ARUN COLUMBUS vs. THE CENTRAL BOARD OF DIRECT TAXES
What did the High Court hold?
The High Court dismissed the writ petition. Regarding the issue of limitation, the Court noted that the petitioners had repeatedly approached the Court to defer recovery and had made offers to pay the outstanding amounts. Crucially, the Court referred to its previous judgment in W.P.(C).No.17879 of 2009 (Ext.P6), which had already considered and disallowed the challenge on the ground of limitation, stating that the pleadings and prayers in that writ petition remained unamended. The Court found that the right to challenge the sale on the grounds of limitation had been foreclosed. The Court also observed that the petitioners failed to demonstrate bonafides by not making alternative arrangements like a bank guarantee. Concerning the validity of the attachment, the Court highlighted Rule 51 of the Second Schedule, which states that attachment relates back to the date of service of the notice to pay arrears. Since the second gift deed was dated 28.08.1980 and the demand notice for the property was issued on 03.07.1980, the attachment was deemed to have taken effect prior to the gift. The Court held that a third party creating rights in property subject to attachment cannot claim protection under Section 41 of the Transfer of Property Act. The judgment in Commissioner of Income Tax v. Siva Traders was distinguished as it pertained to an erstwhile Act and different facts. The Court concluded that the writ petition was devoid of merits.
What were the facts?
The petitioners, son and daughter of Sri. Anto Nitto, inherited property from their grandfather, late K.J. Columbus. K.J. Columbus and a firm, M/s. Ocean Fisheries, incurred income tax arrears for assessment years 1974-75, 1977-78, 1980-81, and 1982-83. Recovery proceedings were initiated against the inherited property. The petitioners challenged these proceedings, arguing that the recovery was time-barred under Rule 68B of the Second Schedule of the Income Tax Act. They also contended that the granddaughter was not liable for the tax arrears of late K.J. Columbus. The petitioners had previously filed writ petitions challenging auction sales and seeking waiver of interest and settlement of liabilities. They made partial payments and received some relief from the Chief Commissioner of Income Tax regarding installment payments. A portion of the property was surrendered for road construction, and an amount was received, which was applied towards the arrears. However, a significant outstanding amount was still shown due. The Central Board of Direct Taxes ultimately dismissed the petitioners' representation.
What were the issues?
1. Whether the recovery proceedings initiated against the petitioners' inherited property for the tax arrears of late K.J. Columbus and M/s. Ocean Fisheries are time-barred under Rule 68B of the Second Schedule of the Income Tax Act, 1961? Assessee's Contention: The petitioners argued that the recovery was time-barred as immovable property could not be sold after three years from the end of the financial year in which the order giving rise to the demand arose. They sought information on the date of the first attachment, which was not provided. Revenue's Contention: The revenue contended that the petitioners were estopped from challenging the sale on the ground of limitation as they voluntarily offered to make payments to get the property released. They also argued that the second gift deed dated 28.08.1980 was executed after the service of notice under Rule 2, and thus the attachment related back to the date of service of the notice. 2. Whether the petitioners are liable for the tax arrears of late K.J. Columbus and M/s. Ocean Fisheries, and whether the attachment of the gifted property is valid? Assessee's Contention: The petitioners' primary contention was that the recovery was time-barred. They also argued that the granddaughter was not liable for the tax arrears of late K.J. Columbus. Revenue's Contention: The revenue argued that the second gift deed of 28.08.1980 was already under attachment as per Rules 48 and 51 of the Second Schedule, and this deed was executed after the service of notice under Rule 2. They asserted that the attachment related back to the date of service of the notice.
Which sections of the Income-tax Act were involved?
Section 220,Section 226(C),Section 41
AI-generated summary — verify with the full judgment below
Cause title — parties, addresses and appearances
JUDGMENT Petitioners are the son and daughter of Sri.Anto Nitto, who, along with his father late K.J.columbus and brother late Joseph Joppen, were partners of a firm known M/s.Ocean Fisheries. Late K.J.Columbus was the owner of a land to the extent of 139 cents with a residential building and another 17.611 cents and 5.17 acres of land. As per sale deed dated 1.11.1977 late K.J.Columbus gifted half of the property in Sy. Nos.201/1, 1523/1, 1510 and 1546 to the extent of 139 cents to his wife Smt.Kunjumary Columbus and vide another registered gift deed dated 28.08.1980, other half share was also gifted. Thus for all intends and purposes wife of K.J.Columbus became the absolute owner of the land. K.J.Columbus, as per the gift deed dated 12.07.1984 and 22.10.1986 gifted 106.95 cents in various survey numbers to the first petitioner and 14.625 cents in survey number 201/1 to the 2nd petitioner. Petitioners alleged to be the absolute owner of the property of K.J.Coloumbus who expired on 29.12.1982 and Kunjumary Columbus, in the year 1989. K.J.Columbus as well as M/s.Ocean
WP(C) NO. 16414 OF 2011 3 fisheries incurred income tax arrears in respect of assessment years 1974-75, 1977-78, 1980-81 and 1982-83 including the arrears from Anto Nitto, Joseph Joppen, Cyrella Joppen and India Sea Products.
As per the averments, the Tax Recovery Officer issued notices on 24.07.1979 and 03.07.1980. However, it is not known as to when the Tax Officer raised the demand upon the defaulter ie., late K.J.Columbus but notice under Rule 2 of second schedule of the Income Tax Act was issued on 31.03.1978 and 31.03.1979 for the year 1974-75 and 1975-76. 3. Sri.Raju Joseph, learned Senior Counsel, appearing on behalf of the petitioners submitted that the recovery was only time barred as per the provisions of Rules 68B of the second schedule as at the relevant point of time, immovable property could not have been sold after a period of three years from the end of the financial year in which the order giving rise to a demand of tax, interest, fine, penalty or any other sum for the recovery for which the immovable property was attached. A separate request was made to inform the date of first
WP(C) NO. 16414 OF 2011 4 attachment, but of no avail. Challenging the recovery proceedings initiated against the property which the petitioners inherited as per the gift deed, O.P.No.4511/1995 was filed, which was later dismissed as infructuous. The main contention in the O.P. was that the grand daughter was not liable to be proceeded for recovery of tax arrears of late K.J.Columbus. Auction scheduled for 24.07.2002 was also challenged by the petitioners Vide O.P.No.19909/2002. During the pendency of the aforementioned O.P, this Court had given an opportunity of the petitioners to approach the Chief Commissioner of Income Tax and the Commissioner of Income Tax respectively ie., respondent Nos.2 and 3 for waiver of the interest and settlement of liability by selling the property by private negotiation and in the meantime, auction was stayed. In lieu thereof, petitioners preferred a petition under Section 220(2)(A) of the Act on 12.09.2002. Vide order dated 13.09.2002, 60% of the interest was paid. The O.P. thereafter was dismissed on the ground that the Commissioner of Income Tax had waived 60% of the interest.
It was further contended that since the entire
WP(C) NO. 16414 OF 2011 5 property belonging to the petitioners was attached and there was no source to raise the funds, petitioners could not pay the amount despite waiver of the interest. Thereafter, vide order dated 15.03.2007, the Chief Commissioner of Income Tax granted relief of payment of arrears by way of instalment and Rs.14 lakhs from March 2007 to March 2009 and another sum of Rs.5 lakhs were paid. The last amount of Rs.5 lakhs was paid on the basis of the directions given by this Court in W.A.No.275/2009 arose from the judgment in W.P. (C).No.3310/2009, wherein, indulgence of this Court was sought to dispose of the petition preferred before the Central Board of Direct Taxes and in the meantime, defer the sale.
Property of late K.J. Columbus to the extent of 17.611 cents in survey No.160 was surrendered in connection with the construction of a road in Division No.22 of Cochin Corporation. An amount of Rs.18,06,402/- was received from the Cochin Corporation under Section 226(C) of the Income Tax Act. Thus for all intends and purposes the arrears of tax to the extent of Rs.37,06,402/- towards the arrears of Late K.J.Columbus and M/s.Ocean Fisheries was paid. In the meantime, petitioners
WP(C) NO. 16414 OF 2011 6 received a communication from the office of the Central Board of Direct Taxes to contact the Assessing Officer to reconcile the amount paid with the actual amount due from K.J.Columbus, but no action was taken. Vide another letter dated 27.03.2009, 4th respondent ie., Tax Recovery Officer informed the petitioners regarding the outstanding amount and it revealed that a sum of Rs.56,18,821/- was due from late K.J.Columbus and M/s.Ocean Fisheries.
On 01.04.2009, petitioners were constrained to file another petition before the Chief Commissioner Income Tax - 2nd respondent informing that the Tax Recovery Officer - 4th respondent did not give the details asked for. The aforementioned application was duly replied and it surfaced that land measuring 31.9 cents at Edakochi in survey No.201/1 part of the gifted property to the petitioners was advertised for auction sale. Being aggrieved of the same, petitioners and their father Sri.Anto Nitto approached this Court vide W.P. (C).No.17879 of 2009 for quashing the sale proceedings with a further prayer for direction to the respondent No.1 to dispose of the representation filed on 22.06.2009 as also for the WP(C) NO. 16414 OF 2011 7 submission of the details of arrears. When the judgment was reserved, a prospective purchaser approached the petitioners to purchase the property and I.A.No.14611/2010 in this regard was submitted praying for payment to the respondents and release of the property under attachment free from all encumbrances. In this view of the matter, this Court listed the writ petition and the Income Tax Department submitted that bid in auction in favour of the department conducted on 30.06.2009 was for 95.7 lakhs. This Court vide judgment Ext.P6 directed the Tax Recovery Officer to intimate the petitioners as to the actual liability due from them within one week with liberty to the petitioners to satisfy the same subject to the order passed by the Commissioner of Income Tax as the petitioners had made a request and on satisfaction of the liability, property would be released and reconveyed to the petitioners at their cost. However, this Court did not permit the petitioners to challenge the auction being barred by law of limitation on the ground that there was no such plea in the writ of the petitioners nor there was any prayer for amendment of the writ petition. The aforementioned order was passed on an undertaking submitted
WP(C) NO. 16414 OF 2011 8 by the petitioners who expressed the willingness to satisfy the entire liability for the time being subject to the outcome of relevant proceedings regarding the pendency of representation.
Sri.Raju Joseph further submitted that Central Board of Direct Taxes vide impugned order Ext.P8 dated 02.02.2011 dismissed the representation on the ground that the waiver of 60% interest granted under Section 220(2)(b) could not be availed by the petitioners as they had not any mechanism such as bank guarantee for recovery of the outstanding due and also protection of the interest of the revenue and as far as the validity of the property was concerned, it was said that this Court in para 9 of the judgment in W.P.(C).No.17879 of 2009 had already considered the point and ordered to release the property measuring 139 cents subject to payment of the amount. By laying challenge to the aforementioned order Ext.P8, petitioners have sought indulgence of this Court through this writ petition claiming following reliefs: “i.A writ of certiorari or any other writ direction or order quashing Ext.P8 order as illegal unjust and wrong. ii. A declaration that the recovery proceedings initiated against the property comprised in Sy Nos. 201/1, 1523/1,
WP(C) NO. 16414 OF 2011 9 1510 and 1546 of Edakochi Village having an extent of 139 cents with a residential building was time barred and hence illegal and unsustainable in law. iii.A declaration that the Income Tax department cannot proceed against the property in Sy Nos 201/1, 1523/1, 1510 and 1546 of EdakochiVillage covered by gift deed Nos 2572/77 and 2704/80 in favour of late Kunjumary Columbus which was gifted to the petitioners are not liable to be proceeded for realizing the income tax dues of anybody except late K.J.Columbus. iv.A writ of mandamus or any other writ direction or order directing the respondent to refund the amount made mentioned in Ext P7 statement which was paid to the department by the petitioners pursuant to the direction in Ext P6 judgment of this Hon'ble Court. v.A writ of mandamus or any other writ, direction or order directing the respondent to adjust the land acquisition compensation in respect of the land in Sy No. 160 of Palluruthy Village having an extent of 17611 cents received by the department from Cochin Corporation in the income tax arrears of late K.J.Columbus and Ocean Fisheries and workout the balance dues accordingly and refund the balance amount to the petitioners. vi. Any other writ direction or order which are just and necessary in the circumstances of the case.”
Learned senior counsel, confined the prayer with regard to the order Ext.P8 in as much as the other payers basically were rejected and not considered in the previous
WP(C) NO. 16414 OF 2011 10 order, thus would be estopped to raise the plea as per the principles laid down in order 2 Rule 2 of CPC, though the CPC may not apply but principles do. It was next contended that Income Tax Act is a self contained code and provisions of Section 156 would have overriding effect for seeking recovery whereby the Assessing Officer is required to serve upon the assessee a notice of demand in the prescribed form. Revenue failed to place on record entire proceedings, in the previous round of litigation in this Court also, the notice was allegedly served upon the assessee K.J.Columbus and partners of M/s.Ocean Fisheries. As per the provisions of Section 220 in case the assessee fails to make the payment as demanded in the notice within a period of thirty (30) days, assessee shall be deemed to be in default. In the absence of any particulars, it is not known when the assessee became in default, thus the auction notice as far back in 1997 and then 2002 were wholly belated and time barred, and hit by provisions of Rule 68B of second schedule. In support of the contention with regard to self contained code relied upon the judgment in Commissioner of Income Tax v. Siva Traders (ITR 2002 Vol.255).
WP(C) NO. 16414 OF 2011 11
On the other hand, learned counsel appearing on behalf of the Income Tax submitted that the petitioners are estopped to challenge the sale on the ground of limitation, for, voluntarily offered to make the payment to get the property released and in compliance of the direction passed by this Court in the judgment Ext.P6, on deposit of the amount the property was released. Though initially when a writ petition was filed, there was no such challenge regarding sale being barred by time. An attempt was made to challenge the same by submission of an interim application but said submissions were rejected in paragraph 7 of the judgment Ext.P6. No effort has been made to seek information from the Income Tax Department with regard to the demand raised by K.J.Columbus and partners of M/s.Ocean Fisheries, as per pleadings. The second gift deed of 28.8.1980 was already under attachment as per the provisions of Rule 48 and 51 of the second schedule. There is candid admission that second gift deed dated 28.8.1980 is after the service of notice under Rule 2, thus urged this Court for dismissal of the writ petition.
WP(C) NO. 16414 OF 2011 12
I have heard the learned counsel for the parties and appraised the paper book.
From the facts narrated above, it is evident that the petitioners had been knocking the door of this Court to defer the recovery of the arrears of tax one way or the other; to overcome such impediment even had managed to obtain gift deeds from K.J Columbus in 1977 and 1980. The second gift deed 28.8.1980 is after receipt of the notice of demand which was issued on 03.07.1980. From the perusal of the facts narrated in the judgment dated 22.10.2010 Ext.P6, it is evident that the submission of their application for waiver of interest dated 22.06.2009 was preceded by a notice of demand whereas the auction was earlier held in 2002 and on account of non deposit of the amount, property was again put to auction on 30.05.2008 and 06.02.2009. It would be appropriate to extract paragraph 7 of the judgment Ext.P6:
“7. Going by the contents of the reply affidavit filed by the petitioners, several new averments have been raised therein, particularly as t0o the ‘limitation’ and such other aspects; which do not find a place in the writ petition. As such, this Court does not propose to go into the merits of the said contentions in the reply affidavit, when the WP(C) NO. 16414 OF 2011 13 pleadings and prayers in the Writ Petition stand unamended, but for examining the merits of the Writ Petition as it stands.”
On perusal of the above, it is evident that the petitioners are not permitted to assail on the ground of limitation as that right had already been taken away. Petitioners also failed to reflect their bonafides in not making any alternative arrangement like bank guarantee to show the willingness to pay the outstanding amount vis-à-vis the balance amount of interest after seeking waiver of 60%.
In paragraph 9 of the judgment, this Court, on account of the volition of the petitioners to discharge the entire liability, granted liberty to deposit the amount and so that property could be released. In this view of the matter, the provisions of Sections 56, 220 and 68B cannot be taken into consideration as the right to challenge the sale, for the sake of repetition had already been foreclosed. There is no dispute to the ratio decidendi culled in judgment cited supra to the fact that the Income Tax is a self contained code. But the facts and circumstances of each case is required to be noticed. The WP(C) NO. 16414 OF 2011 14 judgment in Siva Traders (supra) would not be applicable as it was on account of interpretation of erstwhile Income Tax Act whereas thereafter there was a sea-change by introduction of new Act ie., Income Tax Act, 1961. The provisions of Schedule 2 the complete code itself have the trapping of provisions of order 21 of the Code of Civil Procedure. I would be failing in my duty in not producing Rules 48 to 51 of the second schedule. The same reads as under: Attachment.
Attachment of the immovable property of the defaulter shall be made by an order prohibiting the defaulter from transferring or charging the property in any way and prohibiting all persons from taking any benefit under such transfer or charge. Service of notice of attachment.
A copy of the order of attachment shall be served on the defaulter. Proclamation of attachment.
The order of attachment shall be proclaimed at some place on or adjacent to the property attached by beat of drum or other customary mode, and a copy of the order shall be affixed on a conspicuous part of the property and on the notice board of the office of the Tax Recovery Officer.
WP(C) NO. 16414 OF 2011 15 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.
On perusal of the same, the moment demand notice is raised to make the payment of the arrears, the property is deemed to be attached. The second gift deed is of 28.8.1980 whereas the demand notice for the said property was admittedly issued on 3.07.1980, almost a month before the second gift deed. It was the said part of the property which was put to auction. It is settled law that in case a person creates to third party right in respect of property which is subject to attachment third party cannot claim the protection of Section 41 of the Transfer of Property Act ie., bonafide purchaser. For the reason aforementioned, writ petition is devoid of merits, accordingly dismissed. AMIT RAWAL nak JUDGE
WP(C) NO. 16414 OF 2011 16
Appendix — schedule of exhibits
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