVFL is proved to be a lawful tenant of SFL. In view of the facts and circumstances of the case, viz., i. that the alleged lease deeds are in contravention of Rule 16, Schedule II, ii. by lifting the corporate veil, the tenancy appears to be created to delay the delivery proceedings by handing over possession, iii. the terms of the agreement of lease and the security deposit of huge amount of Rs. 75,00,000 are unusual, serious doubts arise as to the genuineness of the tenancy. Hence, the abovesaid decisions cannot be applied to the case in hand.
Whether the Tax Recovery Officer has no jurisdiction to adjudicate upon the validity of lease deeds:
75. By its order dated September 15, 2005, this court has directed the Tax Recovery Officer shall pass his orders as to the applicability of Rule 39 of the Income-tax (Certificate Proceedings) Rules, 1962. The Tax Recovery Officer has passed the order that none of the lease deeds are registered and that the lease arrangement is invalid and not enforceable. The Tax Recovery Officer has further held that the terms and conditions of payments are doubtful and that serious doubts arise as to the genuineness of the transactions since the property was already under order of attachment by the Department. After elaborately considering the facts and circumstances, the Tax Recovery Officer has held that the lease arrangements are sham and nominal and are invalid and not legally enforceable.
76. The order of the Tax Recovery Officer is vehemently attacked contending that the Tax Recovery Officer has no jurisdiction to decide the question and that his jurisdiction under Rule 39 is limited only to three instances thereon and the finding of the Tax Recovery Officer as to the validity of the lease agreements is beyond the jurisdiction of the Tax Recovery Officer. It is further contended that the Tax Recovery Officer had only limited jurisdiction to determine whether the obstructors claim as a tenant is bona fide or not and that the Tax Recovery Officer has no jurisdiction to further go into the validity of such tenancy.
77. In support of his contention that the Tax Recovery Officer does not have jurisdiction to declare the lease agreements as void and that the proceedings before him are summary proceedings, learned Counsel for the plaintiff has relied upon the decision reported in Sancheti Leasing Co. Ltd. v. ITO . In the said case, the petitioners were the purchasers of the two properties mentioned in the order of the Income-tax Officer. The assessee referred to therein is their common vendor. They were aggrieved by the order of the Income-tax Officer who has declared their purchases as void. This order was made in 1994, 9 years after the first sale and 7 years after the second sale. It was the case of the petitioners that the sale deeds in their favour have been duly registered and that such registration took place after the income-tax clearance certificate had been issued by the Revenue authorities and, consequently, there was full and effective transfer of title over these properties to the petitioners. The sales so effected in their favour cannot be declared as "null and void" by the Income-tax Officer who according to them has no jurisdiction to do so. It is also the case of the petitioners that they have no knowledge whatsoever regarding the liability, if any, of their vendor for payment of income-tax. They have stated that they are bona fide purchasers for value who have acted in accordance with law.
78. Under such factual background of the case, the court has held (page 815):
5. Section 281(1) of the Act had been relied upon by the ITO. That section declares certain transactions as void. The section, however, does not vest the authority in the Income-tax Officer to make such a declaration.
6. Before a transaction involving immovable property can be declared as void, all the requirements of law must necessarily be satisfied. The fact that a statute provides for such a declaration being made, if the conditions mentioned in the statute are satisfied, does not imply that an officer exercising powers under the provisions of the statute can assume to himself the power and jurisdiction to declare what is otherwise a legally valid transaction as void. Adjudication is the function of the courts. Any declaration of a transaction being void must be sought in the civil court. The Income-tax Officer moreover in this case is an interested party as it is in the interests of the Revenue to make such a declaration and proceed to recover the vendor's arrears of tax from such person.
7. The Supreme Court of India in its recent decision rendered in the case of TRO v. Gangadhar Viswanath Ranade has held that if the Department finds that the assessee has transferred a property to a third party with the intention to defraud the Revenue, the Revenue will have to file a suit under Rule 11(6) of Schedule II to the Income-tax Act to have the transfer declared void under Section 281 of the Income-tax Act.
8. It is, therefore, clear that the Income-tax Officer had no jurisdiction to declare the transaction of sale to which the petitioners were parties as purchasers, as void. The impugned order, in so far as it affects the petitioners' interest in the property is, therefore, set aside. The writ petitions are allowed accordingly.
79. Mainly placing reliance upon the above decision, it is submitted that the adjudication regarding the validity of the lease agreement is the domain of the court and that any adjudication regarding the validity of the transaction must be sought only in the civil court and the Tax Recovery Officer has no jurisdiction to adjudicate upon the validity of the lease agreement.
80. The above contention does not merit acceptance for the reasons:
i. Only by consent of both the parties, the court has directed the Tax Recovery Officer to pass his orders as to the applicability of Rule 39, ITCP Rules, to the case of the applicant.
ii. In Sancheti Leasing Co. Ltd. v. ITO , the interest of the bona fide purchaser for value had been involved, which is not so in the instant case.
iii. In the said case, the petitioners pleaded that they have no knowledge whatsoever regarding the liability.
81. To determine as to the applicability of Rule 39 of the ITCP Rules, it has become essential for the Tax Recovery Officer to determine the bona fides or otherwise of the tenancy. To decide the question with regard to the applicability of Rule 39 of the ITCP Rules, the Tax Recovery Officer was to determine the bona fides or otherwise of the claim of the applicant/plaintiff on the basis of the lease agreements. As noted earlier, Rule 42 deals with resistance or obstructions by the defaulter or by some other person at his instigation. Under Rule 43 where the Tax Recovery Officer is satisfied that the resistance or obstruction was occasioned by any person other than the defaulter claiming in good faith to be in possession of the property, the Tax Recovery Officer shall make an order dismissing the application. Rule 43 reads:
Resistance or obstruction by bona fide claimant.--Where the Tax Recovery Officer is satisfied that the resistance or obstruction was occasioned by any person (other than the defaulter) claiming in good faith to be in possession of the property on his own account or on account of some person other than the defaulter, the Tax Recovery Officer shall make an order dismissing the application.
82. Thus, to determine whether the plaintiff is a bona fide claimant or not, it was essential for the Tax Recovery Officer to enquire and determine the bona fides or otherwise of the claimant. In fact, even before the Tax Recovery Officer, GVFL has taken a stand that the question with regard to tenancy rights and the veracity of lease deeds cannot be examined in the proceedings before the Tax Recovery Officer since it is beyond the scope of the Tax Recovery Officer. The Tax Recovery Officer has considered the submissions and found that even though the veracity of the lease deeds and the tenancy rights are not going to be decided by him, it has become essential to make an observation and finding based on the documents produced and the submissions made during the hearing as to whether GVFL is a tenant of SFL, which has a bearing on the question with regard to the applicability of Rule 39 of the ITCP Rules. The Tax Recovery Officer derives his powers under the Second Schedule and the Income-tax (Certificate Proceedings) Rules under Section 136 of the Income-tax Act. All proceedings before the Tax Recovery Officer are judicial proceedings. Under Rule 82 officers are deemed to be acting judicially. Under Rule 83, officers shall have the powers of a civil court. Apart from the above, the Tax Recovery Officer derives jurisdiction from the fact that the court directed him to hold enquiry to see whether Rule 39 would apply. The Tax Recovery Officer has therefore acted in accordance with law following due process of law and the finding as to the applicability of Rule 39, ITCP Rules, does not suffer from any irregularity in approach.
Maintainability of the suit:
83. Directing the Tax Recovery Officer to determine the applicability of Rule 39 of the ITCP Rules, F. M. Ibrahim Kalifulla J., has ordered, "the implementation of the said order shall await further orders in these proceedings". With due respect, I am of the view that but for the order, the court would hardly have jurisdiction to go into the correctness of the order of the Tax Recovery Officer (September 29, 2005).
84. As per Rule 86 of the Second Schedule, appeal shall lie only to the Chief Commissioner or Commissioner. Rule 86 reads as follows:
Appeals.--An appeal from any original order passed by the Tax Recovery Officer under this Schedule, not being an order which is conclusive, shall lie to the Chief Commissioner or Commissioner....
85. If the impugned order of the Tax Recovery Officer is an order under the Second Schedule, the appeal shall lie only to the Chief Commissioner or Commissioner. The same cannot be challenged in the civil suit or under Article 226 of the Constitution of India.
86. If the impugned order is construed to be an order passed by the Tax Recovery Officer under the ITCP Rules, under Rule 47 of the ITCP Rules, any party not being a defaulter has to file only a suit against whom an order is made under Rule 42 or Rule 43 or Rule 45. Rule 47 of the ITCP Rules reads:
Right to file a suit.--Any party not being a defaulter against whom an order is made under Rule 42 or Rule 43 or Rule 45 may institute a suit in a civil court to establish the right which he claims to the present possession of the property.
87. C.S. No. 454 of 2005 is not filed under Rule 42 or Rule 43 or Rule 45. The suit has been filed only for permanent injunction restraining the auction purchasers from in any way interfering with their possession otherwise than under due process of law.
88. In the cause of action paragraph, order/beat passed under Rule 40 has been referred to as one of the causes of action. For which, no suit is maintainable under Rule 47, ITCP Rules.
89. As per Rule 11(6), Second Schedule, where a claim or an objection is preferred, the party against whom an order is made may institute the suit in a civil court to establish the right. Rule 11(6) reads as follows:
Where a claim or an objection is preferred, the party against whom an order is made may institute a suit in a civil court to establish the right which he claims to the property in dispute ; but, subject to the result of such suit (if any), the order of the Tax Recovery Officer shall be conclusive.
90. In the suit, the claimant or the objector has to therefore establish that the property is not liable to be attached or sold in execution of a certificate. The suit filed by the plaintiff for bare injunction insisting upon "due process of law" attacking the order of the Tax Recovery Officer dated May 4, 2005, cannot be construed as a suit under Rule 11(6).
91. Under Section 293 of the Income-tax Act, such a civil suit against any proceedings or order of the officer is barred. Section 293 of the Income-tax Act is as under:
Bar of suits in civil courts.--No suit shall be brought in any civil court to set aside or modify any proceeding taken or order made under this Act, and no prosecution, suit or other proceeding shall lie against the Government or any officer of the Government for anything in good faith done or intended to be done under this Act.
92. The plaintiff has filed the suit for permanent injunction restraining the defendants from interfering with the plaintiff's peaceful possession and enjoyment of the property. Under Section 293 of the Income-tax Act, no suit shall be brought to set aside or modify any proceedings taken or order made. The effect of Section 293 of the Act, which bars the civil suit, is that even if the assessment or other proceeding is erroneous or wrong, no suit can be initiated in any civil court to set aside or modify the assessment unless the assessment or other proceedings taken are ultra vires the provisions. Though the suit is one for permanent injunction, the suit has the effect of indirectly modifying the proceeding or order taken under the Act. In the decision reported in CIT v. Parmeshwari Devi Sultania , certain asset was seized during the search and rejecting the assessee's plea that the same included the shares of his brothers and sisters, the Income-tax Officer passed an order under Section 132(5) determining the tax liabilities and directing the asset to be retained by the Department, the suit filed by a sister of the assessee for partition of that very asset, was held not maintainable. The Supreme Court held that the suit is not maintainable since in case of success such a suit would affect the order passed under Section 132(5) of the Act.
93. Considering the effect of Section 293 of the Act, the Supreme Court held (page 761 of [1998] 230 ITR and page 494 of [1998] 3 SCC):
We have seen above that the scope of Section 293 of the Act has been widened now even to include any proceeding under the Act and it is not merely confined to set aside or modify any order. The form of the suit is not relevant. It is the substance which is to be seen. When the statute prescribed certain procedure and proceedings thereunder are held and an order passed, it is difficult to accept a contention that the proceeding and order can be modified or set aside in a civil suit filed by a third party. Section 293 is specific and does not admit the filing of a suit which has the effect of even indirectly, setting aside or modifying any proceeding taken under the Act or order made thereunder. In the present case, search and seizure were effected as per the provisions of the Act, assets and documents seized and the statement of Babulal recorded under Sub-section (4) of Section 132 of the Act wherein he admitted that the gold was acquired from his and his brother's undisclosed income which he was even prepared to surrender to tax. It was thereafter, in the course of further enquiry that he came up with a version that the gold ornaments in question belonged to his step-mother who bequeathed the same for the benefit of the children of the plaintiff and other children that would be born to the second wife of his father. This version did not find favour with the Income-tax Officer and he was not satisfied that the gold ornaments in question did not belong to Babulal. It was, therefore, not necessary for him to issue any notice under Sub-section (7) of Section 132 of the Act to the plaintiff. In any case, the plaintiff was well aware of the proceedings before the Income-tax Officer and she could have also filed objection to the order made by the Income-tax Officer under Section 132(5) of the Act to the Chief Commissioner or Commissioner under Sub-section (11) thereof, of which remedy she did not avail. Considering the whole gravamen of the plaint in the suit and the law on the subject, we are of the opinion that the subordinate judge and the High Court were not correct in rejecting the contention of the Revenue and holding that the suit was not barred under Section 293 of the Act....
94. The decision reported in Malabar Produce and Rubber Co. Ltd. v. TRO before the Kerala High Court is a case of identical situation as in the present case. In the said case also, after attachment, the property was leased and the person claiming possession as tenant filed the suit to prevent eviction. Elaborately considering the effect of the ITCP Rules, the Kerala High Court found that as per the scheme of the rules, the civil court has only limited jurisdiction namely to examine into the case whether the Tax Recovery Officer has or has not acted in accordance with the law and the fundamental principles of judicial procedure. Dismissing the suit, the Kerala High Court held that the petitioner could pursue the remedy envisaged under Rule 44 or 47 of the ITCP Rules or Rule 11(6) of the Second Schedule to the Income-tax Act. Considering the question of maintainability of the suit, the learned judge has held (page 279):
Before we go into the merits of the case, it is necessary to restate some of the principles well-established by judicial pronouncements construing Section 9 of the Civil Procedure Code. Those principles are : The exclusion of the jurisdiction of the civil court is not to be readily inferred. Where the power, however, is, by statute, vested in another Tribunal with exclusive power over any subject matter, the civil court cannot interfere with the same. The civil court none the less would get jurisdiction to examine into the case whether the provisions of the Act have not been applied or the statutory Tribunal has not acted in conformity with the fundamental principles of judicial procedure. The jurisdiction of the civil court may be excluded expressly or by clear implication and, therefore, when the Legislature sets up a special Tribunal to determine questions relating to the rights or liabilities which are the creation of the statute, the jurisdiction of the civil court would be deemed excluded by implication. Similarly, where the statute gives finality to orders of the special Tribunals, the jurisdiction of the civil court must be held to be excluded. (See the decisions of the Supreme Court--Provincial Government of Madras v. J. S. Basappa ; Noor Mohd. Khan Chouse Khan Soudagar v. Fakirapa Bharmappa Machenahalli , State of Kerala v. N. Ramaswami Iyer & Sons and Secretary of State v. Mask & Co. AIR 1940 PC 105).
95. Learned senior standing counsel for the Income-tax Department has mainly urged that the civil court has no jurisdiction and the civil suit is not maintainable. The effect of Section 293 which bars suits in civil courts is that, even where the assessment or other proceeding is erroneous or wrong, no suit can be initiated in any civil court to set aside or modify the assessment unless it be that the assessment or other proceeding is taken under an ultra vires provision. We will now consider the scope of the other relevant provisions of the Income-tax Act and the Income-tax (Certificate Proceedings) Rules. Rule 9 of the Second Schedule to the Income-tax Act limits the jurisdiction of the civil court to decide questions arising between the Income-tax Officer and the defaulter or the representatives, relating to the execution, discharge or satisfaction of the certificate duly filed under the Income-tax Act, or relating to the confirmation or setting aside by an order under the Act of the sale held in execution of such certificate. Such disputes shall be determined only by the order of the Tax Recovery Officer. The proviso added to this rule, however, recognises the rights of a party to institute a suit before a civil court in respect of any such question upon the ground of fraud. What are the questions that can be determined by the Tax Recovery Officer after investigation are enumerated under Rule 11. This rule provides that where any claim is preferred to, or any objection is made to the attachment or sale of, any property in execution of a certificate, on the ground that such property is not liable to such attachment or sale, the Tax Recovery Officer is bound to proceed to investigate the claim or objection. The proviso to Sub-rule (1) and Rule 11 empowers the Tax Recovery Officer to refuse to investigate into the claim or objection if he is of opinion that the claim or objection was designedly or unnecessarily delayed. Sub-rules (3) and (4) make it clear that, only on the claimant or the objector establishing that he has some interest in, or was possessed of, the immovable property attached or proclaimed for sale at the date of service of the notice under Rule 2, he can get a verdict in his favour.
96. A claimant who is aggrieved by such order can challenge the said order of the Tax Recovery Officer by instituting a suit in a civil court to establish his claim to the property in dispute and, subject to the result of such suit, the order of the Tax Recovery Officer would become conclusive. On the order of the Tax Recovery Officer thus becoming conclusive, the sale certificate within the meaning of Rule 65 of the Second Schedule will be given to the purchaser. If the property sold is in the possession of a tenant within the meaning of Rule 40 of the Income-tax (Certificate Proceedings) Rules, then, the purchaser can get only a symbolic delivery. But, as per the order under Rule 11 of the Second Schedule, if the defaulter is found to be in possession of the property, the Tax Recovery Officer is bound, on the application of the purchaser, to order delivery to be made by putting such purchaser or any person whom the purchaser may appoint to receive delivery on his behalf, in possession of the property, and if need be, by removing any person who refuses to vacate the same. So says Rule 39(1) of the Income-tax (Certificate Proceedings) Rules. Forcible removal of the person in occupation, however, is subject to Sub-rule (2) of Rule 39. Rules 41, 42 and 43 relate to the proceedings the purchaser can initiate for the purpose of removal of resistance or obstruction to delivery of possession.
97. It is clear from the scheme of the rules that the civil court has only limited jurisdiction to examine the case as to whether the Tax Recovery Officer has or has not acted in accordance with law and the fundamental principles of judicial procedure (Rule 11(6)). In other words, jurisdiction of the civil court to the extent indicated in the abovesaid rules must be deemed to have been excluded. That is the effect of Section 293 also. If that be so, the suit filed by GVFL is neither under Rule 11(6) of the Second Schedule nor under Rule 47 of the ITCP Rules and the same is not maintainable.
98. W. P. No. 17576 of 2005 is filed to quash the order of the Tax Recovery Officer in letter No. Auction/05-06 dated May 4, 2005, and also for injunction restraining the Department from interfering with the petitioner (GVFL) physical possession of the premises--Goodluck Preview Theatre. In this writ petition, the subsequent order passed by the Tax Recovery Officer on September 29, 2005, is also now sought to be quashed. The question arises to what extent the order of the Tax Recovery Officer could be challenged under the writ jurisdiction. In a writ petition under Article 226 of the Constitution of India, the High Court does not exercise appellate jurisdiction. Holding that the High Court does not exercise appellate jurisdiction under Article 226 of the Constitution of India, in the decision reported in Indian Overseas Bank v. I. O. B. Staff Canteen Workers' Union , the Supreme Court has held (page 643 of [2000] 96 FJR and page 259 of [2000] 4 SCC):
The learned single judge seems to have undertaken an exercise, impermissible for him in exercising writ jurisdiction, by liberally reappreciating the evidence and drawing conclusions of his own on pure questions of fact, unmindful, though aware fully, that he is not exercising any appellate jurisdiction over the awards passed by a Tribunal, presided over by a judicial officer. The findings of fact recorded by a fact finding authority duly constituted for the purpose and which ordinarily should be considered to have become final, cannot be disturbed for the mere reason of having been based on materials or evidence not sufficient or credible in the opinion of the writ court to warrant those findings, at any rate, as long as they are based upon some material, which are relevant for the purpose or even on the ground that there is yet another view which can be reasonably and possibly be taken. The Division Bench was not only justified but also well merited in its criticism of the order of the learned single judge and in ordering restoration of the award of the Tribunal. On being taken through the findings of the Industrial Tribunal as well as the order of the learned single judge and the judgment of the Division Bench, we are of the view that the Industrial Tribunal had overwhelming materials, which constituted ample and sufficient basis for recording its findings, as it did, and the manner of consideration undertaken, the objectivity of approach adopted and reasonableness of findings recorded seem to be unexceptionable. The only course, therefore, open to the writ judge was to find out the satisfaction or otherwise of the relevant criteria laid down by this court, before sustaining the claim of the canteen workmen, on the facts found and recorded by the fact-finding authority and not embark upon an exercise of reassessing the evidence and arriving at findings of one's own, altogether giving a complete go-bye even to the facts specifically found by the Tribunal below.
99. In the decision reported in Konda Lakshmana Bapuji v. Government of Andhra Pradesh , the Supreme Court held that the findings of the special court cannot be interfered with when neither any relevant material was excluded from consideration nor any irrelevant material was taken into consideration by the special court.
100. The settled legal position is that in a writ petition under Article 226 of the Constitution of India, if there is some legal evidence on which the findings is based the adequacy or even reliability of that test is not a matter for canvassing before the High Court. While exercising the jurisdiction under Article 226 of the Constitution of India, the High Court would interfere only when there is violation of the principles of natural justice or violation of statutory requirements prescribing the mode of such enquiry or the order is so arbitrary that no reasonable person could have arrived at such a conclusion. Exercising jurisdiction under Article 226 of the Constitution of India, the High Court does not act as a court of appeal over the findings recorded by the competent authority. The finding cannot be reappreciated for sufficiency or satisfactory. Since before the Tax Recovery Officer, the parties had ample opportunities and made their elaborate submissions and also adduced numerous evidence, there is no question of violation of principles of natural justice.
101. The correctness of the decision of the Tax Recovery Officer (dated September 29, 2005) has to be seen in the light of:
i. acted upon irrelevant considerations ;
ii. refusing to take into account admissible evidence and relevant aspects ;
iii. decision perverse and unreasonable that no reasonable authority would have made such a decision.
102. In the light of the above, it is to be determined whether the order of the Tax Recovery Officer on the applicability of Rule 39 suffers from any fundamental flaws.
103. Lifting the corporate veil : We may recapitulate that the address of the lessor-SFL and the lessee-GVFL is one and the same. G. Venkateswaran and his wife, Sujatha Venkateswaran, and his brother were the major shareholders of SFL. G. Venkateswaran and his brothers were the directors of GVFL. G. Venkateswaran was the chairman of SFL. He was transacting all the business of SFL. As noted earlier, on March 20, 1990, only G. Venkateswaran has executed the bond/safurdanama on behalf of SFL.
104. GVFL was incorporated on March 7, 1989. As is seen from the annual report 1989-90, its activities started on August 25, 1989. It is relevant to note that when SFL was in huge arrears of income-tax, GVFL was incorporated.
105. G. Venkateswaran was the chairman and the managing director of GVFL. In the annual report of the company for 1989-90, the profile of G. Venkateswaran is given as under:
Particulars of employees as required under Section 217(2A) of the Companies Act, 1956.
___________________________________________________________________ Name Age Designation and nature Grossrentuneration (years) of duties (Rs.) ___________________________________________________________________ Mr. G. Venkateswaran 43 Chairman and managing 45,000 director Management of Co.'s affairs ___________________________________________________________________ Qualification Date of commencement Last employment & experience of employment ___________________________________________________________________ B. Com., F.C.A. (18 years) 01-09-1989 Chartered accountant ___________________________________________________________________ Notes:
1. Gross remuneration includes salary and company's contribution to provident fund.
2. The nature of employment is contractual.
3. Mr. G. Venkateswaran is related as brother to M/s. Mani Rathnam and G. Srinivasan, directors of the company.
106. G. Venkateswaran's last employment was "chartered accountant". As noted earlier, GVFL was incorporated, when SFL was in huge arrears of income-tax. Being a chartered accountant, G. Venkateswaran must have been quite conscious of the implications of non-payment of huge arrears of income-tax by SFL and must have been well acquainted with the provisions of the Income-tax Act and the Rules. The alleged lease deeds and the contention of lease deposit of Rs. 75,00,000 are to be considered in this factual background. In 1989, G. Venkateswaran himself was the chairman of SFL. Referring to the discussions with the Department, on behalf of SFL, G. Venkateswaran has stated that "SFL undertake to pay a sum of Rs. 10,00,000 (rupees ten lakhs only) on or before December 29, 1989, towards the arrears of SFL and the sister concern, M/s. Aruna International P. Ltd.". The said letter dated December 7, 1989, signed by G. Venkateswaran as chairman reads as under:
... This has reference to the discussions we had with you this morning. As required by you we hereby undertake to pay a sum of Rs. 10,00,000 (rupees ten lakhs only), on or before December 29, 1989, towards arrears of our company and our sister concern, M/s. Aruna International P. Ltd.
In view of the above, we request you to kindly withdraw the prohibitory orders issued to the Central Bank of India in respect of the following accounts, as promised.
(1) Sujatha Films Ltd.
(2) Aruna International Pvt. Ltd.
(3) G. Venkateswaran (4) Sujatha Venkateswaran Thanking you Yours faithfully for Sujatha Films Ltd.
(Sd.) G. Venkateswaran, Chairman
107. From the above letter, the following aspects emerge:
i. Just prior to December 7, 1989, there was a prohibitory order issued by the Income-tax Department in respect of the account of SFL.
ii. G. Venkateswaran has only requested the Department to withdraw the prohibitory order, but has not stated anything about the lease deed dated November 28, 1989.
iii. G. Venkateswaran signed as the chairman of SFL.
108. Thus, it is clear that G. Venkateswaran was acting two faceted. In GVFL, G. Venkateswaran was acting as the chairman and managing director by himself. In SFL, G. Venkateswaran was acting in the name of his wife while he himself was transacting the business of SFL. Under such circumstances, the Tax Recovery Officer was well justified in lifting the corporate veil to ascertain the realities.
109. On behalf of the plaintiff, it is mainly contended that the Tax Recovery Officer has no jurisdiction to go beyond the documents shown to him and cannot conduct any further enquiry. This contention has no substance. The Tax Recovery Officer derives his powers under the Second Schedule and the Income-tax (Certificate Proceedings) Rules. Under Section 136, Income-tax Act, all proceedings before the officer shall be judicial proceeding. Under Rule 82 of the Second Schedule, every officer acting under this Schedule shall be deemed to be acting judicially within the meaning of Judicial Officers Protection Act. Under Rule 83, every officer acting under the Second Schedule shall have the powers of a civil court for the purpose of receiving evidence.
110. Under Rule 41 of the ITCP Rules, where the purchaser of immovable property sold in execution of a certificate is resisted, the Tax Recovery Officer shall investigate the matter summoning the party against whom an application is made to appear and answer the same. For the purpose of investigation and enquiry, the Tax Recovery Officer is conferred with the powers of a civil court and by virtue of their office and experience, the Tax Recovery Officer is an officer with trained judicial mind. The contention that the Tax Recovery Officer cannot conduct the enquiry as that of a judicial proceedings has no merit.
111. Learned senior counsel for the auction purchasers has submitted that since SFL and GVFL are the family concerns of G. Venkateswaran and G. Venkateswaran himself holding major shares, the Tax Recovery Officer has rightly lifted the corporate veil. In support of the contention of lifting the corporate veil in the cases of tenancy where the tenant is an alter ego of the landlord operating from the same place and in the case of husband and wife, learned senior counsel for the auction purchasers has relied upon the decisions reported in Parvinder Singh v. Renu Gautam , Subra Mukherjee v. Bharat Coking Coal Ltd. , Madras Bangalore Transport Co. (West) v. Inder Singh , CIT v. Sri Meenakshi Mills Ltd. , Juggilal Kamlapat v. CIT .
112. It is well-settled position that the courts/Income-tax Officers are entitled to lift the veil of the corporate entity and pay regard to the realities. On behalf of the defendants, a number of decisions have been cited justifying the lifting of the corporate veil. In the decision reported in Madras Bangalore Transport Co. (West) v. Inder Singh , a limited company was formed with partners of existing tenant firm as directors. Both the firm and the company operating from the same place, each acting as agent of the other. On the facts, though the company was a separate legal entity, the Supreme Court has found that it was only an alter ego or corporate reflection of the tenant-firm and that two were one for all practical purposes having substantial identity. Though the observation was made in a different context (finding that there was no sub-letting of the premises by the firm to the company, so as to attract Section 14(1)(b) of the Rent Control Act), the observation applies to the case in hand. Both the companies of SFL and GVFL having separate legal entity actually operating from the same place-Sujatha Centre, No. 4, Seshadri Road, Alwarpet, Chennai 600 018. G. Venkateswaran was acting on behalf of both GVFL and SFL. From the facts and circumstances and the conduct of the parties, it is clear that GVFL and SFL are only the alter ego or corporate reflection of one another.
113. Holding that the court could lift the veil, in the decision reported in CIT v. Sri Meenakshi Mills Ltd. , the Supreme Court observed has held (page 615):
The Appellate Tribunal has, upon examination of the evidence, found that the transference of funds from Pudukottai to Madurai was made as part of the basic arrangement between the bank and the assessee-companies and that Thyagaraja Chettiar who was the moving figure both in the bank and in each of the assessee-companies had knowledge of this arrangement. It is well-established that in a matter of this description the income-tax authorities are entitled to pierce the veil of corporate entity and to look at the reality of the transaction. It is true that from the juristic point of view the company is a legal personality entirely distinct from its members and the company is capable of enjoying rights and being subjected to duties which are not the same as those enjoyed or borne by its members. But in certain exceptional cases the court is entitled to lift the veil of corporate entity and to pay regard to the economic realities behind the legal facade. For example, the court has power to disregard the corporate entity if it is used for tax evasion or to circumvent tax obligation.
114. In the decision reported in Juggilal Kamlapat v. CIT , the Supreme Court has held the corporation may be a legal personality distinct from its members. But, the court is entitled to lift the mask of corporate entity if the conception is used for tax evasion, or to circumvent tax obligation or to perpetrate a fraud. The Supreme Court has observed (page 710):
To put it differently, the contention of the appellant was that the High Court was not entitled to go behind the legal form of the transaction and to find out what was the substance. We are unable to accept the argument of Mr. Sukumar Mitra as correct. In the present case, the Appellate Tribunal has found that the transaction of termination of the managing agency was a colourable transaction and the real purpose was to hand over a sum of Rs. 2 lakhs to the assessee-firm. It was also found that the payment was collusive and the partners of the firm continued to run and enjoy the benefit of managing agency as shareholders and directors of the newly formed company by reason of their holding a majority of shares in that company. It was also held by the Appellate Tribunal that the reason for terminating the managing agency was not a true reason but was merely a fake one and the whole transaction was hoax for the purpose of evading income-tax. In other words, it was a collusive device practised by the managed company and the assessee-firm for the purpose of evading income-tax both in the hands of the payer and of the payee. The Appellate Tribunal also found that there was only a change of personnel in the managing agency and not a change in office and that the assessee had no right of compensation for any loss of office. In a matter of this description it is well-established that the income-tax authorities are entitled to pierce the veil of corporate entity and look at the reality of the transaction. It is true that from juristic point of view the company is a legal personality entirely distinct from its members and the company is capable of enjoying rights and being subjected to duties which are not the same as those enjoyed or borne by its members.
115. The Supreme Court has further observed (page 710):
But, in certain exceptional cases, the court is entitled to lift the veil of corporate entity and to pay regard to the economic realities behind the legal facade. For example, the court has power to disregard the corporate entity if it is used for tax evasion or to circumvent tax obligation or to perpetrate fraud.
116. Thus, it is well-established that in exceptional cases, the court/Income-tax Department is entitled to lift the veil of corporate entity and to pay regard to the economic realities behind the corporate entity. The Tax Recovery Officer is entitled to disregard the corporate entity if it is used for tax evasion or to circumvent tax obligation or to perpetrate fraud. The Tax Recovery Officer has rightly lifted the corporate veil to ascertain the economic realities of SFL and GVFL.
Correctness of the order of the Tax Recovery Officer:
117. The first lease deed dated November 28, 1989, is for a period of one year. The second lease deed dated December 1, 1990, and the third lease deed dated August 20, 1999, were for a period of nine years. Though the lease deeds are for a period of more than one year, none of the lease deeds were either registered or witnessed. Pointing out that the lease deeds are unregistered, the Tax Recovery Officer has rightly said the other reliable documents, viz., board resolution or the approval of the other directors to authorise G. Venkateswaran and Sujatha Venkateswaran to enter the transactions were not produced. No documentary evidence or supporting evidence were produced to prove the alleged lease deeds.
118. All three lease deeds being unregistered documents cannot be looked into for any purpose. Unregistered lease or agreement for lease is inadmissible under Sections 17 and 49 of the Registration Act and Section 107 of the Transfer of Property Act. Section 91 of the Indian Evidence Act forbids any other evidence of the lease agreement being given. Where a lease deed is inadmissible for want of registration, the tenancy cannot be proved by any other evidence. When the document requires registration, but is unregistered, such unregistered document cannot be looked into to prove the terms of the lease. Elaborately considering the effect of non-registration of the document, in the decision reported in A. C. Lakshmipathy v. A. M. Chakrapani Reddiar , a Division Bench of this court has held (page 8):
On account of the fact that though the Registration Act is a very useful and beneficent enactment, as it is extremely stringent, the Act has got to be strictly construed....
It is now fairly well-settled that the co-owners can partition the immovable properties orally. But, however, where a document is employed to effectuate a partition or any of the transactions specified in Section 17 of the Registration Act, such document must be registered, notwithstanding that the transaction is one which the law does not require to be put into writing. Such unregistered document cannot be looked into to prove the terms of the partition. But, however the same is inadmissible in evidence for the purpose of creating, declaring, assigning, limiting or extinguishing a right to immovable property. The expression 'collateral purposes' is no doubt a very vague one and the court must decide in each case whether the parties who seek to use the unregistered document for a purpose which is really a collateral one or as is to establish the title to the immovable property conveyed by the document. But, by the simple devise of calling it 'collateral purpose', a party cannot use the unregistered document in any legal proceedings to bring about indirectly the effect which it would have had if it registered.
119. Apart from the fact that the lease deeds are hit by Rule 16 of the Second Schedule, the lease deeds being unregistered are void. The lease deeds being unregistered, it is impossible to look into the deeds for the purpose of ascertaining. For want of registration, the unregistered documents are to be discarded and the plaintiff cannot seek protection of possession under due process of law. The unregistered deed of lease cannot be taken into consideration. Even for collateral purpose, including the proviso to Section 49 of the Registration Act as the terms of lease are not for collateral purpose. The unregistered document being inoperative, its terms cannot have effect in law and the Tax Recovery Officer has rightly discarded the unregistered documents of lease.
120. In the absence of a valid lease instrument (for want of registration), it is contended that the tenancy cannot be presumed from payment of rent. In support of his contention that from payment of rent, tenancy could be presumed, learned Counsel for the plaintiff has relied upon the decisions reported in Ram Kumar Das v. Jagdish Chandra Deo, Dhabal Deo , Hitkarini Sabha v. Corporation of City of Jabalpur and Biswabani P. Ltd. v. Santhosh Kumar Dutta . These cases arise on the factual circumstances of those cases. In the case in hand, no inference of tenancy could be drawn, since the lease deeds appear to have been created for the purpose of evasion of tax. Hence, GVFL or SFL cannot use the unregistered lease deeds in any legal proceedings to bring about indirectly the effect which they would have, had they been registered.
Jurisdiction of the Tax Recovery Officer:
121. The plaintiff strongly contended that the Tax Recovery Officer has no jurisdiction to go beyond the documents shown to him and cannot conduct any further enquiry. Contending that the Tax Recovery Officer has no power to declare the lease void, learned Counsel for the plaintiff has further submitted that the Department ought to have filed the suit under Rule 11(6) to have the transfer declared void under Section 281 of the Income-tax Act.
122. In support of his contention, learned Counsel for the plaintiff has relied upon the decision reported in Tax Recovery Officer II v. Gangadhar Viswa-nath Ranade . In the said case, the assessee and his wife and daughter filed objections stating that on February 21, 1969, the assessee had executed a trust deed in respect of the said house in favour of his wife and daughter and that on February 27, 1969, he had, by a registered deed, conveyed that property to them. That, therefore, on the date of issuance of notice under Rule 2 as also on the date of attachment, the assessee's wife and daughter being full owners, and in possession, of the said property, the same could not be attached for the dues of the assessee. Thereafter, after issuing a show-cause notice under Section 281(as it then stood) of the Income-tax Act, the Income-tax Officer declared on May 9, 1974, that the transfer of the said property was void under Section 281. On September 17, 1981, the Tax Recovery Officer overruled the objections filed by the objectors and declared the trust deed and the conveyance of the property to be illegal and void and the property, liable to attachment. The High Court set aside this order of the Tax Recovery Officer. The question before the Supreme Court was whether in a proceeding under Rule 11 of the Second Schedule to the Income-tax Act, the Tax Recovery Officer could himself declare a transfer as void under Section 281.
123. On such factual circumstances of the case, the Supreme Court has held (headnote of SCC):
The Tax Recovery Officer has to examine who is in possession of the property and in what capacity. He can only attach property in possession of the assessee in his own right, or in possession of a tenant or a third party on behalf of/for the benefit of the assessee. He cannot declare any transfer made by the assessee in favour of a third party as void. If the Department finds that a property of the assessee was transferred by him to a third party with the intention to defraud the Revenue, it will have to file a suit under Rule 11(6) to have the transfer declared void under Section 281 .... From Rule 11(4), it is clear that the Tax Recovery Officer is required to examine whether the possession of the third party is of a claimant in his own right or in trust for the assessee or on account of the assessee. If he comes to a conclusion that the transferee is in possession in his or her own right, he will have to raise the attachment. If the Department desires to have the transfer declared void under Section 281, the Department being in the position of a creditor, will have to file a suit for a declaration that the transaction of transfer is void under Section 281 of the Income-tax Act. In the present case, the Tax Recovery Officer could not have examined whether the transfer was void under Section 281. His adjudication of the transfer as void, under Section 281 is without jurisdiction. The Tax Recovery Officer has relied upon the earlier order of the Income-tax Officer dated May 9, 1974, declaring that the transaction was void under Section 281. In the earlier proceedings, however, although the High Court has not set aside this order of the Income-tax Officer, the High Court has expressly held that the order amounted only to an intention or declaration on the part of the Department to treat the transaction as void under Section 281. The Department, therefore, cannot proceed on the assumption that the transaction was void under Section 281, nor can the Tax Recovery Officer, while proceeding under Rule 11, declare a transaction of transfer as void under Section 281 by relying on the order of the Income-tax Officer dated May 9, 1974, or otherwise. His jurisdiction relates to examine possession, and only incidentally, any question of right to possession as claimed by the objector. The High Court has, therefore, rightly set aside the order of the Tax Recovery Officer. However, the right of the Department to have the transfer declared as void under Section 281 of the Income-tax Act, as it stood at the relevant time, is not thereby taken away.
124. Much reliance has been placed upon the decision contending that the Tax Recovery Officer was only required to examine whether possession of the claimant is in his own right or on behalf of the assessee. It is further submitted that if the Tax Recovery Officer comes to the conclusion that the plaintiff is in possession in his own right, the Tax Recovery Officer has to raise the attachment. It is very much urged that if the Department desires to have the transaction of transfer declared void under Section 281, the Department being in the position of a creditor will have to file a suit for declaration that the transaction of transfer is void under Section 281 of the Act. On behalf of the plaintiff it is also contended that the Tax Recovery Officer could not have examined the validity or otherwise of the lease deeds and showing that the lease deeds are void and the adjudication of the Tax Recovery Officer finding that the lease deeds are not valid is without jurisdiction and has to be set aside. This contention has no force for more than one reason. In the said case before the Supreme Court, the trust deed was executed in favour of the wife and daughter of the assessee on February 21, 1969. Rule 2 notice was issued long thereafter on October 23, 1972. The trust deed was executed at least three years prior to issuance of Rule 2 notice. In the case in hand, the first lease deed was executed on November 28, 1989. Rule 2 notice was issued on February 27, 1987, for the assessment year 1984-85. The lease deeds are subsequent to the issuance of Rule 2 notice and clearly hit by Rule 16. The contention urged placing reliance upon the above decision do not merit acceptance.
125. Applicability of Rule 39 : For want of registration, the lease deeds are 1 inadmissible. That apart, in analysis of the materials, the Tax Recovery Officer has found that the terms of the lease are unusual and are not supported by contemporaneous documents.
126. It is the case of GVFL that Rs. 15,00,000 was deposited by way of a cheque dated November 20, 1989, towards security deposit. GVFL has not produced any documentary books as evidence for payment of the security deposit; but has produced only a copy of panchanama drawn on behalf of the CBI, Bangalore, and explained that the related account books were seized by them. Learned Counsel for GVFL has drawn the attention of the court to the annual report and the balance-sheet of GVFL for the year ending on March 31, 1990, and attempted to prove that under the heading "Loans and advances" in Schedule 7 is covered lease deposit of Rs. 19,00,000. It is submitted that this Rs. 19,00,000 consists of Rs. 15,00,000 for the alleged lease deposit of SFL and Rs. 4,00,000 towards Anand Theatre. Learned Counsel for the plaintiff has also drawn the attention of the court to Schedule 14-Expenses of Theatre Division, which contains an entry rent of Rs. 20,000. This entry is attempted to be explained as the alleged rent for the periods December, 1989, January, 1990, to March, 1990. As observed by the Tax Recovery Officer, this payment is not supported by any basic document such as voucher, rental receipt, etc., issued by SFL to prove that such payments were intended only towards the alleged rent. Likewise, in the lease deposit of Rs. 19,00,000 there is no indication that the lease deposit of Rs. 15,00,000 is towards SFL. No supporting documents were produced. Under the alleged first lease deed, the rent was only Rs. 5,000 per month, Rs. 60,000 per annum. While so, it is quite unusual that GVFL has made the security deposit of Rs. 15,00,000. Serious doubts arise as to the terms of the lease on the alleged payment of Rs. 15,00,000 as security deposit to SFL.
127. The second lease deed dated December 1, 1990, is said to be for a period of nine years ending on November 30, 1999. The security deposit is alleged to have been increased to Rs. 75,00,000. This lease deed having been executed after Rule 2 notice is void. The terms of the lease are again unusual. The lease deposit is alleged to have been increased to Rs. 75,00,000.
--Rs. 15,00,000 already paid under the earlier agreement--Rs. 38,00,000 (Rs. 15,00,000 on September 17, 1990, another Rs. 15,00,000 on October 27, 1990, Rs. 2,00,000 on November 21, 1990, and Rs. 6,00,000 on November 28, 1990) Rs. 22,00,000 paid under mutually convenient instalment.
The alleged lease rent is:
First 3 years--Rs. 5,000, i.e., December 1, 1990, to November 30, 1993.
Second 3 years--Rs. 10,000, i.e., December 5, 1993, to November 30, 1996.
Third 3 years--Rs. 15,000 from December 1, 1996, to November 30, 1999.
128. To prove the alleged additional security deposit of Rs. 60,00,000, before the Tax Recovery Officer, GVFL has produced ledger pages as corroborative evidence. The balance-sheet as on March 31, 1991, is relied upon to prove the payments. Learned Counsel for the plaintiff has drawn the attention of the court to the annual report 1990-91 Schedule 9-Lease deposit of Rs. 79,00,000 (Rs. 75,00,000 to SFL and Rs. 4,00,000 to Anand Theatre). Reliance is also placed upon the entry Schedule 16--Theatre Division Rent--Rs. 60,000. Before the Tax Recovery Officer, ledger entry of GVFL for the year April 1, 1990, to March 31, 1991, was relied upon to show five payments made by cheques on various banks and dates, alleged to be towards the lease deposit. The entries for five cheques which were relied upon by the plaintiffs do not specifically state under which heading of account such payments were made to SFL. Absence of names of the persons (in the ledger) to whom the cheques were issued raised a lot of suspicion as to the authenticity to entries in the ledger produced before the Tax Recovery Officer. In consideration of the same, the Tax Recovery Officer has found that the ledger pages produced (other than the one mentioned above) as corroborative evidence for payment of Rs. 60,00,000 do not indicate the names of the persons on whom the cheques were drawn. No cash book/bank book/day book wherein the immediate entries are made was produced. The book of journal entries wherein the nature of the business transaction is usually written was also not produced. It is pertinent here to mention that the very same ledger reveals the names of the persons to whom certain other cheques have been issued. The Tax Recovery Officer has rightly taken note of the same and the order of the Tax Recovery Officer is neither perverse nor unreasonable to take a different view.
129. The alleged lease deposit as per the second lease deed (dated December 1 1, 1990) is Rs. 75,00,000. Finding that the entries in the ledger cannot be relied upon, the Tax Recovery Officer has pointed out a suspicious circumstance. As per the printed balance-sheet of GVFL for the year ending on March 31, 2003, the balance lease deposit receivable is only Rs. 27,16,317 whereas GVFL has claimed that an amount of Rs. 75,00,000 being security deposit towards the lease deeds were receivable from SFL. Before the Tax Recovery Officer, no explanation was offered for such contradictory entries. For the first time in the court, the variance in the entries is sought to be explained in the objections to the Tax Recovery Officer's order. It is stated that G. Venkateswaran ended his life on May 3, 2003 (by committing suicide), and during the end of his life, he was in a personal financial turmoil. It is further stated that under such financial crisis, he raised funds from third party and in consideration of which, he conveyed the property at Kodaikanal, which was in the name of Sujatha Estates P. Ltd. (SEPL), a defunct company, whose shares were held by him and members of his family. It is further alleged that to avoid stamp duty of conveyance, G. Venkateswaran transferred all the shares in SEPL to the buyer of the said property and while doing so, he found that Rs. 50,00,000 was shown as due to SEPL by GVFL. It is further alleged that to ensure that the third party buyer does not acquire the book debt against GVFL, G. Venkateswaran is said to have made adjustment entries in the account books of GVFL as if a sum of Rs. 50,00,000 was credited from SFL--the defaulter company and in turn debited to SEPL and in view of that entry, the lease deposit of GVFL with SFL got reduced to Rs. 25,00,000 against the actual figure of Rs. 75,00,000. Contending that in view of such book entry, the lease deposit has reduced, learned Counsel for the plaintiff has submitted that GVFL has explained the reduction of the lease amount and the reduction of the lease deposit does not mean that the lease got extinguished. The observation of the Tax Recovery Officer that the entries are self-contradictory is assailed contending that the applicant never made any claim for Rs. 75,00,000 and that GVFL had only been pointing out its tenancy right under which originally it had deposited totally Rs. 75,00,000 as refundable deposit. This explanation offered is clearly an after thought and nothing but a futile attempt to explain the contradictory entries. It is pertinent to note that such explanation was not offered before the Tax Recovery Officer.
130. It is alleged that by the third lease deed (dated August 20, 1999) the lease is alleged to have been renewed for a further period of nine years. Here again, as in other lease deeds, the third lease deed is also unregistered deposited on Rs. 10 stamp paper. As per the terms of the third lease deed, no liability to pay rent, interest at the rate of 10 per cent, per annum and the security deposit of Rs. 75,00,000 which works out to Rs. 62,500 per month the same is to be set off towards the rent payable. In the terms of the lease, it is alleged "the lessee has already paid a sum of Rs. 75,00,000 towards security deposit. The security deposit does not carry any interest charge". The alleged terms of the lease read:
4. This security deposit does not carry any interest charge.
5. Since the lessee had made an interest free security deposit the lessors agree to waive the lease rentals for the use of the premises during the lease period.
131. In consideration of the conduct of the parties and the suspicions surrounding the alleged lease deeds, the Tax Recovery Officer has rightly lifted the corporate veil that GVFL and SFL are alter ego of each other. Finding that GVFL is only a representative of the defaulter SFL, the Tax Recovery Officer has held that it is clear that the evidence produced was not self-explanatory nor provide a complete nature of the transactions. These "entries" cannot be relied upon, as they were not self-explanatory but the evidence produced was self-contradictory and cannot be considered as the evidence for deposit money given to SFL.
132. The findings of the Tax Recovery Officer are neither unreasonable nor illogical warranting interference exercising the powers under Article 226 of the Constitution of India. The Tax Recovery Officer has rightly held that GVFL is in possession of Goodluck Preview Theatre as an entity representing the defaulter.
133. An identical case arose before the Supreme Court in the decision 1 reported in Subra Mukherjee v. Bharat Coking Coal Ltd. . In the said case, directors of a private coal mining company executing sale deed in respect of property (bungalow and lands) owned by company on March 20, 1972, and the Coal Mines (Nationalisation) Act, 1973, coming into force on May 1, 1973. Pointing out that the purchasers of the property were the wives of the two directors of the company having no independent income, the Supreme Court found that the sale in favour of the appellants was not bona fide and thus conferred no rights on them. Rejecting the contention of the appellant that company is a separate legal entity, which is independent of its directors and shareholders, the Supreme Court held (page 262):
... The principle laid down in Salomon's case more than a century ago in 1897 by the House of Lords that the company is at law a different person altogether from the subscribers who have limited liability, is the foundation of joint stock company and a basic incidence of incorporation both under the English law and the Indian law. Lifting the veil of incorporation under statutes and decisions of the courts is an equally settled position of law. This is more readily done under American law. To look at the realities of the situation and to know the real state of affairs behind the facade of the principle of the corporate personality, the courts have pierced the veil of incorporation. Where a transaction of sale of its immovable property by a company in favour of the wives of the directors is alleged to be sham and collusive, as in the instant case, the court will be justified in piercing the veil of incorporation to ascertain the true nature of the transaction as to who were the real parties to the sale and whether it was genuine and bona fide or whether it was between the husbands and the wives behind the facade of the separate entity of the company. This is what was done by the High Court in this case.
134. The Supreme Court has further held (page 262):
There can be no dispute that a person who attacks a transaction as sham, bogus and fictitious must prove the same. But, a plain reading of question No. 1 discloses that it is in two parts ; the first part says, 'whether the transaction, in question, is a bona fide and genuine one' which has to be proved by the appellants. It is only when this has been done that the respondent has to dislodge it by proving that it is a sham and fictitious transaction. When the circumstances of the case and the intrinsic evidence on record clearly point out that the transaction is not bona fide and genuine, it is unnecessary for the court to find out whether the respondent has led any evidence to show that the transaction is sham, bogus or fictitious.
135. The above decision squarely applies to the case in hand. GVFL has not proved alleged lease deeds. The facts and circumstances and the intrinsic evidence clearly proved that the alleged lease deeds are not bona fide but only fictitious transactions created mainly for the purpose of tax evasion. Considering the tax obligation and the lease arrangement is only a facade to transfer the management of the property, the Tax Recovery Officer has rightly lifted the corporate veil and found that GVFL and SFL are reflections of one another.
136. The Tax Recovery Officer has rightly held that GVFL is in possession of the property as an entity representing the defaulter and GVFL has no tenancy rights over the property and they are not the tenants of SFL. We may sum up the conclusion as:
i. Lease deeds being unregistered cannot be looked into for any purpose.
ii. Alleged lease deeds after issuance of Rule 2 notice are hit by Rule 16 of the Second Schedule.
iii. Terms of the lease deeds are unusual.
iv. The alleged lease deposit of huge amount of Rs. 75,00,000 is quite improbable.
v. The lease deeds being rent free (in lieu of interest of Rs. 75,00,000) is equally unbelievable.
137. For the foregoing reasons, there is every reason to presume that the alleged deeds are a deliberation of G. Venkateswaran, who himself was an erstwhile chartered accountant to avoid tax. Under such facts and circumstances of the case, the Tax Recovery Officer justifiably lifted the corporate veil to discard the lease deeds and was right in finding that "GVFL" has been in possession of the property as an entity representing the defaulter as the lease arrangement is only a facade to transfer the perpetual enjoyment of the property.
138. Now, we may briefly refer to the innumerable arguments advanced on behalf of the plaintiff, which stretched over for a couple of weeks. Most of the arguments were advanced on the presumptive footing that GVFL is a tenant of SFL. On the footing that GVFL is a tenant of SFL, learned Counsel for the plaintiff has submitted that GVFL being a tenant cannot be evicted except under due process of law. It is further submitted that the tenant cannot be directed to hand over actual possession. In support of his contention, learned Counsel for the plaintiff has relied upon the decision reported in A. Stephen Samuel v. Union of India , which we have referred to earlier in para. (59) (see page 586)
139. Submitting that the tenant in person in possession of the property cannot be dispossessed without due process of law, learned Counsel for the plaintiff has submitted that GVFL is entitled to remain in possession till evicted under due process of law. Learned Counsel for the plaintiff drew analogy from the identical provision in the Civil Procedure Code under Order 21 ; Rules 98 and 99, and submitted that the tenant is entitled to be in possession till the adjudication of his right under Order 21, Rules 98 and 99, C.P.C. Insisting on due process of law, learned Counsel for the plaintiff has relied upon the decisions reported in Samir Sobhan Sanyal v. Tracks Trade P. Ltd. and P. Kuppammal v. State of Tamil Nadu . Those observations will be applicable only if GVFL is proved to be a tenant. GCFL can insist on due process of law only if proved to be a tenant. When GVFL is only an entity representing the defaulter, it is not open to GVFL to claim due process of law. Rule 39 of the ITCP Rules deals with the delivery of immovable property in occupation of the defaulter or of some person on his behalf or of some person claiming under a title created by the defaulter subsequent to the attachment of the property. On the application of the purchaser, the Tax Recovery Officer shall order delivery to be made by putting some purchaser in possession of the property and if need be by removing any person who refuses to vacate the same.
140. When GVFL is not a tenant of SFL, under Rule 39, the person who refused to vacate the premises is to be removed to deliver the possession of the property to the purchaser. While so, the plaintiff is not justified in contending that possession of GVFL is protected and GVFL could be evicted only under due process of law.
141. Exercising the writ jurisdiction, the High Court cannot interfere with the finding of the Tax Recovery Officer except where it is perverse in the sense that it is based on no material whatsoever. The High Court would interfere only if the order is vitiated like refusal of admissible evidence and erroneously admitting inadmissable evidence and there is misreading of evidence and the like. The power cannot be used to correct a finding, which is based on the materials. In proper appreciation of the evidence and materials placed, the Tax Recovery Officer has rightly passed the order that only Rule 39, ITCP Rules, would apply and that GVFL is not a tenant. That order of the Tax Recovery Officer is neither perverse nor unreasonable nor suffers from any irregularity or illegality of procedure warranting interference.
142. The lease deeds are created deliberately adding the clauses to stall the legitimate proceedings of the Department against Goodluck Preview Theatre owned by SFL. Insistence of due process of law is dubious. If the plea of GVFL that they could be evicted only under due process of law is accepted, it would seriously impair the departmental proceedings and the interest of the auction purchaser. The plea of due process of law has been adopted by GVFL mainly with obscure intention to i. resist the delivery of possession under the cover of lawful tenant;
ii. to protract the proceedings by squatting on the property, rental free without any liability to pay damages for use or occupation.
the case of the plaintiff/writ petitioner is nothing but a clear case of perpetrating fraud upon the Department. That apart, the conduct of the plaintiff is nothing but abuse of process of court putting bogus claim against the bona fide auction purchaser.
143. The process of the court must be used bona fide and must not be abused. The court will prevent improper use of its machinery and will in a proper case summarily prevent its machinery from being used as a means of tax evasion. The expression of concern that the process of the courts being abused by the tax evaders and bank loan dodgers, in S. P. Chen-galvaraya Naidu v. Jagannath , the Supreme Court has held, ... The courts of law are meant for imparting justice between the parties and the one who comes to the court must come with clean hands. We have no hesitation to observe that when a person comes to the court whose case is based on falsehood, can be summarily thrown away at any stage of the litigation.
We are constrained to say more often than not, the process of the court is being abused, property grabbers, tax evaders, bank-loan-dodgers and other unscrupulous persons from all walks of life find the court process a convenient lever to retain the illegal gains indefinitely....
144. Where there is a clear abuse of process of court, the court has to seriously view such conduct and the same is to be halted. In K. K. Modi v. K. N. Modi , the Supreme Court has held:
... the court has power to stop such frivolous and vexatious proceedings. The Supreme Court has only cautioned that such power is to be exercised with circumspection. It is necessary to refer to the observations of the Supreme Court, which are very much relevant for our purpose.
'42. Under Order 6, Rule 16, the court may, at any stage of the proceedings, order to be struck out, inter alia, any matter in any pleading which is otherwise an abuse of the process of the court. Mulla in his Treatise on the Code of Civil Procedure, (15th edn. Vol. II, page 1179, note 7), has stated that power under Clause (c) of Order 6, Rule 16, of the Code is confined to cases where the abuse of the process of the court is manifest from the pleadings ; and that this power is unlike the power under Section 151 whereunder courts have inherent power to strike out pleadings or to stay or dismiss proceedings which are an abuse of their process. In the present case, the High Court has held the suit to be an abuse of the process of court on the basis of what is stated in the plaint.
43. The Supreme Court Practice 1995 published by Sweet and Maxwell in paragraph 18/19/33 (page 344) explains the phrase "abuse of the process of the court" thus:
This term cannotes that the process or the court must be used bona fide and properly and must not be abused. The court will prevent improper use of its machinery and will in a proper case, summarily prevent its machinery from being used as a means of vexation and oppression in the process of litigation ... The categories of conduct rendering a claim frivolous, vexatious or an abuse of process are not closed but depend on all the relevant circumstances. And for this purpose considerations of public policy and the interests of justice may be very material.
44. One of the examples cited as an abuse of the process of court is relitigation. It is an abuse of the process of the court and contrary to justice and public policy for a party to relitigate the same issue which has already been tried and decided earlier against him. The reagitation may or may not be barred as res judicata. But if the same issue is sought to be reagitated, it also amounts to an abuse of the process of court. A proceeding being filed for a collateral purpose, or a spurious claim being made in litigation may also in a given set of facts amount to an abuse of the process of the court. Frivolous or vexatious proceedings may also amount to an abuse of the process of court especially where the proceedings are absolutely groundless. The court then has the power to stop such proceedings summarily and prevent the time of the public and the court from being wasted. Undoubtedly, it is a matter of courts' discretion whether such proceedings should be stopped or not; and this discretion has to be exercised with circumspection. It is a jurisdiction which should be sparingly exercised, and exercised only in special cases. The court should also be satisfied that there is no chance of the suit succeeding.
145. The only point that remains to be considered is the nature of the order to be passed. Both Application No. 543 of 2005 and W. P. No. 17576 of 2005 are before the court mainly because of the order passed by F. M. Ibrahim Kalifulla J. (September 15, 2005) "for the implementation of the said order shall await further orders in these proceedings". The matter was argued in extenso before F. M. Ibrahim Kalifulla J. At that time, Mr. Ravi, learned Counsel appearing on behalf of the applicant/plaintiff submitted that if ultimately the court were to hold that Rule 39 of the Income-tax (Certificate Proceedings) Rules, 1962, alone would apply, the applicant-plaintiff will unhesitatingly hand over possession of the suit schedule theatre to the respondents forthwith. In view of such submission made, straightaway, possession has to be ordered the auction purchaser.
146. Thus, as per the provisions of the ITCP Rules, straightaway possession is to be ordered to the auction purchasers. At the cost of repetition, we may usefully refer to Rule 39(1) (2), ITCP Rules, which reads as follows:
Delivery of immovable property in occupancy of defaulter.-(1) Where the immovable property sold is in the occupancy of the defaulter or of some person on his behalf or of some person claiming under a title created by the defaulter subsequently to the attachment of such property and a certificate in respect thereof has been granted under Rule 65 of the principal rules, the Tax Recovery Officer shall, on the application of the purchaser, order delivery to be made by putting such purchaser or any person whom the purchaser may appoint to receive delivery on his behalf in possession of the property, and if need be, by removing any person who refuses to vacate the same.
(2) For the purposes of Sub-rule (1), if the person in possession does not afford free access, the Tax Recovery Officer may, after giving reasonable warning and facility to any woman not appearing in public according to the customs of the country to withdraw, remove or open any lock or bolt or break open any door or do any other act necessary for putting the purchaser, or any person whom the purchaser may appoint to receive delivery on his behalf, in possession.
147. Thus, it is incumbent on the Tax Recovery Officer to effect delivery of the possession of the auction purchasers. If need be by removing the defaulter or any other person on his behalf who is obstructing the possession or the property.
148. The terms and conditions of sale by public auction also reiterates the same as is clear from the following:
... In case, the property is occupied by the defaulter himself or any other person on his behalf who is not a tenant then the purchaser is at liberty to go and take possession of the property. However, if any resistance is offered either by the defaulter or any person on his behalf, if an application is made by the purchaser under Rule 39 of the Income-tax (Certificate Proceedings) Rules, 1962, then efforts will be taken to put the purchaser in the possession of the property and if need be removing the defaulter or any other person on his behalf who is obstructing the possession of the property.
149. The matter is before the court for implementation by the further orders of this court. If the matter had not come before the court (for implementation), the Tax Recovery Officer would have invoked the above provisions/rules to hand over possession to the auction purchaser. If need be, by removing the obstructions. While implementing the order of the Tax Recovery Officer, the court is also duty bound to order possession to be immediately handed over to the auction purchasers.
150. Learned Counsel for the plaintiff has submitted that at no point of time, the plaintiff had given consent for handing over possession and that if such permission is to be taken as the estoppel, the plaintiff would not have the right of appeal, who are only observing that the delivery of possession is to be ordered immediately. Right of appeal is not curtailed in any manner. Materials have been produced showing that the auction purchasers have borrowed huge amount from the bankers for raising the funds for depositing the sale consideration. It is stated that the auction purchasers are paying interest and the every day's delay has much hardship and financial loss. GVFL, who is squatting on the property of the defaulter has to be evicted forthwith.
151. When the judgment was pronounced, learned Counsel for the plaintiff has submitted that if possession is to be delivered by December 6, 2005, serious prejudice would be caused to the plaintiff since the plaintiff would be deprived of filing the appeal. As noted earlier, the right of appeal available to the plaintiff is not curtailed. Only in the interest of justice immediate delivery of possession is ordered. In case, if the plaintiff succeeds, in the appeal, the plaintiff could very well invoke Section 144, C.P.C. seeking for restoration of possession. Hence, the immediate delivery of possession ordered cannot be kept in abeyance as prayed for by learned Counsel for the plaintiff.
152. Before we part with the matter, we may mention the repeated arguments advanced by the plaintiff alleging collusion between the Department and the auction purchaser. Learned Counsel for the plaintiff has referred to the Department taking delivery of possession on July 13, 2005, which has been followed by F. M. Ibrahim Kalifulla J., order dated August 22, 2005. At that time, the Department has submitted that in view of Rule 39, ITCP Rules, possession was taken by the Department on July 13, 2005. F. M. Ibrahim Kalifulla, J., has found that the Department was not justified in doing so. The contention of the plaintiff alleging collusion between the Department and the auction purchaser has no force in view of Rule 39(2), ITCP Rules, and Rule 9 of the terms and conditions of the auction.
153. Be that as it may, it is to be noted that in fact, only the Department appears to have shown undue indulgence to SFL, which is a defaulter to an extent of huge sum, viz., more than Rs. 19,00,00,000. It is not known as to why the Department has not taken immediate and appropriate steps to realise for recovery of such huge amount of tax arrears due. It is high time that the Income-tax Department rises to the occasion and takes appropriate steps for collecting the income-tax due and without showing undue indulgence to film celebrities.
154. C. S. No. 454 of 2005 : This suit has been filed by the plaintiff for permanent injunction to restrain the defendants from interfering with plaintiff's peaceful possession and enjoyment of the property. Since GVFL is only in possession of the property, on behalf of the defaulter GVFL cannot seek for permanent injunction insisting for due process of law. The suit in C. S. No. 454 of 2005 itself is not maintainable and is liable to be dismissed. Accordingly, the suit is dismissed with costs of the defendants.
155. Application No. 543 of 2005 : For the foregoing reasons, it is held that the plaintiff is not entitled to the relief of temporary injunction and the application is dismissed with costs of the defendants.
156. Application No. 2302 of 2005 : For the reasons stated above, this application filed by the defendants to vacate the order of injunction dated May 18, 2005, in O. A. No. 543 of 2005 in C. S. No. 454 of 2005 is allowed and the injunction already granted is vacated.
157. W. P. No. 17576 of 2005 : It is held that the writ petitioner is not entitled to the relief sought for in this writ petition. Accordingly, this writ petition is dismissed with costs of the respondent. The connected W. P. M. P. No. 19093 is closed.
158. To effect immediate delivery of possession, Mr. V. K. Sathiamurthy, Advocate, 106, Additional Law Chambers, High Court, Chennai 600 104, is appointed as advocate commissioner, who shall effect delivery of possession by December 6, 2005--3.00 p.m. The Income-tax Department is directed to render all the assistance to the advocate commissioner to effect delivery of possession in compliance with the direction of this order. If the advocate commissioner needs protection of the police authorities, the same shall be extended to him on being requested. If the advocate commissioner faces any impediment such as the locking of the theatre, he is at liberty to break open the lock and execute the order of delivery of possession. The process of delivery of possession is to be completed by December 6, 2005 (Tuesday). The advocate commissioner is directed to submit his report into the court on December 12, 2005 (Monday).
159. If the plaintiff-GVFL does not co-operate with the advocate commissioner and in case, the advocate commissioner is not able to effect the delivery of possession before December 6, 2005, it is held that for each day's occupation of Goodluck Preview Theatre, the plaintiff--GVFL would be liable to pay damages of Rs. 15,000 (rupees fifteen thousand only) per day to the auction purchasers. The auction purchaser shall pay initial remuneration of Rs. 25,000 (rupees twenty five thousand only) to the advocate commissioner.
160. The advocate commissioner is directed to make an inventory of the articles that are available in the premises--Goodluck Preview Theatre and file a detailed report into this court.
161. Office is directed to issue warrant to the advocate commissioner today itself.