Recovery of wrongful/excess payments made to Government servants
F. No. 18/26/ 2011-Estt (Pay-I)
Government of India
Ministry of Personnel, PG and Pension
Department of Personnel and Training
North Block, New Delhi,
Dated the 6th February, 2014
OFFICE MEMORANDUM
Subject: Recovery of wrongful/excess payments made to Government servants.
The undersigned is directed to say that the issue of recovery of wrongful/excess payments made to Government servants has been examined in consultation with the Department of Expenditure and the Department of Legal Affairs in the light of the recent judgement of the Hon'ble Supreme Court in Chandi Prasad Uniyal And On vs State Of Uttarakh and And Ors, 2012 AIR SCW 4742, (2012) 8 'SCC 417, decided on 17th August, 2012. The Hon'ble Court has observed as under:
15. We are not convinced that this Court in various judgments referred to herein before has laid down any proposition of law that only if the State or its officials establish that there was misrepresentation or fraud on the part of the recipients of the excess pay, then only the amount paid could be recovered. On the other hand, most of the cases referred to herein before turned on the peculiar facts and circumstances of those cases either because the recipients had retired or on the verge of retirement or were occupying lower posts in the administrative hierarchy.
16. We are concerned with the excess payment of public money which is often described as "tax payers money" which belongs neither to the officers who have effected over-payment nor that of the recipients. We fail to see why the concept of fraud or misrepresentation is being brought in such situations. Question to be asked is whether excess money has been paid or not may be due to a bona fide mistake. Possibly, effecting excess payment of public money by Government officers may be due to various reasons like negligence, carelessness, collusion, favouritism etc. because money in such situation does not belong to the payer or the payee. Situations may also arise where both the payer and the payee are at fault, then the mistake is mutual. Payments are being effected in many situations without any authority of law and payments have been received by the recipients also without any authority of law. Any amount paid/received without authority of law can always be recovered barring few exceptions of extreme hardships but not as a matter of right, in such situations law implies an obligation on the payee to repay the money, otherwise it would amount to unjust enrichment.
2. Hon'ble Supreme Court also distinguished the cases like Shyam Babu Verma v UOI, 1994 SCR (1) 700, 1994 SCC (2) 52, Syed Abdul Qadir and Ors. v. State of Bihar and Ors,(2009) 3 SCC 475, Sahib Ram v. State of Haryana,1995 Supp (1) SCC 18 etc., where it had not allowed recovery of excess payment in view of the peculiar facts and circumstances of those cases so as to avoid extreme hardship to the concerned employees, for example, where the employees concerned were mostly junior employees, or they had retired or were on verge of retirement, the employees were not at fault, and recovery which was ordered after a gap of many years would have caused extreme hardship.
3. In view of the law declared by Courts and recently reiterated by the Hon'ble Supreme Court in the above cited case, Chandi Prasad Uniyal And Ors vs State Of Uttarakhand And Ors, 2012 AIR SCW 4742, (2012) 8 SCC 417, the Ministries/Departments are advised to deal with the issue of wrongful/excess payments as follows:
i. In all cases where the excess payments on account of wrong pay fixation, grant of scale without due approvals, promotions without following the procedure, or in excess of entitlements etc come to notice, immediate corrective action must be taken.
ii. In a case like this where the authorities decide to rectify an incorrect order, a show-cause notice may be issued to the concerned employee informing him of the decision to rectify the order which has resulted in the over payment, and intention to recover such excess payments. Reasons for the decision should be clearly conveyed to enable the employee to represent against the same. Speaking orders may thereafter be passed after consideration of the representations, if any, made by the employee.
iii. Whenever any excess payment has been made on account of fraud, misrepresentation, collusion, favouritism, negligence or, carelessness, etc., roles of those responsible for over payments in such cases, and the employees who benefited from such actions should be identified, and departmental/criminal action should be considered in appropriate cases.
iv. Recovery should be made in all cases of over payment barring few exceptions of extreme hardships. No waiver of recovery may be allowed without the approval of Department of Expenditure.
v. While ordering recovery, all the circumstances of the case should be taken into account. In appropriate cases, the concerned employee may be allowed to refund the money in suitable installments with the approval of Secretary in the Ministry, in consultation with the FA.
vi. Wherever the relevant rules provide for payment of interest on amounts retained by the employee beyond the stipulated period etc as in the case of TA, interest would continue to be recovered from the employee as heretofore.
sd/-
(Mukesh Chaturvedi)
Deputy Secretary to the Government of India
Reporting In Respect of Such Clauses of CARO Report, 2003 Which Are Not Applicable to the Auditee Company
Announcement: Important Amendments to Auditor's Report Format. – (07-02-2014)
ANNOUNCEMENT1
Manner of Reporting In Respect of Such Clauses of the Companies (Auditor's Report) Order, 2003 Which Are Not Applicable to the Auditee Company
I. The Council, at its 329th Adjourned meeting held on 03rd and 04th January 2014 at New Delhi noted that the paragraph 80 of the Statement on the Companies (Auditor's Report) Order, 2003 (the Statement) requires that, in such situations, where one or more of the clauses are not applicable, it would be appropriate for the auditor to make a suitable comment in his report bringing out the fact of non-applicability of a particular clause.
II. The Council considered the requirements of paragraph 80 of the Statement and was of the view that non applicability of one or more clauses of the Companies (Auditor's Report) Order, 2003 (CARO 2003) to the company would not, in any way, impact the auditor's opinion on the financial statements. Thus, the said information did not have much perceivable benefit to the readers of the audit report. Accordingly, the auditor may choose to report on the non-applicability of the individual clause of CARO, 2003, or, alternatively, aggregate/ club the fact of non applicability of different clause(s) of CARO 2003.
3. The Council, accordingly, decided to amend paragraph 80 of the Statement on CARO, 2003 as follows:
80. There may be situations where one or more of the clauses are not applicable. For example, the requirement regarding internal audit system does not apply in case of all the companies. In such situations, it would be appropriate for the auditor to make a suitable comment in his report bringing out the fact of non-applicability of a particular clause. To illustrate, where the maintenance of cost records has not been prescribed by the Central Government under section 209(1)(d) of the Act, the auditor may state:
"The Central Government has not prescribed maintenance of cost records under section 209(1)(d) of the Companies Act, 1956 for any of the products of the company".
Alternatively, the auditor may aggregate/ club the fact of non applicability of different clauses of CARO, 2003 and report as under:
"Matters specified in clauses…….(relevant clause number of the clause/s not applicable) of paragraph 4 of the CARO 2003 do not apply to the Company."
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1 This announcement has been issued by Auditing and Assurance Standards Board under the authority of the Council of ICAI. (aasb@icai.in)
(note: Amendments to paragraph 80 of the Statement on CARO, 2003 are given in track changed mode).
Source- ICAI
Manner of Reporting on Section 227(3)(bb) of the Companies Act, 1956
Announcement: Important Amendments to Auditor's Report Format. – (07-02-2014)
ANNOUNCEMENT1
Manner of Reporting on Section 227(3)(bb) of the Companies Act, 1956
I. Section 227(3)(bb) of the Companies Act, 1956 requires the statutory auditor to report on the following aspect:
"bb. whether the report on the accounts of any branch office audited under section 228 by a person other than the company's auditor has been forwarded to him as required by clause (c) of sub-section (3) of that section and how he has dealt with the same in preparing the auditor's report;"
(A similar reporting requirement appears in section 143(3)(c) of the Companies Act, 2013 though the section has not yet been notified by the Central Government.)
II. The Council of the Institute, at its 329th (Adjourned) meeting held on 03rd and 04th January 2014 at New Delhi noted that reporting by the statutory auditors of the Company on clause (3)(bb) of section 227 of the Companies Act, 1956 is a legal requirement in cases where the company had appointed separate branch auditor/s. However, the same was inadvertently not appearing under the "Report on Other Legal and Regulatory Requirements" paragraph in the illustrative format of the independent auditor's report for a Company as given in the Appendix to SA 700. The Council accordingly, decided to add the following reporting in the illustrative independent auditor's report formats for a Company (to be reported upon as and where applicable):
"bb. the report on the accounts of the branch offices audited under section 228 by a person other than the company's auditor has been forwarded to us as required by clause (c) of sub-section (3) of section 228 and have been dealt with in preparing our report in the manner considered necessary by us;"
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1 This announcement has been issued by Auditing and Assurance Standards Board under the authority of the Council of ICAI. (aasb@icai.in)
Source- ICAI
Use of the Term "Profit and Loss Account" or "Statement of Profit and Loss" in the Statutory Audit Reports of Companies
Announcement: Important Amendments to Auditor's Report Format. – (07-02-2014)
Use of the Term "Profit and Loss Account" or "Statement of Profit and Loss" in the Statutory Audit Reports of Companies
I. The Council of the Institute of Chartered Accountants of India, at its 329th Adjourned meeting, held on 03rd and 04th January, 2014 at New Delhi noted that the illustrative formats of the independent auditor's report (in respect of a Company) as given in SA 700, SA 705 and SA 706 contain the references to "Profit and Loss Account" at various places. The term was being used since the Schedule VI to the Companies Act, 1956 also used this term.
II. The Council also noted that though the Revised Schedule VI to the Companies Act, 1956 as also the corresponding Schedule III to the Companies Act, 2013, instead use the term "Statement of Profit and Loss", section 227 of the Companies Act, 1956, which continues to be applicable in respect of the statutory auditor's reporting requirements, used the term "Profit and Loss Account".
III. The Council decided that in view of the above, in the independent auditor's report of a Company, the auditors may chose to use the term "Profit and Loss Account" or "Statement of Profit and Loss".
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1. This announcement has been issued by Auditing and Assurance Standards Board under the authority of the Council of ICAI. (aasb@icai.in)
Source- ICAI
Amendment to Auditor's Report Format Under the Companies Act
- Announcement 1 : Manner of Reporting on Section 227(3)(bb) of the Companies Act, 1956.
- Announcement 2 : Reference to the Accounting Standards Applicable to the Companies in the Auditor's Report and Limited Review Reports and various Engagement Standards.
- Announcement 3 : Amendment to the "Auditor's Responsibility" Paragraph Included in the Independent Auditor's Report.
- Announcement 4 : Use of the Term "Profit and Loss Account" or "Statement of Profit and Loss" in the Statutory Audit Reports of Companies.
- Announcement 5 : Manner of Reporting In Respect of Such Clauses of the Companies (Auditor's Report) Order, 2003 Which Are Not Applicable to the Auditee Company.
Beneficial ownership is relevant than legal ownership to claim depreciation – SC
SUPREME COURT OF INDIA
Mysore Minerals Ltd.
versus
Commissioner of Income-tax
Civil Appeal No. 5374 OF 1994,
[1999] 239 ITR 775 (SC)
Date of Pronouncement – 01.09.1999
JUDGMENT
R.C. Lahoti J.—The appellant-assessee is a private limited company. During the assessment year 1981-82 (accounting year ending on March 31, 1981), the assessee had purchased for the use of its staff seven low income group houses from the Housing Board. The assessee had made part payments and was in turn made allotment of the houses followed by delivery of possession by the Housing Board. The actual deed of conveyance was not yet executed by the Housing Board in favour of the assessee. The assessee made a claim under section 32 of the Income-tax Act, 1961, in respect of depreciation of buildings used for the purpose of the business of the assessee. The claim was rejected by the Assessing Officer forming an opinion that the assessee had not become owner for want of deed of conveyance in its favour. The Commissioner of Income-tax allowed the appeal preferred by the assessee and directed the Assessing Officer to allow the assessee's claim for depreciation inasmuch as the company was acting as the owner and could exercise the rights of the owner qua the houses. The Tribunal in an appeal preferred by the Revenue set aside the decision of the Commissioner of Income-tax. On an application under section 256(1) of the Act filed by the appellant, the following question was referred by the Tribunal for the opinion of the High Court:
"Whether, on the facts and in the circumstances of the case, the Tribunal was right in rejecting the claim of the assessee for depreciation in respect of the seven houses in respect of which the assessee has not obtained a deed for conveyance from the vendor although it had taken possession and made part payment of the consideration?"
The High Court relying on its own decision in Ramkumar Mills P. Ltd. v. CIT [1989] 180 ITR 464, answered the question in the affirmative, that is, against the assessee. The aggrieved assessee has preferred this appeal pursuant to a certificate under section 261 of the Act granted by the High Court.
Section 32 of the Act allows certain deductions, one of them being depreciation of buildings, etc., owned by the assessee and used for the purposes of the business or profession. It is the word "owned" as occurring in sub-section (1) of section 32 which is the core of controversy. Is it only an absolute owner or an owner of the asset as understood in its legal sense who can claim depreciation? Or, a vesting of title short of full-fledged or legal ownership can also entitle an assessee to claim depreciation under section 32? Learned senior counsel for the Revenue has submitted that the term "owned" should be assigned its legal meaning and so long as an assessee has not become an owner of the property in the sense that the title has not come to vest in him in the manner contemplated by law, he cannot claim benefit of deduction under section 32 of the Act. Under section 54 of the Transfer of Property Act, title in immovable property is transferred to a person by execution and registration of a sale deed. Admittedly, that having not taken place, the assessee is not entitled to the benefit. Learned counsel for the assessee has on the other hand placing reliance on the decisions of this court in R.B. Jodha Mal Kuthiala v. CIT [1971] 82 ITR 570 and CIT v. Podar Cement Pvt. Ltd. [1997] 226 ITR 625, submitted that the term "owned" in section 32(1) should be assigned a contextual meaning and keeping in view the underlying object of the provision vesting of a title in the assessee though short of absolute ownership should also entitle the assessee to the benefit of section 32(1).
Section 32 of the Income-tax Act confers a benefit on the assessee. The provision should be so interpreted and the words used therein should be assigned such meaning as would enable the assessee securing the benefit intended to be given by the Legislature to the assessee. It is also well settled that where there are two possible interpretations of a taxing provision the one which is favourable to the assessee should be preferred.
What is ownership? The terms "own", "ownership", "owned", are generic and relative terms. They have a wide and also a narrow connotation. The meaning would depend on the context in which the terms are used Black's Law Dictionary (6th edition), defines "owner" as under:
"Owner. The person in whom is vested the ownership, dominion, or title of property; proprietor. He who has dominion of a thing, real or personal, corporeal or incorporeal, which he has a right to enjoy and do with as he pleases, even to spoil or destroy it, as far as the law permits, unless he be prevented by some agreement or covenant which restrains his right. The term is, however, a nomen generalissimum, and its meaning is to be gathered from the connection in which it is used, and from the subjectmatter to which it is applied. The primary meaning of the word as applied to land is one who owns the fee and who has the right to dispose of the property, but the term also includes one having a possessory right to land or the person occupying or cultivating it.
The term 'owner' is used to indicate a person in whom one or more interests are vested for his own benefit………."
In the same dictionary, the term "ownership" has been defined to mean, inter alia, a "collection of rights to use and enjoy property, including right to transmit it to others ………… The right of one or more persons to possess and use a thing to the exclusion of others. The right by which a thing belongs to some one in particular, to the exclusion of all other persons. The exclusive right of possession, enjoyment and disposal; involving as an essential attribute the right to control, handle, and dispose."
Dias on Jurisprudence (4th edition, at page 400) states:
"The position, therefore, seems to be that the idea of ownership of land is essentially one of the 'better right' to be in possession and to obtain it, whereas, with chattels the concept is a more absolute one. Actual possession implies a right to retain it until the contrary is proved, and to that extent a possessor is presumed to be owner."
Stroud's Judicial Dictionary gives several definitions and illustrations of ownership. One such definition is that the "owner" or "proprietor" of a property is the person in whom (with his or her assent) it is for the time being beneficially vested, and who has the occupation, or control, or usefruct, of it; e.g., a lessee is, during the term, the owner of the property demised. Yet another definition that has been given by Stroud is:
" 'Owner' applies 'to every person in possession or receipt either of the whole, or of any part, of the rents or profits of any land or tenement; or in the occupation of such land or tenement, other than as a tenant from year to year or for any less term or as a tenant at will'."
In State of U.P. v. Renusagar Power Company [1991] 70 Comp Cas 127, 149 (SC) is, was held that "the word 'own' is a generic term, embracing within itself several gradations of title, dependent on the circumstances, and it does not necessarily mean ownership in fee simple; it means, 'to possess, to have or hold as property' ".
In CIT v. Podar Cement Pvt. Ltd. [1997] 226 ITR 625 (SC), the question which came up for consideration before this court was whether the rental income from the house property which had come to vest in the assessee, but as to which the assessee was not legal owner for want of deed of title, was liable to be assessed as income from house property or as income from other sources. To be assessable as income from house property within the meaning of section 22 of the Act the property should be such "of which the assessee is the owner". This court upon a juristic analysis of the underlying scheme of the Act and resorting to contextual and purposive interpretation, also having reviewed several conflicting decisions of different High Courts, held that the liability to be assessed was fixed on a person who receives or is entitled to receive the income from the property in his own right. vide para. 55, this court has held (page 653):
"We are conscious of the settled position that under the common law, 'owner' means a person who has got valid title legally conveyed to him after complying with the requirements of law such as the Transfer of Property Act, Registration Act, etc. But, in the context of section 22 of the Income-tax Act, having regard to the ground realities and further having regard to the object of the Income-tax Act, namely, 'to tax the income', we are of the view, 'owner' is a person who is entitled to receive income from the property in his own right."
In R.B. Jodha Mal Kuthiala v. CIT [1971] 82 ITR 570 (SC), it was held for the purpose of section 9 of the Indian Income-tax Act, 1922, that the owner must be the person who can exercise the rights of the owner, not on behalf of the owner but in his own right. We may usefully extract and reproduce the following classic statement of law from Perry v. Clissold [1907] AC 73 (PC) quoted with approval in Nair Service Society Ltd. v. K.C. Alexander, AIR 1968 SC 1165 (page 1174):
"It cannot be disputed that a person in possession of land in the assumed character of owner and exercising peaceably the ordinary rights of ownership has a perfectly good title against all the world but the rightful owner. And if the rightful owner does not come forward and assert his title by the process of law within the period prescribed by the provisions of the statute of limitation applicable to the case, his right is for ever extinguished and the possessory owner acquires an absolute title."
Podar Cement's case [1997] 226 ITR 625 (SC), is under the Income-tax Act and has to be taken as a trend-setter in the concept of ownership. Assistance from the law laid down therein can be taken for finding out the meaning of the term "owned" as occurring in section 32(1) of the Act. In our opinion, the term "owned" as occurring in section 32(1) of the Income-tax Act, 1961, must be assigned a wider meaning. Anyone in possession of property in his own title exercising such dominion over the property as would enable others being excluded there from and having the right to use and occupy the property and/or to enjoy its usufruct in his own right would be the owner of the buildings though a formal deed of title may not have been executed and registered as contemplated by the Transfer of Property Act, the Registration Act, etc. "Building owned by the assessee" the expression as occurring in section 32(1) of the Income-tax Act means the person who having acquired possession over the building in his own right uses the same for the purposes of the business or profession though a legal title has not been conveyed to him consistently with the requirements of laws such as the Transfer of Property Act and the Registration Act, etc., but nevertheless is entitled to hold the property to the exclusion of all others.
Generally speaking depreciation is an allowance for the diminution in the value due to wear and tear of a capital asset employed by an assessee in his business. Black's Law Dictionary (fifth edition) defined depreciation to mean, inter alia:
"A fall in value; reduction of worth. The deterioration, or the loss or lessening in value, arising from age, use, and improvements, due to better methods. A decline in value of property caused by wear or obsolescence and is usually measured by a set formula which reflects these elements over a given period of useful life of property ………… Consistent, gradual process of estimating and allocating cost of capital investments over estimated useful life of asset in order to match cost against earnings……."
Parks in Principles and Practice of Valuation (fifth edition, at page 323) states: As for building, depreciation is the measurement of wearing out through consumption, or use, or effluxion of time. Paton has in his Account's Handbook (third edition) observed that depreciation is an out of pocket cost as any other costs. He has further observed—the depreciation charge is merely the periodic operating aspect of fixed asset costs.
In Badiani P.K. v. CIT [1976] 105 ITR 642, the Supreme Court has observed that allowance for depreciation is to replace the value of an asset to the extent it has depreciated during the period of accounting relevant to the assessment year and as the value has, to that extent, been lost, the corresponding allowance for depreciation takes place.
An overall view of the above said authorities shows that the very concept of depreciation suggests that the tax benefit on account of depreciation legitimately belongs to one who has invested in the capital asset, is utilizing the capital asset and thereby losing gradually investment caused by wear and tear, and would need to replace the same by having lost its value fully over a period of time.
It is well-settled that there cannot be two owners of the property simultaneously and in the same sense of the term. The intention of the Legislature in enacting section 32 of the Act would be best fulfilled by allowing deduction in respect of depreciation to the person in whom for the time being vests the dominion over the building and who is entitled to use it in his own right and is using the same for the purposes of his business or profession. Assigning any different meaning would not subserve the legislative intent. To take the case at hand it is the appellant-assessee who having paid part of the price, has been placed in possession of the houses as an owner and is using the buildings for the purpose of its business in its own right. Still the assessee has been denied the benefit of section 32. On the other hand, the Housing Board would be denied the benefit of section 32 because in spite of its being the legal owner it was not using the building for its business or profession. We do not think such a benefit-to-none situation could have been intended by the Legislature. The finding of fact arrived at in the case at hand is that though a document of title was not executed by the Housing Board in favour of the assessee, but the houses were allotted to the assessee by the Housing Board, part payment received and possession delivered so as to confer dominion over the property on the assessee whereafter the assessee had in its own right allotted the quarters to the staff and they were being actually used by the staff of the assessee. It is common knowledge, under the various schemes floated by bodies like housing boards, houses are constructed on a large scale and allotted on part payment to those who have booked. Possession is also delivered to the allottee so as to enable enjoyment of the property. Execution of documents transferring title necessarily follows if the schedule of payment is observed by the allottee. If only the allottee may default the property may revert back to the Board. That is a matter only between the Housing Board and the allottee. No third person intervenes. The part payments made by allottee are with the intention of acquiring title. The delivery of possession by the Housing Board to the allottee is also a step towards conferring ownership. Documentation is delayed only with the idea of compelling the allottee to observe the schedule of payment.
For the foregoing reasons, in our opinion, the High Court was not right in taking the view which it did. The appeal is allowed. The judgment of the High Court is set aside. The question referred by the Tribunal to the High Court is answered in the negative, that is, against the Revenue and in favour of the assessee. No order as to costs.
Export of a prohibited item under Advance Authorization – Reg.
Circular No. 04/2014-Customs
Dated -10th February, 2014
Subject: Export of a prohibited item under Advance Authorization – Reg.
The Department of Revenue has issued notification no. 01/2014-Customs dated 17.01.2014 to implement changes in the Foreign Trade Policy (2009-14) which have been made vide Department of Commerce Notification No. 51(RE-2013)/2009-2014 dated 14.11.2013 read with DGFT's Public Notice No.37/2009-2014(RE-2013) dated 14.11.2013.
2. The changes in the FTP provide for permitting the export of items which are otherwise prohibited for export, namely, items falling under Chapter 7 and 15 of ITC (HS) Schedule 2, under the Advance Authorization Scheme with specific conditions that are stricter than under a normal Advance Authorization. In such cases, the Advance Authorization will contain specific mention of the Public Notice No.37/2009-2014(RE-2013) dated 14.11.2013.
3. Amongst the stricter conditions are – (a) export is subject to pre-import condition and the resultant product exported has to be manufactured out of the raw material already imported under the scheme (b) there has to be notified SION/prior fixation of norms by Norms Committee in terms of Para 4.4.2 of HBP Vol.1 (c) the Import/Export is permitted only through specific EDI enabled ports (d) EO period is 90 days from the date of clearance on import with no extensions (e) facility of regularisation of bonafide defaults under para 4.28 of HBP vol.1 is not available (f) imported material is subject to actual user condition and no transfer for any purpose, including job work, is permitted (g) imported material found defective or unfit for use has to be re-exported within thirty days, extendable by another thirty days.
4. Further, at the time of export an undertaking from the authorization holder has been prescribed to the effect that the resultant products, being exported against the authorization, which is otherwise prohibited for export, has been manufactured from the material already imported under the authorization. This undertaking is to also contain details of imports and exports made under the authorization. This condition has been prescribed to enable the customs officer to form a reasonable satisfaction that the goods under export are not the prohibited goods. The officer is to record suitable comments in this regard in the EDI field for departmental comments.
5. The field formations may also keep in view the Circular No. 5/2010-Cus dated 16.3.2010 and instruction no. 609/119/2010-DBK dated 18.1.2011.
6. This may be brought to the notice of the trade by issuing suitable Trade/ Public Notices. Officers may be suitably guided through Standing Orders. Difficulties faced, if any, in implementation of the Notification may be brought to the notice of the Board at an early date.
F.No.605/27/2013-DBK
Yours faithfully,
(Dinesh Kumar Gupta)
Director (DBK)
Tele: 23360581
Interest cannot be disallowed if huge interest free funds were available without any interest
CA Sandeep Kanoi
AO while making this addition has observed as under:-
"5. Addition on account of interest not charged on Advances:
On perusal of Balance sheet of the assessee, during the course of assessment proceeding, it is seen that the assesses has stated Rs.92,24, 794/- as other advances, out of which he has shown interest received from 2 partiesn (1) Gaurav Industries and (2) Amtex Dye Chem Industries to the extent of Rs. 11,16,069/- and Rs.5,46,874/- respectively. The assessee is showing interest income of Rs.6, 71,530/- as interest received from the above two parties. Rs. l,36,745/- from Gaurav Industries and Rs.5,34,785/-from -Amtex Dye Chem Industries. The assessee has claimed the Credit of TDS and offered Corresponding interest amount from the said 2 parties. Since the said amounts were included in the total advances of Rs. 92,24,794/- but the assessee at his convenient showing interest on loans and advances. Since the TDS credit is avail the interest income is offered. The assesses has not offered interest income from the following parties to whom an aggregate amount of Rs. 77,76,005/- is offered during the F. Y.2007-08.
| S/No. | Name of the party | Amount Rs. |
| 1. | Dilip Ratilal | 2,97,417/- |
| 2. | Dina Hiren Kumar | 1,00,000/- |
| 3, | Dinesh Ratilal | 45,122/- |
| 4. | Greestar Texprint Pvt. Ltd. | 39,000/- |
| 5. | Legend Marketing sharafi | 50,000/- |
| 6. | Ulpa Ashwin Patel | 2,29,000/- |
| 7′ | Shree Satguru Industries | 12,00,000/- |
| 8. | Ram's Pharma Corporation | 57,34,466/- |
| 9. | Reshma D. Parik | 1,00,000/- |
| Total | 77,86,005/- |
Thus the assessee has not following consistency and uniformity in offering interest income. During the course of hearing a show cause notice was issued on 1 9/1 1/2010 and the assessee was asked to furnish his objections for which the assessee has simply stated that they are interest free loans but not furnished any details or supporting. Since the assesses is a manufacturing concern and paying interest towards secured and unsecured loans and in the light of assessee 's submission it is observed that interest is not charged from the parties or persons through mutual convenience and accommodation. In view of the above discussion, interest @12% is charged on Loans and advances Rs.77,86,005/-amonnting to Rs. 9,34,320/- is added to the total income of the assessee."
Ld. CIT(A) has deleted this addition by observing as under:-
"6.3 I have carefully considered rival submissions. I have also perused evidences furnished by the appellant and the case laws relied upon by the ld.A.R. It is seen that interest expenses of Rs. 9,34,320/- was disallowed u/s.36(1)(iii) of I.T. Act. As per the provisions of section 36(1)(iii), to claim interest expenses, following conditions should be fulfilled.
(i) The Assessee must have borrowed money
(ii) The interest should have been payable
(iii) Borrowing should be made for the purpose of business.
In my considered view, appellant has fulfilled all the above conditions and accordingly it is entitled to claim deduction u/s. 36(1)(iii) of I. T.Act against interest payment. Perusal of the assessment order reveals that the A. O. has not challenged basic enabling conditions as laid down u/s.36(1)(iii) for the allowance of interest. Since the enabling conditions for allowance of interest u/s.36(1)(iii) are fulfilled, accordingly in my considered view disallowance of interest is unwarranted."
After hearing both the parties and perusing the record, we find the assessee was having interest free funds of Rs. 5.88 crores in the form of partners' capital as on 31-03-2008 and assessee has given interest free funds loans and advances of Rs. 77.86 lacs to sister concern and other connected persons during the year under appeal. It is clear that interest free advances were at below the interest free funds available with the assessee. In these facts ratio of Hon'ble jurisdictional High Court's decision in the case of Commissioner of Income-tax vs. Raghuvir Synthetics Ltd [2013] 217 Taxman 178 (Guj) is squarely applicable wherein it was held that where huge funds were available without any interest liability with assessee and there was no evidence to hold that borrowed money was utilized for purpose of advance to sister concerns, no disallowance of interest was warranted. In this view of the matter, we feel no need to interfere with the order passed by Ld. CIT(A) and the same is hereby upheld.
ITR'S TRIBUNAL TAX REPORTS (ITR (Trib)) HIGHLIGHTS
F Where failure to issue and serve notice u/s. 143(2) within prescribed time assessment invalid : Abacus Distribution Systems (India) P. Ltd. v. Dy. CIT (Mumbai) p. 1
F Where longevity of facility alone cannot make cable capital asset, expenditure on laying cables was revenue in nature : Asst. CIT v. Gemini TV P. Ltd. (Chennai) p. 32
F Where transactions with sister concern are commercial in nature, section 2(22)(2) not applicable : Dy. CIT v. Chariot International P. Ltd. (Bangalore) p. 36
F Income : Where assessee not furnishing material to substantiate claim that it did not utilise borrowed funds for making investments in purchase of shares, disallowance proper : Asst. CIT v. Kerala State Industrial Development Corporation Ltd. (Cochin) p. 45
F International transactions : ALP : Where computation of OPM, only data relating to relevant FY to be relied on : Asst. CIT v. Infotech Enterprises Ltd. (Hyd.) p. 67
F Payment of tax deducted at source to credit of Central Government before due date for filing return of income, disallowance u/s. 40(a)(ia) not attracted : Asst. CIT v. Ace Fire Services (Bangalore) p. 73
F Where expenditures neither creating any asset nor providing enduring benefit to business of assessee, allowable as revenue : Reliance Footprint Ltd. v. Asst. CIT (Mumbai) p. 82
F Premium on foreign currency convertible bonds is revenue expenditure and payment for development of vehicle used as construction equipment is capital expenditure : Mahindra and Mahindra Ltd. v. Addl. CIT (Mumbai) p. 95
F Indexation for claiming capital loss cannot be allowed : Mahindra and Mahindra Ltd. v. Addl. CIT (Mumbai) p. 95
F Payment for purchase of certain telecommunication satellite bandwidth capacity (software) amounted to royalty : Deputy DIT (International Taxation) v. Reliance Infocom Ltd. (Mumbai) p 132
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INCOME TAX REPORTS (ITR) HIGHLIGHTS
F Tax on assessment found to be higher and seized cash appropriated against liability but order of AO overturned by Tribunal : Assessee entitled to interest for pre-assessment period : Chironjilal Sharma HUF v. Union of India p. 237
F Notice to banks calling for information as regards persons having cash transactions of over Rs. 1 lakh or having time deposits over Rs. 1 lakh : Valid : Kathiroor Service Co-operative Bank Ltd. v. CIT (CIB) p. 243
F Sale of shares : Failure to produce identity of purchaser not material : Not to be treated as income from undisclosed sources : CIT v. Sudeep Goenka (All) p. 163
F Aims and objects of society containing several other objects apart from education : Not a ground for rejecting application : Neeraj Janhitkari Gramin Sewa Sansthan v. Chief CIT (All) p. 168
F Conveyance/additional conveyance allowances and incentive bonus to development officers of LIC : Taxable as perquisite : National Federation of Insurance Field Workers of India v. Union of India (All) p. 175
F Loss on account of purchase and sale of shares can be set off against profits earned from other sources : CIT v. Orient Instrument P. Ltd. (Delhi) p. 182
F Scientific research association receiving payments towards royalty and services charges : Not by itself ground to hold association not a scientific research association : Centre for Development of Telematics v. Union of India (Delhi) p. 184
F Rental income from unsold flats shown as stock-in-trade : Assessable under income from house property : New Delhi Hotels Ltd. v. Asst. CIT (Delhi) p 187
F Reassessment on basis of finding of Mandi Board that assessee concealed its sales : Findings of Mandi Board set aside in appeal : Whether any income has escaped assessment or assessee is guilty of evasion of tax : Matter remanded : CIT v. R. J. Traders (P & H) p. 190
F Disallowance of interest attributable to interest-free advance made by assessee to its sister concern justified where failure to establish commercial expediency : C. R. Auluck and Sons P. Ltd. v. CIT (P&H) p. 193
F Sale of articles including paintings and carpets held for personal use in accounting year relevant to AY 2002-03 : Gains exempt from tax : Faiz Mutaza Ali v. CIT (Delhi) p. 200
F Interest on short-term deposit not income earned or derived from manufacturing activity undertaken by industrial undertaking : Krishak Bharati Co-operative Ltd. v. CIT (Delhi) p. 209
F Service charges, crane hire charges, ammonia tanker hire charges and interest from banks and financial institutions : Not entitled to special deduction : Krishak Bharati Co-operative Ltd. v. Joint CIT (Delhi) p. 219
F Service charges received from Heavy Water Board entitled to special deduction under section 80-I : Krishak Bharati Co-operative Ltd. v. Joint CIT (Delhi) p. 219
F Two views possible on question of interest : Order of AO not erroneous : Commissioner not justified in setting aside order : CIT v. Chambal Fertilizers and Chemicals Ltd. (Raj) p. 225
F Time charter agreements between Indian entity and non-resident ship owners : Payment of hire charges : Indian entity bound to deduct tax at source on payments : Poompuhar Shipping Corporation Ltd. v. ITO (International Taxation) (Mad) p. 257
F Assessee having time charter agreements with several non-resident shipowners : Can be treated as representative assessee in respect of each : Poompuhar Shipping Corporation Ltd. v. ITO (International Taxation) (Mad) p. 257
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Rights of an auction-purchaser in the property
| Posted on 13 January 2014 by Novice Attorney | |
CourtSupreme Court of India BriefRights of an auction-purchaser in the property purchased by him cannot be extinguished. Exceptions: In cases where the said purchase can be assailed on the following grounds: 1. Collusion 2. Fraud CitationAshwin S. Mehta & Anr. vs. Custodian & Ors., (2006) 2 SCC 385); Nawab Zain-ul-Abdin Khan v. Mohd. Asghar Ali Khan (1887) 15 IA 12); Gurjoginder Singh v. Jaswant Kaur (1994) 2 SCC 368); Janatha Textiles & Ors. vs. Tax Recovery Officer & Anr., (2008) 12 SCC 582; Nawab Zain-Ul-Abdin Khan v. Mohd. Asghar Ali Khan, (1887-88) 15 IA 12; Janak Raj vs. Gurdial Singh, AIR 1967 SC 608; Gurjoginder Singh vs. Jaswant Kaur, (1994) 2 SCC 368; Padanathil Ruqmini Amma vs. P.K. Abdulla, (1996) 7 SCC 668; Velji Khimji and Company vs. Official Liquidator of Hindustan Nitro Product (Gujarat) Limited & Ors., (2008) 9 SCC 299 Judgement IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. 161 OF 2014 (Arising out of SLP (C) No.23000 of 2010) Sadashiv Prasad Singh … Appellant Versus Harendar Singh & Ors. … Respondents WITH CIVIL APPEAL NO. 162 OF 2014 (Arising out of SLP (C) No.26550 of 2010) J U D G M E N T Jagdish Singh Khehar, J. 1. On 11.9.1989, The Allahabad Bank (hereinafter referred to as 'the Bank') sanctioned a loan of Rs.12.70 lac to M/s. Amar Timber Works, a partnership firm having three partners, Jagmohan Singh, Payam Shoghi and Dev Kumar Sinha. The above loan was sanctioned to M/s. Amar Timber Works, after its partners had mortgaged certain properties to secure the loan amount. Since the loan amount was not repaid in compliance with the commitment made by M/s. Amar Timber Works, nine years later, in 1998, the Bank preferred Original Application No.107 of 1998 before the Debt Recovery Tribunal for the recovery of the Bank's dues. The above Original Application was allowed on 21.11.2000. Accordingly, a direction was issued for the recovery of Rs.75,75,564/- from M/s. Amar Timber Works. For the execution of the order passed by the Debt Recovery Tribunal, the Bank initiated recovery proceedings on 28.11.2000. During the pendency of the recovery proceedings, Jagmohan Singh, one of the partners of M/s. Amar Timber Works, died (on 27.1.2004). On 16.4.2004, the Recovery Officer attached plot No.722, located at Exhibition Road, P.S. Gandhi Maidan, Patna (hereinafter referred to as 'the property') measuring 1298 sq.ft. It would be pertinent to mention that the aforesaid plot was in the ownership of Jagmohan Singh, one of the partners in M/s. Amar Timber Works. 2. On 10.6.2004, Harender Singh, brother of Jagmohan Singh, filed an objection petition before the Recovery Officer alleging, that the attached property did not belong to the judgment debtors, but had been purchased by him from his brother Jagmohan Singh, by executing an agreement of sale dated 10.1.1991, which was duly notarized though not registered. It would be relevant to mention, that Harender Singh pursued the objection petition filed by him before the Recovery Officer till 26.10.2005, but chose to abandon the proceedings thereafter. The order passed by the Recovery officer when the Objector was represented for the last time on 26.10.2005 is being extracted below: "Ld. Advocate of Bank and objectors appears. Objector reiterated his points and invited attention towards Section 53 of TP Act. Counsel of the bank submits that he had to say nothing more than what was said/submitted earlier. He also submits that D.Drs. was guarantor also in this case hence his properties attached. Put up on 28.12.08 for further hearing. Sd/- Illegible I/C R.O." 3. The recovery proceedings referred to above remained pending for a further period of more than two years. Finally, the Recovery Officer passed an order dated 5.5.2008, for the sale of the property by way of public auction on 4.7.2008. The Recovery Officer fixed Rs.12.92 lacs as the reserve price, and also fixed 28.8.2008 as the date of its auction. At the auction held on 28.8.2008, Sadashiv Prasad Singh, was the highest bidder. Accordingly, the Recovery Officer ordered the sale of the property in his favour on 28.8.2008. On 22.9.2008, the Recovery Officer, in the absence of any objections, confirmed the sale of the property in favour of Sadashiv Prasad Singh. The Recovery Officer also ordered, the handing over of physical possession of the property to the auction purchaser. Sadashiv Prasad Singh, the auction purchaser, took physical possession of the property on 11.3.2009. 4. In furtherance of the proceedings initiated through Mutation Case No.295/2/09-10, the land in question was mutated in favour of the auction purchaser. It would be relevant to mention that the application for mutation filed by the auction purchaser, Sadashiv Prasad Singh, was supported by letter dated 14.10.2008 of the Ministry of Finance, Government of India, Realization Authority, Patna. It would be relevant to mention, that no objections were filed in the mutation case preferred by Sadashiv Prasad Singh, by or on behalf of Harender Singh, before the Mutation Officer. 5. On 27.11.2009, CWJC No.16485 of 2009 was filed by Harender Singh before the High Court of Judicature at Patna (hereinafter referred to as the 'High Court'). In the aforesaid writ petition, Harender Singh assailed the order of the Recovery Officer dated 5.5.2008, whereby, the property had been ordered to be sold by public auction in discharge of the debt owed by M/s Amar Timber Works to the Allahabad Bank. Vide its order dated 23.3.2010, the High Court ordered the auction purchaser, i.e. Sadashiv Prasad Singh to be impleaded as a party-respondent. On 27.11.2010, the High Court dismissed the above writ petition by accepting the objections raised on behalf of the Bank, as well as, the auction purchaser by holding as under : "The above facts do weigh with the Court in not interfering with the sale or the proceeding where it has been reached. The petitioner has no satisfactory explanation for not approaching the Court well within time challenging such a decision or the subsequent proceedings or orders of the Recovery Officer at an appropriate time. The conduct of the petitioner by itself has precluded and prevented this Court from passing any order in his favour at this belated stage. The writ application has not merit. It is dismissed accordingly." 6. Dissatisfied with the order dated 27.4.2010 whereby the writ petition filed by Harender Singh was dismissed by a Single Bench of the High Court, he preferred Letters Patent Appeal No.844 of 2010. Before the Letters Patent Bench, Harender Singh, brother of Jagmohan Singh, asserted that his brother Jagmohan Singh had availed a loan of Rs.14.70 lacks. As against the aforesaid loan amount, the Bank had initiated proceedings before the Debt Recovery Tribunal for the realization of a sum of 75,75,564/-. The property under reference was sold by way of public auction to Sadashiv Prasad Singh for a sum of Rs.13.20 lacs. As against the aforesaid sale consideration paid by the auction purchaser, Harender Singh, offered a sum of Rs.39 lacs before the Letters Patent Bench. In the order passed by the Letters Patent Bench disposing of Letters Patent Appeal No.844 of 2010, it stands noticed that the Bank had accepted to finally settle the matter on being paid a sum of Rs.45 lacs, subject to the condition that the Harender Singh pays a sum of Rs.15 lacs immediately, and the balance amount of Rs.30 lacs within a period of two years in a phased manner. Even though the learned counsel representing the appellant, Harender Singh was agreeable to proposal of the Bank, the rival parties could not amicably settle the matter. It is, therefore, that the letters patent Bench went on to adjudicate the matter on its merits. The above factual position has been noticed for the reason that it has a nexus to the final order which was eventually passed by the Letters Patent Bench disposing of LPA No.844 of 2010. In fact, it would be in the fitness of matters to extract paragraph 8 from the impugned judgment rendered in LPA No.844 of 2010 in order to appreciate the niceties of the matter. The aforesaid paragraph is, accordingly, being extracted herein : "8. At this juncture, we may state that the brother of the appellant had availed a loan of Rs.14.70 lacs. The said aspect is not disputed by Mr. Ajay Kumar Sinha, learned counsel for the Bank. The Bank had initiated a proceeding before the Tribunal for realization of approximately a sum of Rs.75.75 lacs. The property has been sold for Rs.13.20 lacs. It is submitted by Mr. Ojha that the prices have gone up and he is being offered more than 39 lacs for the same. It is not in dispute that the price, the auction-purchaser has tendered, is Rs.13.20 lacs. On the earlier occasion, a suggestion was given whether the Bank would accept Rs.45 lacs in toto to settle the dispute. Mr. Sinha, learned counsel for the Bank has obtained instructions that the Bank has no objection to settle the same, if the appellant pays Rs.15 lacs immediately so that the same can be paid to the auction-purchaser and Rs.30 lacks should be paid within a period of two years in a phased manner. Mr. Choubey, learned counsel for the appellant submitted that the appellant is agreeable to pay the same. Mr. Ojha submitted that he has instructions not to accept the suggestion." 7. During the course of appellate proceedings, the High Court referred to Chapter V of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (hereinafter referred to as the Debt Recoveries Act) and particularly to Section 29 which is being extracted hereunder: "29. Application of certain provisions of Income-tax Act.—The provisions of the Second and Third Schedules to the Income-tax Act, 1961 (43 of 1961) and the Income-tax (Certificate Proceedings) Rules, 1962, as in force from time to time shall, as far as possible, apply with necessary modifications as if the said provisions and the rules referred to the amount of debt due under this Act instead of to the Income-tax : Provided that any reference under the said provisions and the rules to the "assessee" shall be construed as a reference to the defendant under this Act." The High Court while interpreting Section 29 extracted above, concluded that certain provisions of the Income Tax Act and Income Tax (Certificate Proceedings) Rules would be applicable mutatis mutandis in the matter of recovery of debts under the Debt Recoveries Act. The High Court then referred to Rule 11 of the Income Tax (Certificate Proceedings) Rules and arrived at the conclusion that sub-rule (2) of Rule 11, had not been complied with by the Recovery Officer, inasmuch as, the objection raised by Harender Singh had not been adjudicated upon. As such, the High Court finally concluded that the proceedings before the Recovery Officer were in flagrant violation of the provisions of Rule 11(2) of the Income Tax (Certificate Proceedings) Rules. Having so concluded, the High Court set aside the proceedings conducted by the Recovery Officer, including the sale of the property by public auction. In order to appreciate the basis of the order passed by the High Court, Rule 11 of the Second Schedule of the Income Tax Act, 1961, is being extracted herein: "Investigation by Tax Recovery Officer. 11. (1) 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 shall proceed to investigate the claim or objection: Provided that no such investigation shall be made where the Tax Recovery Officer considers that the claim or objection was designedly or unnecessarily delayed. (2) Where the property to which the claim or objection applies has been advertised for sale, the Tax Recovery Officer ordering the sale may postpone it pending the investigation of the claim or objection, upon such terms as to security or otherwise as the Tax Recovery Officer shall deem fit. (3) The claimant or objector must adduce evidence to show that- (a) (in the case of immovable property) at the date of the service of the notice issued under this Schedule to pay the arrears, or (b) (in the case of movable property) at the date of the attachment, he had some interest in, or was possessed of, the property in question. (4) Where, upon the said investigation, the Tax Recovery Officer is satisfied that, for the reason stated in the claim or objection, such property was not, at the said date, in the possession of the defaulter or of some person in truest for him or in the occupancy of a tenant or other person paying rent to him, or that, being in the possession of the defaulter at the said date, it was so in his possession, not on his own account or as his own property, but on account of or in trust for some other person, or partly on his own account and partly on account of some other person, the Tax Recovery Officer shall make an order releasing the property, wholly or to such extent as he thinks fit, from attachment or sale. (5) Where the Tax Recovery Officer is satisfied that the property was, at the said date, in the possession of the defaulter as his own property and not on account of any other person, or was in the possession of some other person in trust for him, or in the occupancy of a tenant or other person paying rent to him, the Tax Recovery Officer shall disallow the claim. (6) 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." 8. Having dealt with the controversy in the manner expressed in the foregoing paragraphs, the Division Bench of the High Court was of the view that the matter in hand ought to be settled by working out the equities between the parties. Accordingly, the High Court disposed of the matter in the following manner: "12. Though we have held the same could not have been sold in auction, yet equities are to be worked out. Regard being had to the fact that the respondent-purchaser has deposited Rs.13.20 lac between 28.8.2008 to 22.9.2009 and thus the amount is with the Bank for almost more than one year and 10 months and thereafter there had been challenge to the order in the writ petition and after dismissal of the writ petition the present L.P.A. has been filed in quite promptitude and that the amount of the respondent-purchaser was blocked, it will be obligatory on the part of the appellant to compensate the respondent-purchaser at least by way of payment of interest at the Bank rate. We are disposed to think that if a sum of Rs.17 lacs is paid to the auction-purchaser, it would sub-serve the cause of justice and house of the appellant shall be saved and, accordingly, it is directed that the appellant shall deposit a sum of Rs.17 lacks within a period of four weeks from today in the Bank. After such deposit, the Bank shall hand it over to the purchaser by way of a bank draft. The same shall be sent by registered post with acknowledgment due. Thereafter the appellant shall deposit a further sum of Rs.32 lacs within a period of two years; sum of Rs.16 lacs by 25th March, 2011 and further sum of Rs.16 lacs by 25th March, 2012. Needless to say pro-rate interest shall accrue in favour of the Bank for the said period. 13. After the amount is paid to the purchaser, it would be the duty of the Recovery Officer to hand over the possession to the appellant." 9. Sadashiv Prasad Singh, the auction purchaser, has assailed the impugned order passed by the Division Bench of the High Court in LPA No.844 of 2010 praying for the setting aside of the order by which he has been deprived of the property purchased by him in the public auction held on 28.8.2008, which was subsequently confirmed by the Recovery Officer of the Debt Recovery Tribunal on 23.9.2008. This challenge has been made by Sadashiv Prasad Singh by filing Special Leave Petition (C) No.23000 of 2010. The impugned order passed by the High Court on 17.5.2010, has also been assailed by Harender Singh by preferring Special Leave Petition (C) No.26550 of 2010. The prayer made by Harender Singh is, that order passed by the Division Bench places him in the shoes of the auction purchaser, and as such, he could have only been asked to pay a sum of Rs.17 lacs. Requiring him to pay a further sum of Rs.32 lacs is unsustainable in law, and accordingly, deserved to be set aside. 10. Leave granted in both the Special Leave Petitions. 11. For the narration of facts, we have relied upon the pleadings and the documents appended to Special Leave Petition (C) No.23000 of 2010. 12. Learned counsel for the auction purchaser Sadashiv Prasad Singh, in the first instance vehemently contended, that in terms of the law declared by this Court, property purchased by a third party auction purchaser, in compliance of a court order, cannot be interfered with on the basis of the success or failure of parties to a proceeding, if auction purchaser had bonafidely purchased the property. In order to substantiate his aforesaid contention, learned counsel representing Sadashiv Prasad Singh placed emphatic reliance, firstly, on a judgment rendered by this Court in Ashwin S. Mehta & Anr. vs. Custodian & Ors., (2006) 2 SCC 385). Our attention was drawn to the following observations recorded therein : "In that view of the matter, evidently, creation of any third-party interest is no longer in dispute nor the same is subject to any order of this Court. In any event, ordinarily, a bona fide purchaser for value in an auction-sale is treated differently than a decree-holder purchasing such properties. In the former event, even if such a decree is set aside, the interest of the bona fide purchaser in an auction-sale is saved. (See Nawab Zain-ul-Abdin Khan v. Mohd. Asghar Ali Khan (1887) 15 IA 12) The said decision has been affirmed by this Court in Gurjoginder Singh v. Jaswant Kaur (1994) 2 SCC 368)." (emphasis is ours) On the same subject, and to the same end, learned counsel placed reliance on another judgment rendered by this Court in Janatha Textiles & Ors. vs. Tax Recovery Officer & Anr., (2008) 12 SCC 582, wherein the conclusions drawn in Ashwin S. Mehta's case (supra) came to be reiterated. In the above judgment, this Court relied upon the decisions of the Privy Council and of this Court in Nawab Zain-Ul-Abdin Khan v. Mohd. Asghar Ali Khan, (1887-88) 15 IA 12; Janak Raj vs. Gurdial Singh, AIR 1967 SC 608; Gurjoginder Singh vs. Jaswant Kaur, (1994) 2 SCC 368; Padanathil Ruqmini Amma vs. P.K. Abdulla, (1996) 7 SCC 668, as also, on Ashwin S. Mehta (supra) in order to conclude, that it is an established principle of law, that a third party auction purchaser's interest, in the auctioned property continues to be protected, notwithstanding that the underlying decree is subsequently set aside or otherwise. It is, therefore, that this Court in its ultimate analysis observed as under: "20. Law makes a clear distinction between a stranger who is a bona fide purchaser of the property at an auction-sale and a decree-holder purchaser at a court auction. The strangers to the decree are afforded protection by the court because they are not connected with the decree. Unless the protection is extended to them the court sales would not fetch market value or fair price of the property." (emphasis is ours) On the issue as has been dealt with in the foregoing paragraph, this Court has carved out one exception. The aforesaid exception came to be recorded in Velji Khimji and Company vs. Official Liquidator of Hindustan Nitro Product (Gujarat) Limited & Ors., (2008) 9 SCC 299, wherein it was held as under : "30. In the first case mentioned above i.e. where the auction is not subject to confirmation by any authority, the auction is complete on the fall of the hammer, and certain rights accrue in favour of the auction-purchaser. However, where the auction is subject to subsequent confirmation by some authority (under a statute or terms of the auction) the auction is not complete and no rights accrue until the sale is confirmed by the said authority. Once, however, the sale is confirmed by that authority, certain rights accrue in favour of the auction-purchaser, and these rights cannot be extinguished except in exceptional cases such as fraud. 31. In the present case, the auction having been confirmed on 30.7.2003 by the Court it cannot be set aside unless some fraud or collusion has been proved. We are satisfied that no fraud or collusion has been established by anyone in this case." (emphasis is ours) It is, therefore, apparent that the rights of an auction-purchaser in the property purchased by him cannot be extinguished except in cases where the said purchase can be assailed on grounds of fraud or collusion. 13. It is imperative for us, to adjudicate upon the veracity of the sale of the property by way of public auction, made in favour of Sadashiv Prasad Singh on 28.8.2008. It is not a matter of dispute, that the lis in the present controversy was between the Allahabad Bank on the one hand and the partners of M/s. Amar Timber Works, namely, Jagmohan Singh, Payam Shoghi and Dev Kumar Sinha on the other. Sadashiv Prasad Sinha was not a party to the proceedings before the Debt Recovery Tribunal or before the Recovery Officer. By an order dated 5.5.2008, the Recovery Officer ordered the sale of the property by way of public auction. On 4.7.2008, the Recovery Officer fixed Rs.12.92 lacs as the reserve price, and also fixed 28.8.2008 as the date of auction. At the public auction held on 28.8.2008, Sadashiv Prasad Sinha was the highest bidder, and accordingly, the Recovery officer ordered the sale of the property in his favour on 28.8.2008. In the absence of any objections, the Recovery Officer confirmed the sale of the property in favour of Sadashiv Prasad Sinha on 22.9.2008. Thereafter possession of the property was also handed over to the auction-purchaser on 11.3.2009. Applying the law declared by this Court in the judgments referred in the foregoing paragraphs irrespective of the merits of the lis between the rival parties, namely, the Allahabad Bank and the partners of M/s. Amar Timber Works, it is not open for anyone to assail the purchase of the property made by Sadashiv Prasad Sinha in the public auction held in furtherance of the order passed by the Recovery Officer on 28.8.2008. In the above view of the matter, especially in the absence of any allegation of fraud or collusion, we are of the view that the High Court clearly erred while setting aside the auction ordered in favour of the auction-purchaser, Sadashiv Prasad Sinha in the impugned order dated 17.5.2010. 14. A perusal of the impugned order especially paragraphs 8, 12 and 13 extracted hereinabove reveal that the impugned order came to be passed in order to work out the equities between the parties. The entire deliberation at the hands of the High Court were based on offers and counter offers, inter se between the Allahabad Bank on the one hand and the objector Harender Singh on the other, whereas the rights of Sadashiv Prasad Sinha – the auction-purchaser, were not at all taken into consideration. As a matter of fact, it is Sadashiv Prasad Sinha who was to be deprived of the property which came to be vested in him as far back as on 28.8.2008. It is nobody's case, that at the time of the auction-purchase, the value of the property purchased by Sadashiv Prasad Sinha was in excess of his bid. In fact, the factual position depicted under paragraph 8 of the impugned judgment reveals, that the escalation of prices had taken place thereafter, and the value of the property purchased by Sadashiv Prasad Sinha was presently much higher than the bid amount. Since it was nobody's case that Sadashiv Prasad Sinha, the highest bidder at the auction conducted on 28.8.2008, had purchased the property in question at a price lesser than the then prevailing market price, there was no justification whatsoever to set aside the auction-purchase made by him on account of escalation of prices thereafter. The High Court in ignoring the vested right of the appellant in the property in question, after his auction bid was accepted and confirmed, subjected him to grave injustice by depriving him to property which he had genuinely and legitimately purchased at a public auction. In our considered view, not only did the Division Bench of the High Court in the matter by ignoring the sound, legal and clear principles laid down by this Court in respect of a third party auction purchaser, the High Court also clearly overlooked the equitable rights vested in the auction-purchaser during the pendency of a lis. The High Court also clearly overlooked the equitable rights vested in the auction purchaser while disposing of the matter. 15. At the time of hearing, we were thinking of remanding the matter to the Recovery Officer to investigate into the objection of Harender Singh under Rule 11 of the Second Schedule to the Income Tax Act, 1961. But considering the delay such a remand may cause, we have ourselves examined the objections of Harender Singh and reject the objections for a variety of reasons. Firstly, the contention raised at the hands of the respondents before the High Court, that the facts narrated by Harender Singh (the appellant in Special Leave Petition (C) No.26550 of 2010) were a total sham, as he was actually the brother of one of the judgment-debtors, namely, Jagmohan Singh. And that Harender Singh had created an unbelievable story with the connivance and help of his brother, so as to save the property in question. The claim of Harender Singh in his objection petition, was based on an unregistered agreement to sell dated 10.1.1991. Not only that such an agreement to sell would not vest any legal right in his favour; it is apparent that it may not have been difficult for him to have had the aforesaid agreement to sell notarized in connivance with his brother, for the purpose sought to be achieved. Secondly, it is apparent from the factual position depicted in the foregoing paragraphs that Harender Singh, despite his having filed objections before the Recovery Officer, had abandoned the contest raised by him by not appearing (and by not being represented) before the Recovery Officer after 26.10.2005, whereas, the Recovery Officer had passed the order of sale of the property by way of public auction more than two years thereafter, only on 5.5.2008. Having abandoned his claim before the Recovery Officer, it was not open to him to have reagitated the same by filing a writ petition before the High Court. Thirdly, a remedy of appeal was available to Harender Singh in respect of the order of the Recovery Officer assailed by him before the High Court under Section 30, which is being extracted herein to assail the order dated 5.5.2008: "30. Appeal against the order of Recovery Officer.— (1) Notwithstanding anything contained in section 29, any person aggrieved by an order of the Recovery Officer made under this Act may, within thirty days from the date on which a copy of the order is issued to him, prefer an appeal to the Tribunal. (2) On receipt of an appeal under sub-section (1), the Tribunal may, after giving an opportunity to the appellant to be heard, and after making such inquiry as it deems fit, confirm, modify or set aside the order made by the Recovery Officer in exercise of his powers under section 25 to 28 (both inclusive)." The High Court ought not to have interfered with in the matter agitated by Harender Singh in exercise of its writ jurisdiction. In fact, the learned Single Judge rightfully dismissed the writ petition filed by Harender Singh. Fourthly, Harender Singh could not be allowed to raise a challenge to the public auction held on 28.8.2008 because he had not raised any objection to the attachment of the property in question or the proclamations and notices issued in newspapers in connection with the auction thereof. All these facts cumulatively lead to the conclusion that after 26.10.2005, Harender Singh had lost all interest in the property in question and had therefore, remained a silent spectator to various orders which came to be passed from time to time. He had, therefore, no equitable right in his favour to assail the auction-purchase made by Sadashiv Prasad Sinha on 28.8.2008. Finally, the public auction under reference was held on 28.8.2008. Thereafter the same was confirmed on 22.09.2008. Possession of the property was handed over to the auction-purchaser Sadashiv Prasad Sinha on 11.3.2009. The auction-purchaser initiated mutation proceedings in respect of the property in question. Harender Singh did not raise any objections in the said mutation proceedings. The said mutation proceedings were also finalized in favour of Sadashiv Prasad Sinha. Harender Singh approached the High Court through CWJC No.16485 of 209 only on 27.11.2009. We are of the view that the challenged raised by Harender Singh ought to have been rejected on the grounds of delay and latches, especially because third party rights had emerged in the meantime. More so, because the auction purchaser was a bona fide purchaser for consideration, having purchased the property in furtherance of a duly publicized public auction, interference by the High Court even on ground of equity was clearly uncalled for. For the reasons recorded hereinabove, we are of the view that the impugned order dated 17.5.2010 passed by the High Court allowing Letters Patent Appeal No.844 of 2010 deserves to be set aside. The same is accordingly set aside. The right of the appellant Sadashiv Prasad Sinha in Plot No.2722, Exhibition Road, P.S. Gandhi Maidan, Patna, measuring 1289 sq.ft. is hereby confirmed. In the above view of the matter, while the appeal preferred by Sadashiv Prasad Sinha stands allowed, the one filed by Harender Singh is hereby dismissed. ………………………….J. (A.K. Patnaik) ………………………….J. (Jagdish Singh Khehar) New Delhi; January 8, 2014 |
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