Case Note & Summary
These appeals by special leave arose from a common judgment of the Karnataka High Court in Writ Appeal Nos. 293 and 721 of 1991. The dispute concerned the locus standi of the appellant, an agreement holder, to apply under Rule 60 of the Second Schedule to the Income Tax Act, 1961 to set aside an auction sale of immovable property belonging to a tax defaulter. The owner, Y.S. Devendra Murthy, defaulted on income tax dues; a notice under Rule 2 was issued on 3 September 1973. On 20 November 1982, the owner agreed to sell agricultural land, Survey No.20 and part of Survey No.21, to the appellant for Rs.2,80,000 and received an advance of Rs.1,62,000. Sale deed was to be executed within eight months, extended by five months. The appellant filed a suit for specific performance on 2 January 1984; an ex parte decree was set aside and proceedings remained pending. The Tax Recovery Officer attached the property on 11 February 1988 and brought it to auction on 14 March 1988, where the third respondent became the successful auction purchaser. On 12 April 1988, within thirty days, the appellant filed an application under Rule 60, annexing a letter from the power of attorney holder of the defaulter authorizing deposit of tax arrears. He deposited Rs.3,42,322 towards arrears, interest, solatium and costs. The Tax Recovery Officer rejected the application on 20 April 1988; the Tax Recovery Commissioner dismissed the appeal on 13 June 1988. The appellant and the power of attorney holder filed a writ petition. A learned single judge allowed it on 14 December 1990, quashing the orders and permitting deposition of Rs.4,45,783. The Revenue and auction purchaser filed writ appeals; a Division Bench held the appellant lacked locus standi, allowed the appeals, dismissed the writ petition and confirmed the TRO and TRC orders. In the Supreme Court, the appellant argued that the Division Bench erred; the application was backed by authority, filed within time, and the source of deposit was immaterial. Respondents argued the agreement of 20 November 1982 was void from inception under Rule 16(1) and Rule 51, as attachment related back to the 1973 notice; therefore the appellant had no legal interest. The Supreme Court quoted Rule 60, observing that it allows the defaulter or any person whose interests are affected by sale to apply within thirty days, on depositing the specified amount with interest at 15 per cent and a penalty of 5 per cent. It noted that the original defaulter or his power of attorney had not applied; the appellant had applied himself. The court observed that if a valid application is made by the defaulter or authorized representative, the source of funds or ministerial deposit is immaterial. However, the extract ends before the final holding; the available text indicates the court was inclined to agree with the High Court that the appellant's application was not maintainable.
Headnote
A) Income Tax - Recovery of Tax - Locus Standi under Rule 60 of Second Schedule to Income Tax Act, 1961 - Rule 60 permits defaulter or any person whose interests are affected by sale to apply within thirty days to set aside sale on depositing amount specified, interest at 15 per cent and penalty at 5 per cent - Division Bench held that agreement to purchase property after service of notice and attachment was void under Rule 16(1) and Rule 51, so appellant had no legal interest affected by sale - Supreme Court noted that neither defaulter nor his power of attorney holder had moved an application, and the appellant's application alone was not maintainable. Held by Division Bench that appellant lacked locus standi (Paras Not mentioned). B) Income Tax - Recovery of Tax - Attachment and Private Transfers - Rules 16(1), 51, 48 of Second Schedule to Income Tax Act, 1961 - Attachment relates back to date of service of notice under Rule 2, making subsequent private agreement to sell void from inception - Respondents contended that agreement dated 20 November 1982 was void; Supreme Court examined the interplay of these rules in determining locus standi under Rule 60 (Paras Not mentioned). C) Civil Procedure - Specific Performance - Effect of Pending Suit on Locus Standi - A pending suit for specific performance and decree after auction does not cure lack of initial legal interest caused by void agreement - Source of deposit money is irrelevant when a valid application is made by the defaulter or authorized representative, but not when the applicant is not an affected person (Paras Not mentioned).
Issue of Consideration
Whether the appellant, who had an agreement to purchase the defaulter's property and had paid an advance, had locus standi to apply under Rule 60 of the Second Schedule to the Income Tax Act, 1961 to set aside the auction sale, despite the agreement being entered into after notice and attachment and without a separate application by the defaulter or his power of attorney holder.
Final Decision
Not mentioned in provided text; the extract ends before the final dispositive portion of the Supreme Court judgment.
Law Points
- Rule 60 of Second Schedule to Income Tax Act
- 1961 permits the defaulter or any person whose interests are affected by the sale to apply within thirty days to set aside sale by depositing amount specified with 15% interest and 5% penalty
- Rule 16(1) of Second Schedule prohibits private transfer after service of notice
- Rule 51 attachment relates back to date of notice under Rule 2
- agreement to sell entered into after notice is void
- source of deposit money is immaterial if application is moved by defaulter or authorized agent
- ministerial act of deposit can be by anyone
- locus standi requires legal interest not based on void agreement
