{"id":203090,"date":"2001-03-30T00:00:00","date_gmt":"2001-03-29T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/sri-mohan-wahi-vs-commissioner-income-tax-on-30-march-2001"},"modified":"2016-05-25T00:52:30","modified_gmt":"2016-05-24T19:22:30","slug":"sri-mohan-wahi-vs-commissioner-income-tax-on-30-march-2001","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/sri-mohan-wahi-vs-commissioner-income-tax-on-30-march-2001","title":{"rendered":"Sri Mohan Wahi vs Commissioner, Income-Tax, … on 30 March, 2001"},"content":{"rendered":"
Supreme Court of India<\/div>\n
Sri Mohan Wahi vs Commissioner, Income-Tax, … on 30 March, 2001<\/div>\n
Author: R Lahoti<\/div>\n
Bench: Cji, R.C. Lahoti, Doraiswamy Raju.<\/div>\n
           CASE NO.:\nAppeal (civil) 2488  of  2001\n\n\n\nPETITIONER:\nSRI MOHAN WAHI\n\n\tVs.\n\nRESPONDENT:\nCOMMISSIONER, INCOME-TAX, VARANASI & ORS.\n\nDATE OF JUDGMENT:\t30\/03\/2001\n\nBENCH:\nCJI, R.C. Lahoti & Doraiswamy Raju.\n\n\n\n\nJUDGMENT:\n<\/pre>\n
L…I…T…….T…….T…….T…….T…….T…….T..JJ U D G M E N T<\/p>\n
R.C. Lahoti, J.\n<\/p>\n
    The\t relevant  facts are jejune and beyond any  pale  of
\ncontroversy.   Late  Bhagwati Prasad owned a house  property
\ndescribed as D-53\/91-D, Luxa, Varanasi (hereinafter referred
\nto as the house property).  He had four sons – namely, P, S,
\nR  and K.  Under his will of the year 1962, probated in\t the
\nyear  1965, the house property devolved upon his four  sons.
\nThe elder two sons – P and S, had entered into a partnership
\nknown  as M\/s United Provinces Commercial Corporation, Luxa,
\nVaranasi  (UPCC,  for short) dealing in import and  sale  of
\nheavy  machinery  and  road rollers.   The  labour  troubles
\nresulted in the firms business collapsing in the year 1967.
\nThe  partners left Varanasi and migrated elsewhere.  In\t the
\nyear  1972,  Income-tax\t assessments of the firm  UPCC\twere
\nfinalised  for the assessment years 1967-1968 to  1969-1970.
\nRecovery  certificates\twere issued in 1973-  1974  pursuant
\nwhereto\t the  house property was attached.  On\t3.12.1979  a
\nproclamation for sale of the property was issued setting out
\na demand of Rs.30,82,000\/- and upset price at Rs.1,70,000\/-.
\nOn  11.1.1980, at the public auction, respondent no.3 made a
\nbid  proposing\tto purchase the property  for  Rs.1,70,000\/-
\n(which\twas  the upset price).\tThe bid was accepted by\t the
\nofficer conducting the sale.  An amount of Rs.42,500\/- being
\n1\/4th\tof  the\t auction  money,   was\tdeposited   by\t the
\nauction-purchaser  on  11.1.1980   simultaneously  with\t the
\nacceptance  of the bid.\t The balance amount of Rs.1,27,500\/-
\nwas  deposited on 25.1.1980 within the prescribed period  of
\n15 days.\n<\/p>\n
    R,\tthe third brother had died.  His widow, Padma, filed
\na  civil  suit\tin  the\t  Court\t of  Civil  Judge,  Varanasi
\nsubmitting  that the undivided property of the four brothers
\nand  in any case the share of the brothers, who were not the
\npartners  in  the  firm, could not have\t been  attached\t and
\nadvertised  for sale for recovery of dues against the  firm.
\nShe  also  sought for an ad interim restraint on  sale.\t  On
\n9.1.1980,  the Court of Civil Judge deemed it not proper  to
\nstay  the  auction sale but nevertheless felt a prima  facie
\ncase  having  been made out to stay the confirmation of\t the
\nauction\t sale.\t Accordingly,  the Union of  India  and\t the
\nauthorities  of\t the  Income-tax department  were  directed,
\nthrough\t an ad-interim injunction, not to confirm the  sale.
\nIn  the\t year  1984 the auction-purchaser,  respondent\tno.3
\nherein,\t was  also  impleaded as a party to the\t suit.\t The
\nad-interim  injunction\tcontinued to operate until the\tsuit
\nitself\tcame  to  be dismissed in default of  appearance  on
\n12.1.1998.   On 13.1.1998 an application for restoration  of
\nthe  suit was filed.  On 30.7.1999 the suit was restored  to
\nfile.\n<\/p>\n
    The\t assessments  made  against the firm UPCC  were\t all
\nex-parte and a substantial part of the demand raised against
\nthe  firm  consisted  of  penalty and  interest.   The\tfirm
\nagitated   the\tmatter\tin   the  hierarchy  of\t  Income-tax
\nDepartment.   The  challenge  to the  orders  of  assessment
\nfailed\tbefore the Commissioner of Income Tax (Appeals)\t who
\ndismissed the appeals relevant to assessment years 1967-1968
\nto  1970-1971  as  having been filed beyond  the  prescribed
\nperiod\tof  limitation.\t Four appeals were filed before\t the
\nIncome-tax Appellate Tribunal, Bench Allahabad.\t By an order
\ndated  11.12.1987  all the four appeals were  allowed.\t The
\nTribunal  formed an opinion that there was sufficient  cause
\nwhich  had  prevented the assessee from filing\tthe  appeals
\nbefore\tthe  CIT (A) in time and therefore the appeals\twere
\nliable\tto  be restored on the file of CIT (A) to  be  dealt
\nwith  on  merits.  It was ordered accordingly.\t During\t the
\ncourse\tof  its order the Tribunal upheld a finding of\tfact
\nrecorded by the CIT (A) that the assessee could not be said
\nto  have  been served with the demand notice.  On being\t so
\nremanded,  the appeals were heard on merits by the CIT\t(A).
\nMost  of  the matters relating to demand on account of\ttax,
\npenalty\t and  interest\twere resolved at the  stage  of\t CIT
\n(Appeals)  while  the tax demand referable to 1967-1968\t was
\nresolved  before  the  Tribunal.  The fact remains  that  on
\ndifferent dates in the year 1989 the several demands against
\nthe  assessee  firm  had all stood wiped out  and  therefore
\nreduced\t to nil.  On 26.3.1990 the Income-tax Officer,\tWard
\nII,  Varanasi wrote to Commissioner of Income-tax, Allahabad
\nthat  various  demands raised against the assessee firm\t had
\nstood  reduced to nil.\tOn 22.11.1996 the assessee firm, M\/s
\nUPCC wrote to the Income-tax Officer, Ward II, Varanasi that
\nall   demands\tof   tax     and   penalties   having\tbeen
\ncancelled\/liquidated,  refunds were due and the Tax Recovery
\nOfficer\t may be advised for cancellation of all the recovery
\ncertificates.\tCopy of the application was endorsed to\t the
\nTax  Recovery  Officer.\t On 16.1.1997 the advocate  for\t the
\nassessee  firm\twrote to the ITO, Ward-II, Varanasi that  in
\nview  of  all the demands against the firm having ceased  to
\nexist  and instead refunds having become due to the firm, it
\nmay  be confirmed that all the recovery certificates  issued
\nfor  demands against the firm had stood withdrawn\/cancelled.
\nA  copy of communication dated 26.3.1990 from ITO, Ward\t II,
\nVaranasi  to the Commissioner of Income-tax was annexed with
\nthe letter.\n<\/p>\n
    In\tspite of the abovesaid communications, on  25.3.1998
\nsale  in favour of respondent no.3 was confirmed by the\t Tax
\nRecovery Officer though only as regard the interest of P and
\nS  in  the  house property and a sale certificate  was\talso
\nissued\tto  respondent No.3.  The order of the Tax  Recovery
\nOfficer\t confirming  the sale was put in issue\tbefore\tCIT,
\nVaranasi  by  the  firm UPCC and its partners P\t and  S,  by
\nfiling\ta petition under section 264 of the Act.  Vide order
\ndated  21.5.1999, the CIT dismissed the petition forming  an
\nopinion\t that whatever happened after the auction sale\theld
\non 11.1.1980 was immaterial and the Tax Recovery Officer had
\nno  other  option  except  to  confirm\tthe  sale.   S,\t the
\npetitioner  before  us then filed the present writ  petition
\nlaying\tchallenge  to  the  order of  Tax  Recovery  Officer
\nconfirming   the  sale\tand   issuing  sale  certificate  to
\nrespondent  No.3  also\tto  the\t  order\t of  C.I.T.    dated
\n21.5.1999.   The fact that all the demands against the\tfirm
\n(and the partners) had ceased to exist by 1996 and 1997 is a
\nfact  positively  asserted  in para 5 of the  writ  petition
\nfiled\tbefore\tthe  High  Court   and\tnot  denied  in\t the
\ncounter-affidavit  filed  on behalf of the  Commissioner  of
\nIncome-tax.   So also the fact that the demands against\t the
\nfirm UPCC had stood cancelled and this fact was communicated
\nby  the\t ITO,  Ward  II, Varanasi  to  the  Commissioner  of
\nIncome-tax,  Allahabad through his letter dated 26.3.1990 is
\nalso  admitted\tin  the counter-  affidavit.   However,\t the
\npetition  has  been  dismissed\tby   the  High\tCourt.\t The
\naggrieved  petitioner  has filed this petition\tfor  special
\nleave under Article 136 of the Constitution.\n<\/p>\n
\tLeave granted.\n<\/p>\n
    Two\t questions  arise for decision in this appeal :\n<\/p>\n
    i) Whether the Tax Recovery Officer could have confirmed
\nthe sale on 25.3.1998 when the demands on account of tax for
\nthe  recovery of which tax recovery certificates were issued
\nhad admittedly ceased to exist;\t and<\/p>\n
    ii)\t What  is  the effect of a notice  of  demand  under
\nSection\t 156  of  the Income-tax Act, 1961 having  not\tbeen
\nserved\ton  the\t assessee on the sale held for\trecovery  of
\narrears of income-tax?\n<\/p>\n
    Taking up first question the first, according to Section
\n222  where  an assessee is in default or is deemed to be  in
\ndefault in making a payment of tax, the Tax Recovery Officer
\nmay issue a certificate specifying the amount of arrears due
\nfrom  assessee\tand  shall  proceed  to\t recover  from\tsuch
\nassessee the amount so specified by one or more of the modes
\nwhich\tinclude\t attachment  and   sale\t of  the  assessees
\nimmovable  properties.\t The  Second Schedule sets  out\t the
\nprocedure for recovery of tax.\tWe will refer to some of the
\nrules  contained in the Second Schedule and relevant for our
\npurpose.   Rules regarding attachment and sale of  immovable
\nproperty are contained in Part III of Second Schedule.\tRule
\n56  provides that the sale shall be by public auction to the
\nhighest\t bidder and shall be subject to confirmation by\t the
\nTax  Recovery Officer.\tSeveral provisions contained in\t the
\nrules  which  follow  Rule 56 are in pari materia  with\t the
\nprovisions  dealing  with attachment and sale  of  immovable
\nproperty  contained in Order 21 of the C.P.C.  dealing\twith
\nexecution  of  decrees passed by civil courts.\tHowever,  in
\nOrder  21  of the C.P.C., a provision similar to Rule 56  of
\nSecond Schedule is not to be found.  Rule 60 provides for an
\napplication  to\t set aside sale of immovable property  being
\nmade  by defaulter or an interested person on his depositing
\nthe  specified amount within 30 days from the date of  sale.
\nRule  61  deals\t with  application  to\tset  aside  sale  of
\nimmovable property on the ground of non-service of notice on
\nthe  defaulter\tunder  the  Schedule or\t on  the  ground  of
\nmaterial  irregularity in publishing or conducting the sale.
\nUnder  Rule 62 a sale may be set aside on an application  by
\nthe  purchaser\ton  the\t ground that the  defaulter  had  no
\nsaleable interest in the property sold.\t The prescribed time
\nlimit  within  which the application can be made under\tRule
\n60,  61\t or 62 is 30 days from the date of sale.   Where  no
\napplication  is\t made for setting aside the sale or such  an
\napplication having been made is disallowed, the Tax Recovery
\nOfficer\t shall\tmake  an  order\t  confirming  the  sale\t and
\nthereupon  the\tsale  shall become absolute.  On a  sale  or
\nimmovable  property  becoming absolute, a  sale\t certificate
\nshall be issued under Rule 65.\n<\/p>\n
    Under  Section  224,  an  assessee\tcannot\tdispute\t the
\ncorrectness  of any certificate drawn up by the Tax Recovery
\nOfficer\t but  it is lawful for the Tax Recovery\t Officer  to
\ncancel\tthe  certificate  for  any reason if  he  thinks  it
\nnecessary  to  do  so  or to correct  any  clerical  or\t any
\narithmetical  error therein.  Sub-section(3) of Section\t 225
\nprovides as under:-\n<\/p>\n
    225.   Stay\t of proceedings in pursuance of\t certificate
\nand amendment or cancellation thereof.\n<\/p>\n
\txxx\t\txxx\t\t     xxx<\/p>\n
    (3).   Where  a  certificate  has\tbeen  drawn  up\t and
\nsubsequently the amount of the outstanding demand is reduced
\nas a result of an appeal or other proceeding under this Act,
\nthe Tax Recovery Officer shall, when the order which was the
\nsubject-matter of such appeal or other proceeding has become
\nfinal  and conclusive, amend the certificate, or cancel\t it,
\nas the case may be.\n<\/p>\n
    The\t term  reduced\tin Sub-section(3) of  Section  225
\nwould  include\ta case where the demand consequent  upon  an
\nappeal\tor any proceedings under the Income-tax Act has been
\nreduced to nil also.  The Tax Recovery Officer is obliged to
\ngive  effect  to  such reduction in demand  and\t accordingly
\namend  or cancel the certificate.  The scheme of Part III of
\nSecond\t Schedule  indicates  that   the  sale\t proceedings
\nterminate  on  their becoming absolute whereafter  all\tthat
\nremains\t to  be\t done is the issuance of  sale\tcertificate.
\nHowever,  an  order confirming the sale by the Tax  Recovery
\nOfficer\t is  a\tmust.  The efficacy of the  sale  by  public
\nauction\t in  favour of the highest bidder has been  made  to
\ndepend\ton  the\t order of confirmation by the  Tax  Recovery
\nOfficer\t by  incorporating Rule 56 in the Schedule.   It  is
\ntrue  that  ordinarily if there is no application filed\t for
\nsetting aside sale under Rules 60, 61 or 62 and 30 days from
\nthe  date of the sale have expired, the Tax Recovery Officer
\nhas  to\t make an order confirming a sale.  Nevertheless,  an
\norder  shall have to be actually made.\tThe combined  effect
\nof  Sub-section(3) of Section 225 of the Act and Rule 56 and
\nRule  63  of  Second  Schedule is that if  before  an  order
\nconfirming  the sale is actually passed by the Tax  Recovery
\nOfficer,  the demand of tax consequent upon an order made in
\nappeal\tor other proceedings under the Act has been  reduced
\nto  nil,  the Tax Recovery Officer is obliged to cancel\t the
\ncertificate  and as soon as the certificate is cancelled, he
\nshall  have  no power to make an order confirming the  sale.
\nThe  sale  itself being subject to confirmation by  the\t Tax
\nRecovery  Officer,  would  fall to the ground  for  want  of
\nconfirmation.\n<\/p>\n
    In\tthe case at hand the sale was held on 11.1.1980.  No
\napplication  was filed for setting aside the sale either  by
\nthe  assessee  or  by  the auction purchaser  or  by  anyone
\ninterested  in the property.  On expiry of 30 days from\t the
\ndate  of the sale the Tax Recovery Officer could have passed
\nan  order  confirming the sale.\t However, the  Tax  Recovery
\nOfficer\t was  injuncted\t by  the writ of  civil\t court\tfrom
\nconfirming  the sale.  The interim order issued by the civil
\ncourt  ceased to operate on 12.1.1998 whereafter an order of
\nconfirmation  was  passed on 25.3.1998 by the  Tax  Recovery
\nOfficer ignoring, or unmindful of, the important event which
\nhad  taken  place in between.  Before 25.3.1998, the  demand
\nagainst\t the assessee admittedly stood reduced to nil.\tThis
\nfact  was in the notice of Income-tax Officer as well as the
\nCommissioner  of  Income Tax.  Attention of  the  Income-tax
\nOfficer as also the Tax Recovery Officer was also invited by
\nthe   firm  M\/s.   UPCC\t  through  its\tcommunication  dated
\n22.11.1996  (Annexure P- 6).  On 16.1.1997, the counsel\t for
\nthe  assessee  had specifically called upon the\t income\t tax
\nofficer\t who  had raised the demand against the assessee  to
\nconfirm\t if all the recovery certificates issued against the
\nassessee  firm had stood withdrawn or cancelled.  In view of
\nthe  facts  within the knowledge of the department  and\t the
\ncommunications\tso made, the Tax Recovery Officer could\t not
\nhave  confirmed\t the sale on 25.3.1998.\t Rule 56  in  Second
\nSchedule  of the Income-tax Act, 1961 is neither a redundant
\nnor  a formal provision.  It casts an obligation on the\t Tax
\nRecovery  Officer  to  pass  an order  confirming  the\tsale
\nconsciously and with due application of mind to the relevant
\nfacts  relating\t to  sale by public auction which is  to  be
\nconfirmed.   Under  Rule  63, confirmation of  sale  is\t not
\nautomatic.   An order confirming the sale is contemplated to
\nmake  the  sale absolute.  Ordinarily, in the absence of  an
\napplication  under  Rule 60, 61 or 62 having been  made,  or
\nhaving\tbeen rejected if made, on expiry of 30 days from the
\ndate  of  sale the Tax Recovery Officer shall pass an  order
\nconfirming  the sale.  However, between the date of sale and
\nthe  actual  passing of the order confirming the sale if  an
\nevent  happens\tor  a fact comes to the notice\tof  the\t Tax
\nRecovery  Officer which goes to the root of the matter,\t the
\nTax  Recovery Officer may refuse to pass an order confirming
\nthe  sale.  The fact that sale was being held for an assumed
\ndemand\twhich is found to be fictitious or held to have\t not
\nexisted\t at  all, in fact or in the eye of law, is one\tsuch
\nevent  which  would oblige the Tax Recovery Officer  not  to
\npass an order confirming the sale and rather annul the same.
\nThe  High Court in our opinion, clearly fell in error in not
\nallowing relief to the petitioner-appellant by setting aside
\nthe sale.\n<\/p>\n
    Shri    S.K.    Jain,    learned\tcounsel\t  for\t the
\nauction-purchaser,  respondent\tNo.3, referred to Janak\t Raj
\nVs.   Gurdial  Singh  and Anr., (1967) 2 SCR 77\t and  Sardar
\nGovindrao  Mahadik  and Anr.  Vs.  Devi Sahai and Ors.,\t AIR
\n1982  SC  989 wherein it has been held that once a sale\t has
\ntaken  place  in execution of a decree, the sale has  to  be
\nconfirmed notwithstanding the fact that after the holding of
\nthe  sale,  the decree was set aside.  In Janak Rajs  case,
\nsale  was  held\t in execution of an  ex-parte  decree.\t The
\nex-parte  decree was set aside subsequent to the date of the
\nsale  but  before an order confirming the sale\twas  passed.
\nThis  court  held that in the absence of an application\t for
\nsetting\t aside\tthe  sale having been moved on\tthe  grounds
\navailable  under  Rules 89 to 91 of Order 21 of C.P.C.,\t the
\ncourt  could not have refused to confirm the sale.  However,
\nin  this  case itself, this court has observed (at page\t 80)
\nthat  there may be cases in which apart from the  provisions
\nof  Rules  89 to 91 the court may refuse to confirm a  sale,
\nas, for instance, where a sale is held without giving notice
\nto  the\t judgment  debtor, or where the court is  misled  in
\nfixing\ta  reserved  price or where there was no  decree  in
\nexistence  at  the time when the sale was held.\t  In  Sardar
\nGovindrao  Mahadiks  case, Janak Rajs case  was\t referred.
\nThe  court  has drawn a distinction between a court  auction
\nheld  in  favour  of a decree holder and where\tthe  auction
\npurchaser  is an outsider or a stranger.  In former case  on
\nthe  decree  ceasing to exist before the sale is  confirmed,
\nthe  sale  may be refused to be confirmed but in the  latter
\ncase,  equity in favour of the stranger should be  protected
\nand  the  judgment debtor should be left to suffer  for\t the
\ndefault\t on his part for not obtaining stay of the execution
\nof the decree from where it was under challenge.  Though the
\nlearned counsel for the auction purchaser has relied heavily
\non these decisions, suffice it to observe that these are the
\ncases  of  auction  sale held under Order 21 of\t the  C.P.C.
\nand, therefore, may not apply to the case of an auction sale
\nheld  under Second Schedule of the Income-tax Act in view of
\nRule  56  contained therein.  Moreover, in  these  decisions
\nalso, the Supreme Court has contemplated situations where in
\nspite\tof  the\t auction  sale\t having\t been  held  and  no
\napplication  for  setting aside the sale having been  moved,
\nyet  in exceptional situations the sale may be refused to be
\nconfirmed and may be set aside.\t Shri S.K.  Jain also relied
\non  Padanathil Ruqmini Amma Vs.\t P.K.  Abdulla, JT (1996)  1
\nSC  381,  wherein  this court has observed that\t unless\t the
\nauction\t purchasers were protected, the properties which are
\nsold  in court auctions would not fetch a proper price.\t  It
\nis  true that sanctity of sale of property by public auction
\nhas  to\t be protected but at the same time a  citizen  faced
\nwith  proceedings for recovery of assumed arrears should not
\nbe  deprived of his property in spite of judicial or  quasi-
\njudicial   pronouncement  holding,  before   the  sale\t was
\nconfirmed,  that  there were no arrears.   This\t observation
\napplies\t a fortiori under the scheme of Income-tax Act,\t the
\nrelevant provisions whereof have already been referred to by
\nus.\n<\/p>\n
\tWe now take up the second question.\n<\/p>\n
\tSection 156 of the Act provides as under:-\n<\/p>\n
156.\tNotice of demand.\n<\/p>\n
    When  any tax, interest, penalty, fine or any other\t sum
\nis  payable  in consequence of any order passed\t under\tthis
\nAct,  the Assessing Officer shall serve upon the assessee  a
\nnotice\tof demand in the prescribed form specifying the\t sum
\nso payable.\n<\/p>\n
    If\tthe  amount specified in the notice of demand  under
\nSection\t 156  is  not  paid   within  the  time\t limited  by
\nsub-section  (1) or extended under sub-section(3) of Section
\n220,  then  the\t assessee shall be deemed to be\t in  default
\nunder\tsub-section  (4)  of   Section\t220.   Tax  recovery
\ncertificate can be issued under Section 222 when an assessee
\nis  in\tdefault or is deemed to be in default.\t Proceedings
\nfor  recovery  of  tax\tunder the  Second  Schedule  can  be
\ninitiated  against  a defaulter.  Thus Section 156  provides
\nfor  a\tvital  step  to be taken by  the  assessing  officer
\nwithout\t which\tthe assessee cannot be termed  a  defaulter.
\nThe  use  of  the term shall in Section 156  implies  that
\nservice\t of  demand  notice is mandatory  before  initiating
\nrecovery   proceedings\t and   constitutes   foundation\t  of
\nsubsequent recovery proceedings.\n<\/p>\n
    We have already stated that the finding of fact recorded
\nby  C.I.T.(Appeals)  and  the Tribunal was  that  notice  of
\ndemand\twas not served on the assessee.\t The very foundation
\nfor  initiating\t the  recovery proceedings,  therefore,\t was
\nnon-existent and the assessee could neither have been deemed
\nto  be\tin default nor any proceedings for recovery  of\t tax
\ncould have been initiated against him.\n<\/p>\n
    The\t provision  corresponding  with Section 156  of\t the
\nIncome-tax  Act,  1961\tcontained  in\tSection\t 29  of\t the
\nIncome-tax  Act, 1922 came up for the consideration of\tthis
\nCourt  in  Income-Tax  Officer, Kolar Circle and  Anr.\t Vs.
\nSeghu  Buchiah Setty – (1964) 52 ITR 538.  Hidayatullah,  J.
\n(as  His Lordship then was) held that it is after the demand
\nis  made, the tax penalty and interest become a debt due  to
\nthe  Government The notice of demand is a vital document in
\nmany  respects.\t  Disobedience to it makes the\tassessee  a
\ndefaulter.   It is a condition precedent to the treatment of
\nthe  tax  as  an  arrear  of  land  revenue.   His  Lordship
\nemphasised  that  the service of notice of demand has a\t few
\nvital  impacts\tamongst\t others :  (i) when  the  notice  of
\ndemand\tis not complied with, the assessee can be treated as
\na person in default;  (ii) on the failure of the assessee to
\npay  after  a  notice  of demand  is  issued,  the  recovery
\nproceedings  can  be  started and the amount of tax  can  be
\ntreated as an arrear of land revenue.  However, in this case
\nHidayatullah, J.  went on to hold that if an assessment made
\nby  the Income-tax Officer is altered – reduced or increased\n<\/p>\n
–  by  reason of any order under the Act, it is the duty  of
\nthe  Income-tax Officer to issue a fresh notice of demand in
\nthe  prescribed\t form  and serve upon  the  assessee.\tThis
\nparticular  finding  of\t Hidayatullah, J.   created  serious
\ncomplications  and  resulted in nullifying several  recovery
\nproceedings,  as also creating bottlenecks in the recoveries
\nof  outstanding demands.  The Parliament, therefore, enacted
\nTaxation  Laws\t(Continuation  and  Validation\tof  Recovery
\nProceedings)  Act,  1964  which was  given  a  retrospective
\neffect.\t Section 3 of this Act provides that in the event of
\ngovernment  demand  being reduced by an order in  appeal  or
\nother  proceedings it shall not be necessary for the  taxing
\nauthority  to  serve  upon the assessee a  fresh  notice  of
\ndemand,\t it would suffice if taxation authority intimated of
\nreduction  to  the assessee and the Tax Recovery Officer  to
\nscale  down  the  amount  of recovery  and  the\t proceedings
\ninitiated  on  the  basis of the previous notice  of  demand
\nshall  continue to be valid.  To this extent the decision of
\nthis Court in Seghu Buchiah Setty was superseded.\n<\/p>\n
    In\tHomely Industries Vs.  Sales Tax Officer, Sector  V,
\nKanpur\t– (1976) 37 STC 483 also the significance of service
\nof demand notice came up for the consideration of this Court
\nand  it\t was  held  that there can be  no  recovery  without
\nservice\t of a demand notice;  if such notice was not served,
\nthe recovery proceedings are not maintainable in law and are
\ninvalid\t and  the same along with the recovery\tcertificates
\nare liable to be quashed.\n<\/p>\n
    In Ram Swarup Gupta Vs.  Behari Lal Baldeo Prasad & Ors.\n<\/p>\n
–  (1974)  95  ITR 339, a Division Bench of  Allahabad\tHigh
\nCourt  referred\t to the effect of Taxation Laws (CVRP)\tAct,
\n1964  on  the law laid down by this court in  Seghu  Buchiah
\nSettys case and held :-\n<\/p>\n
    The\t effect of these provisions is to dispense with the
\nneed  of  issuing a fresh notice of demand and the  recovery
\ncertificate  and to allow the original recovery\t proceedings
\nto  continue,  but  only  for the  amount  found  due  after
\nreduction in the appeal, and it is for this purpose that the
\ntaxing\tauthority is required to send intimation of the fact
\nof  the\t reduction to the assessee and to the  Tax  Recovery
\nOfficer.   As the proceedings for recovery can be  continued
\nonly  for  the amount that finally remains due, and not\t for
\nany  amount  in excess thereof, the requirement\t of  sending
\nintimation  to the Tax Recovery Officer becomes an essential
\nduty  of  the  taxing  authority and must be held  to  be  a
\nmandatory  condition.  Non-compliance of that condition will
\nbe  an\tillegality in the procedure and will invalidate\t the
\nproceedings.   A  sale\theld in\t proceedings  initiated\t and
\ncontinued  for\tthe recovery of an amount in excess  of\t the
\namount\tpayable\t by  the assessee, after  its  reduction  in
\nappeal,\t will  be invalid.  Such a sale is not validated  by
\nclause (c) of section 3 of the Act.\n<\/p>\n
    The\t Division Bench decision of Allahabad Court Court in
\nRam  Swarup Guptas case was cited with approval before this
\nCourt  in  Union  of India Vs.\tJardine\t Henderson  Ltd.   –
\n(1979)\t118  ITR  112 though it was  distinguished  for\t its
\napplicability  to  the facts of the case before this  Court.
\nThe  Division  Bench of Orissa High Court has held in  Sunil
\nKumar  Singh Deo Vs.  Tax Recovery Officer & Anr.  –  (1987)
\n166  ITR  882 that non-service of demand notice goes to\t the
\nroot  of the jurisdiction of the officer initiating recovery
\nproceedings.   We find ourselves in agreement with the\tview
\nso  taken.   Incidentally,  we may refer to  three  Division
\nBench  decisions of the High Court of Madhya Pradesh,  viz.,
\nGhanshyamlal  Vs.   State  of M.P.  – (1961)  MPLJ  SN\t218,
\nManmohan  Lal Shukla Vs.  Board of Revenue, M.P.  & Ors.   –
\n(1964) MPLJ 32 and Premchand Ramchand Vs.  Board of Revenue,
\nM.P.   & Ors.  – (1964) MPLJ 337.  Section 146 of M.P.\tLand
\nRevenue\t Code, 1959 provides that before issuing any process
\nfor  recovery  of arrears of land revenue the  Tehsildar  or
\nNaib  Tehsildar may cause a notice of demand to be served on
\nany  defaulter.\t Chief Justice P.V.  Dixit speaking for\t the
\nDivision  Benches, in all the three cases, has held that the
\nword  may  has\tthe imperative meaning of shall\t and  no
\nproceedings for recovery can be initiated without service of
\nnotice\tof demand failing which the proceedings would suffer
\nfrom  jurisdictional defect.  For a long period of time\t the
\nHigh  Court  of\t Madhya Pradesh has been  taking  this\tview
\nconsistently.\n<\/p>\n
    We\tare, therefore, clearly of the opinion that  service
\nof notice of demand on the assessee under Section 156 of the
\nAct,  is  mandatory before taking steps for  recovery  under
\nSecond\tSchedule.   Non-service of notice of demand goes  to
\nthe  root  of  the validity of\tsubsequent  proceedings\t for
\nrecovery.   A  sale held in recovery  proceedings  initiated
\nwithout\t serving  the notice of demand shall be invalid\t and
\nhence  shall  be  liable to be annulled on being  called  in
\nquestion.\n<\/p>\n
    In\tSurinder  Nath Kapoor Vs.  Union of India & Ors.   –
\nAIR  1988 SC 1777 property was attached and sold pursuant to
\na  garnishee  order  which was found to be  non-existent  on
\naccount\t of  a nullity attaching thereto.  The sale was\t set
\naside.\tThis Court held :\n<\/p>\n
    the\t garnishee order that was passed was a nullity\tand
\nany  sale held pursuant to such an order is also a  nullity.
\nIt  is quite immaterial that the sale was confirmed.  When a
\ndecree\tor  order is illegal, any sale held in execution  of
\nsuch  a decree or order and confirmed cannot be set aside on
\nthe ground that it was illegal when the sale is in favour of
\na third party.\tBut, when a decree or order is a nullity, it
\nwill be deemed to have no existence at all and any sale held
\nin  execution of such a decree or order must also be held to
\nbe null and void.\n<\/p>\n
    In\tthe  present  case, the plea as\t to  non-service  of
\ndemand\tnotice having been raised before the High Court,  in
\nour  opinion  the  High Court should not  have\tadopted\t too
\ntechnical  a  approach\tby refusing to deal  with  the\tplea
\nbecause\t it  was not raised in the manner in which the\tHigh
\nCourt  thought it should have been raised.  The plea went to
\nthe  root  of  the matter.  The plea was raised\t before\t the
\ndepartmental  authorities right from the ITO to the Tribunal
\nand  was not given up before the High Court also.  It  would
\nnot  have  been\t difficult  for the High Court\tto  ask\t the
\nIncome-tax   Department\t to  produce   the  record  of\t the
\nproceedings  and  to  show if the demand notice was  at\t all
\nserved on the assessee.\t A little more sensitive approach is
\nrequired  to be adopted in the process of dispensing justice
\nwhen  it  is  found that valuable property of a\t person\t was
\nsought\tto be sold away for recovery of such arrears as\t did
\nnot exist at all.\n<\/p>\n
    Thus, on both the grounds, we hold that the sale of suit
\nproperty  in  favour of respondent No.3 is liable to be\t set
\naside.\tThe appeal is allowed.\tThe impugned judgment of the
\nHigh  Court  is set aside.  The writ petition filed  by\t the
\nappellant  shall stand allowed.\t All the proceedings for the
\nsale  of the disputed property as also the order of the\t Tax
\nRecovery Officer confirming the sale are hereby quashed.\n<\/p>\n
    The sale having fallen to the ground, the purchase money
\ndeposited by the respondent No.3 shall, obviously, be liable
\nto  be refunded to her.\t She also needs to be compensated by
\nawarding  suitable interest for the period for which she has
\nbeen  deprived of the use of her money for no fault of\ther.
\nIn  our\t opinion, it would meet the ends of justice  if\t the
\namount\tof  Rs.1,70,000\/-  deposited  by her  with  the\t Tax
\nRecovery  Officer is directed to be refunded and she is also
\nawarded\t interest  @  12% per annum.  Who  should  bear\t the
\nliability for payment of interest?  For the period for which
\nthe  sale  was not vitiated on account of the demand  having
\nnot  been adjudged to be non- existent, in our opinion,\t the
\nassessee should pay the interest.  Once the demand ceased to
\nexist  and  that fact was brought to the notice of  the\t Tax
\nRecovery  Officer  by the assessee, the former\tshould\thave
\ncancelled  the\trecovery  certificate and,  therefore,\twith
\neffect\tfrom that date till the date of refund, the interest
\nshould\tbe paid by the Union of India, i.e., the  Income-tax
\ndepartment,  represented by respondent nos.  1 and 2,  which
\nhas  also  kept\t the  money  and made use  of  it.   It\t is,
\ntherefore,  directed that the amount of Rs.1,70,000\/-  shall
\nbe  refunded to the respondent No.3 by the respondents\tNo.1
\nand  2\twithin a period of two months from the date of\tthis
\njudgment.   For\t the period commencing from 11.1.1980 on  an
\namount\tof Rs.42,500\/-, and from 25.1.1980, on an amount  of
\nRs.1,27,500\/-,\tcalculating  upto 22.11.1996  the  appellant
\nshall  pay  the interest @ 12% per annum to  the  respondent
\nNo.3 which may, in default of payment, be recovered from the
\nhouse  property.  With effect from 23.11.1996 upto the\tdate
\nof  refund, the respondent No.3 shall be entitled to recover
\ninterest  at the same rate from respondents No.1 and 2.\t The
\namount\tof interest shall also be calculated and paid within
\na  period  of two months from today.  We make it clear\tthat
\nthe   interest\t is  being   awarded  purely  on   equitable
\nconsiderations, in the facts and circumstances of this case,
\nand  in doing so we are not laying down any principle of law
\nto be followed as a precedent.\tThe appeal stands allowed in
\nthese terms.  No order as to the costs.\n<\/p>\n
\tCJI.\n<\/p>\n
    J.\t( R.C.\tLahoti )<\/p>\n
    J.\t( Doraiswamy Raju )<\/p>\n
    March 30,  2001.\n<\/p>\n
1<\/span><\/p>\n
20<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"
Supreme Court of India Sri Mohan Wahi vs Commissioner, Income-Tax, … on 30 March, 2001 Author: R Lahoti Bench: Cji, R.C. Lahoti, Doraiswamy Raju. CASE NO.: Appeal (civil) 2488 of 2001 PETITIONER: SRI MOHAN WAHI Vs. RESPONDENT: COMMISSIONER, INCOME-TAX, VARANASI & ORS. DATE OF JUDGMENT: 30\/03\/2001 BENCH: CJI, R.C. Lahoti & Doraiswamy Raju. JUDGMENT: L…I…T…….T…….T…….T…….T…….T…….T..JJ […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[30],"tags":[],"class_list":["post-203090","post","type-post","status-publish","format-standard","hentry","category-supreme-court-of-india"],"yoast_head":"\nSri Mohan Wahi vs Commissioner, Income-Tax, ... on 30 March, 2001 - Free Judgements of Supreme Court & High Court | Legal India<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.legalindia.com\/judgments\/sri-mohan-wahi-vs-commissioner-income-tax-on-30-march-2001\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Sri Mohan Wahi vs Commissioner, Income-Tax, ... on 30 March, 2001 - 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