K.T. THOMAS vs TAX RECOVERY OFFICER and Another

SANKARASUBBAN, J.:

Petitioner in OP No. 9041 of 1989 is the appellant. He was an assessee under the Indian IT Act and WT Act on the file of the ITO, B-Ward, Circle 1, Cahcut. He was in arrears of Income Tax, wealth-tax and interest thereon amounting to Rs. 8,97,773. Recovery proceedings were initiated by the TRO, Calicut. An item of immovable property belonging to the petitioner, viz., Bank House Property was put to auction. The property was sold for an amount of Rs. 12,01,000 at the auction conducted on 7th Feb., 1989. There was a prior liability on the property in favour of the Chartered Bank and the. Chartered Bank had obtained a decree on 31st July, 1982 in OS No. 84/81 of the Sub-Court, Kozhikode. The decree was later assigned in favour of one Jolly Thomas. The charge created by the Chartered Bank on the property was not initially known to the Department. Jolly Thomas filed a petition requesting the TRO to set aside the sale or in the alternative to pay her a sum of Rs. 8,07,327.14. But the request for setting aside

the sale was rejected and the auction sale was confirmed on 14th March, 1989.

Jolly Thomas filed a petition in the Sub-Court, Calicut as EA No. 262/89 in OS No. 87/81 for a direction to the TRO to deposit the entire sale proceeds in Court. The Court ordered that the TRO would pay her the amount due as per the decree with interest as ordered by the subordinate judge. It was brought to the notice of the Court by the Department that a sum of Rs. 4,09,673.80 was already in deposit in that Court and that Jolly Thomas had prior charge over that amount as that property was one of the two immovable properties given as security to the decree holder.

In the meanwhile the appellant filed a petition before the TRO for the return of the balance amount after adjusting the amount of tax arrears. The TRO rejected the same by Ext. P4, order. In Ext. P4, the TRO said that Jolly Thomas had got first priority over the property and that the liability due to the Department was to be adjusted only after paying the amount due to Jolly Thomas. Hence, the prayer of the petitioner was dismissed. Against that, an appeal was preferred before the CIT, Cochin. The CIT dismissed the same by Ext. P6 order. In Ext. P6, it has been stated that the binding nature of the debt due to Jolly Thomas was not known at the time of sale proclamation. But at the time of conducting the public auction on 7th Feb., 1989, it was clearly mentioned that the liability in respect of the decree of the Court will be cleared by the Department out of the sale consideration received from the auction money. Original Petition was filed challenging Exts. P4 and P6. The learned single judge dismissed the original petition. The learned single judge took note of the fact that Jolly Thomas had a prior charge and at the time of auction, the binding nature of the liability was announced. Further, Jolly Thomas was not made a party to the petition. It is against the above judgment that the Writ Appeal has been filed.

Learned counsel appearing for the appellant argued the matter at great length and contended that Exts. P4 and P6 orders are not correct. According to him, under r. 8 of Schedule 2 of the IT Act, it was the duty of the Department to adjust the amount got by auction towards the arrears and to return the balance amount to the defaulter. He also stressed the fact that in the sale proclamation the binding nature of the liability towards Jolly Thomas was not considered. Learned counsel for the Department Shri N.R.K. Nair contended that there is no dispute that the amount due to the Chartered Bank was a prior charge and that it had preference over the tax liability. It was further contended that in the execution proceedings, the Bank has been directed to pay the amount towards the liability of the decree. Hence, the counsel contended that the original petition has no basis.

After hearing the parties, we are of the view that the appellant''s contention cannot be accepted. The learned counsel for the appellant was correct in submitting that normally under r. 8 of Schedule H the ITO has to return the excess amount after adjusting the amount due to the Department. But in a case where there is a first charge, it is the duty of the Department to adjust the amount realised under the auction towards that first charge. Even if there is a mistake in the sale proclamation, that cannot be taken advantage of by the appellant. Appellant also submitted that Jolly Thomas had a first charge over the property. Further, Jolly Thomas had made the petitioner and the Department as parties to the execution proceedings. It is in that proceedings that the order was made to deposit some amounts towards the liability. That order has not been challenged by the appellant.

In the above view of the matter, we do not find any merit in the writ appeal. Hence the writ appeal is dismissed.

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