Income‑tax‑‑‑

‑‑‑‑Recovery of tax‑‑‑Attachment of property‑‑‑Only property in possession of defaulter in his own right can be attached‑‑‑Property in possession of a third party ‑‑‑TRO must determine whether such possession is in possessor's own right‑‑‑Possession of property by an educational society for more than twenty years‑‑‑Municipal documents in name of society‑‑‑School constructed and being run in property‑‑‑Attachment of property for arrears of tax of ostensible owner of property was not valid‑‑‑Indian Income Tax Act, 1961, S.220, Sched. II, Part I, R.11.

The Tax Recovery Officer has to examine who is in possession of the property and in what capacity. He can only attach property in the possession of, the assessee in his own right, or in the possession of a tenant or a third party on behalf or for the benefit of the assessee. If the property attached is claimed by a third party who adduces evidence to show that he was possessed of the property under some kind of title, the property will have to be released, from attachment. As per rule 11(4) of Part I of Schedule II to the Income Tax Act, 1961, the Tax Recovery Officer is required to examine whether the possession of the third party is of a claimant in his own right or in trust for the assessee or on account of the assessee. If he comes to the conclusion that the transferee is in possession in his or her right, he will have to raise the attachment:

Held, that, in the instant case, the petitioner which was an educational society had failed to produce any documentary evidence to show when actually the land in question was handed over to the municipality and also when the municipality handed over the same to the petitioner for the purposes of the school. But at the same time, it was admitted even by the Income‑tax Department that in the sanctioned layout an area of about 20 grounds was reserved for the school and that the petitioner‑society had been in occupation of the said land. That apart the petitioner herein had placed a lot of documentary evidence before the Court to show that it had obtained sanction from the authorities to start a school in the property in question even in the year 1972 and now it was running a school having classes up to eighth standard and a student strength of 600. Apart from that, it had established that to run such a school in the property in question it had got ail the necessary sanctions and licences from the authorities concerned. It had also constructed a pucca building to accommodate the children and for the said building it had got a licence under the Madras Public Building Licence Act, 1965, as the owners of the said building. In this regard, it had got a no- objection certificate from the municipality. Thus, it was proved beyond any doubt that the petitioner alone was in continuous possession of the land openly for more than 20 years. Another significant aspect herein was that since 1972 regarding the property in question all the municipal documents were in the name of the petitioner‑society. As per rule 48 of Part III of Schedule II only the immovable property of the defaulter can be brought to sale after its attachment. But when there was no evidence before the respondent that the property in question was owned by the defaulter, his action in this regard and also the proposed auctions were totally without jurisdiction and invalid.

TRO v. Gangadhar Viswanath Ranade (1998) 234 ITR 188 (SC)

S. Sampathkumar and R. Natarajan for Petitioner.

C.V. Rajan for Respondent.

JUDGMENT

Invoking Article 226 of the Constitution of India, the petitioner herein has filed the present writ petition, seeking for a writ of certiorarified mandamus to call for the records of the first respondent viz., the proceedings, dated February 12, 1996, issued in rules 38 and 52(2) of the Second Schedule of the Income‑tax Act and to quash the same and to forbear the respondents from bringing the property belonging to the petitioner, society shown as a school layout No.44/58 issued by the Joint Director of Town Planning. Government of Madras, in Hasthinapuram Village, Saidapet Taluk, Chengai M, G. R. District, to sale.

Is support of the writ petition, the petitioner herein has filed an affidavit wherein he has narrated all the facts and circumstances that forced him. to file the present writ petition and requested this Court to allow the writ petition prayed for. Per contra, on behalf of the respondents, a counter affidavit has been filed by the first respondent rebutting all the material allegations levelled against them one after the other and ultimately requested this Court to dismiss the writ petition for want of merits.

Heard the arguments advanced by learned counsel appearing for the parties. I have gone through the contents of the affidavit and the counter affidavit together with all other relevant material documents available on record in the form of typed set of papers. I have also taken into consideration the various points raised by learned counsel appearing for the respective parties during the course of their arguments.

In the above facts and circumstances of this case, the only point that arises for consideration is, as to whether there are any valid grounds to allow this writ petition or not.

The brief facts of the case of the petitioner herein as seen from the affidavit are as follows: The petitioner herein is a registered society and is running a school and the said school is being run in layout No.44/58 issued by the Joint Director of Town Planning covering Paimash Nos.258/3, 259, 260/1, 263/10. 273/1. The layout is called Purushotham Nagar, situated at Hasthinapuram Village, Saidapet Taluk, Chengai‑M. G.R. District, and coming within the jurisdiction of the Palavaram Municipality. The owner of the land,. one T.P. Sathyanathan, applied for a layout and got a sanction on August 13, 1958. In the layout a portion was exclusively reserved for a school‑ and the total extent of the said portion is about 19 grounds. In the layout the property reserved for public purpose, namely, for running the school, and the portion shown as road are to be handed over to the Pallavaram Municipality by the owner and he is obliged to do so in law. Accordingly, the land‑owner handed‑over the portion shown as road and the area reserved for the school. The municipality, therefore, laid roads as shown in the layout. The petitioner‑society was formed in the year 1971 for establishing a school in the area reserved for the school and the said‑area was handed over to the person during July, 1972. This was intimated to the Pallavram Municipality. After the formation of the society, the petitioner society obtained a sanction on June 17, 1972, from the Director of School Education to start the school on November 26, 1973. A temporary recognition was given with aid to start standards, from 1 to.5 by the District Educational Officer, Saidapet. On November, 24, 1973, the District Educational Officer allotted trained teachers to the school. The society with the public funds and with the aid from the Government constructed a pucca building to accommodate the children. The building constructed by the petitioner‑society had to be licensed under the Madras Public Buildings (Licensing) Act, 1965, and as the petitioner was the owner of the building, it obtained necessary licence under the said Act. No objection certificate was given by the Municipality on June 19, 1991. Later on the Chief Educational Officer, Kancheepuram, accorded sanction for starting 6th standard. Subsequently, on February 29, 1992, the District Educational Officer, accorded sanction for starting 7th and 8th standards. All these facts established that the possession of the school was handed over as early as 1972, and the society is in possession of the school. The school is actually being run and as on date the school has a strength of more than 600 students and 6 teachers. After the school was established a demand was made in the year 1991 for assessing the school for property tax by the second respondent. As it was pointed out to them that educational institution would be exempted from the assessment and, therefore, the municipality withdrew the said assessment. The fact that the municipality had taken steps to assess the building to tax is a clear proof that the petitioner institution is treated as the owner of the school building in the municipal records. That being so a notice was sent by the first respondent on March 30, 1992, bringing the property to auction for the income‑tax due from the erstwhile land‑owner T.P. Sathiyanathan. The auction was fixed on May 27, 1992, and in the auction notice, the property described as (1) i.e., five grounds in S. No.29 of Hasthinapuram Village in Purushotham Nagar, Chrompet, and (2) 15 grounds in S. No.29 of Hasthinapuram, Village, Purushothan Nagar, Chrompet. On knowing this, the petitioner submitted a protest letter on May 6, 1992, bringing to the notice of the Income‑tax Department the illegality in bringing up their property for auction for the dues of the erstwhile land owner. Afterwards the petitioner met the authorities personally and explained to them the circumstances under which they were put in possession

and also pleaded that they are in continuous possession of the land openly for more than 20 years. Without appreciating the submission, the second respondent passed an order on May 27, 1993, holding that since they have not produced any title deeds, agreements or letter for even their claim as an occupant was rejected by the first respondent. The said order is factually incorrect and their status as an occupant of the land can never be questioned in the light of the facts that the petitioners are running a school duly recognized and receiving aid from the year 1972. Since the Tax Recovery Officer has not considered their claim in the proper perspective, they issued a lawyer's notice on August 23, 1993, bringing to his notice to refrain from any coercive action in respect of the land and building in which the school is situated. They also made it clear that the land‑owner had no right whatsoever over the public place and the classification of the public purpose can never be changed and the said land ought not to be brought for sale. After this notice, the petitioners were under the impression that the first respondent has dropped the auction. They have not received any reply to the lawyer's notice, dated August 23, 1993, and the threatened auction proceedings were dropped. That being so all of a sudden on February 12, 1996, another notice was issued by the first respondent similar to one which was issued on February 29, 1992, threatening the auctioning of the school and its premises on March 18, 1996, and the same was served on the petitioner and the property, is described as two grounds residential plot situated in Pursushotham Nagar, Chrompet, Madras‑44, comprising in Paimash Nos.258/3, 259, 260/1, 263/10, 273/1, 274/2, 262 and 283/2. The saidproceedings, dated February 12, 1996, threatening conercive action in respect of their property is invalid and ultra vires and totally without jurisdiction. Hence, this writ petition.

The impugned proceedings, dated February 12, 1996, issued by the first respondent herein is challenged by the petitioner herein on the grounds that in the layout 19 grounds have been reserved for a public purpose, viz., for establishing a school, that the said area was handed over to the Pallavaram Municipality alongwith the land intended for laying roads, that the said area reserved for the school was handed over to the petitioner society and the petitioner‑society has established a school duly recognized and that the school has taken possession of the property in July, 1972, and is in possession and enjoyment of the property, and that, therefore, it is contended by the petitioner herein that in the light of the above facts, the first respondent cannot proceed against the property of the school for the income -tax dues of the erstwhile land‑owner. It is also argued by the petitioner that the land owner had parted with possession of the property by selling the plots in the layout to third parties and had handed over possession of the place reserved for public purpose to the Pallavaram Municipality and reserved for roads. Under these circumstances, he cannot be considered as the owner of the property in question as on date and that, therefore, the Department cannot bring the property which is not belonging to the defaulter by way of sale. It is also contended by the petitioner that the entire proceedings are invalid due to the non‑application of mind and exercise of power and this auction is totally without jurisdiction and the notice is totally defective. It is also the case of the petitioner herein that under section 4‑ of the Tamil Nadu Public Buildings (Licensing) Act, 1965, it is the owner who must apply for licence and in this case the petitioner herein has applied for the said licence as the owner of the same and has obtained the licence. Therefore, it is contended by them that the above fact establishes, the ownership of the petitioner‑society and hence its property cannot be brought to sale for the arrears of the erstwhile land owner.

Per contra, it is contended by the Department that no documentary evidence for substantiating their contention has been filed by the petitioner in the typed set of papers and that the said letter, dated July 7, 1972, said to have been written by the Pallavaram Municipality to the land‑owner to hand over possession of the portion shown in red for the school to the municipality has also not been enclosed in the typed set of papers and that merely because the possession of the area in question stated to have been reserved for the school in the layout plan was handed over by the defaulter to the petitioner or the municipality, no document to prove such handing over has been produced. It is also contended by respondent No. 1 that the Commissioner, Pallavaram Municipality has in his letter, dated September 1, 1993, specifically endorsed the fact that the possession of the land had not been handed over by T.P. Sathiyanathan either to the petitioner or to the Pallavaram Municipality and that therefore in such circumstances it is argued by the first respondent‑Department that the defaulter T.P. Sathiyanathan continued to be the owner of the area ip question and hence proceedings taken by the Income‑tax Department for recovering the arrears of tax due from him by sale of the said property are perfectly valid and justified in law. It is their categoric contention that no document has been produced or was produced before the first respondent Department either by the petitioner herein or by the erstwhile owner to establish that the property in question ceased to be the property of the defaulter, he having transferred the same to the petitioner society. According to the Department, no registered deed has been produced by the petitioner‑society either to prove and establish that it had either purchased the property in question or the same was gifted to it by the erstwhile owner, T.P. Sathiyanathan, who is the defaulter and that there is no document showing that the property in question stands in the name of the petitioner‑society. Therefore, it is the strong contention of the Department that the defaulter T.P. Sathiyanathan continued to be the owner of the land in question and the petitioner cannot claim any right, title and interest therein particularly when as stated earlier by the respondents that no document has been produced by it transferring the area in question to it by the owner. Further it is also contended by the respondent Department that if the petitioner society is really interested in the said land, nothing prevented it from paying up the arrears so as to get the property released from attachment and thereafter obtain a valid document of title in its favour or bid at the auction and purchase the same in its own right. Therefore, it is their categoric case that so long as the property continues to be that of the defaulter and the petitioner is not able to produce any document in its favour to establish that it is the owner of the land in question, no exception can be taken to the sale of the property by the Income‑tax Department for realizing the arrears of tax due from the defaulter who continues to be the owner of the land in question. Therefore, according to the first respondent, there are no merits in this writ petition and the action of the first respondent in bringing the property to sale is perfectly valid and justified in law.

Having, seen the entire material available on record, the following are the admitted facts. One T.P. Sathiyanathan applied for a layout and got a sanction on August 13, 1958, that in the said layout a portion was exclusively reserved for a school and the said area reserved for the school and the area reserved for roads were handed over .to the Pallavaram Municipality by the then owner. Thereafter, the municipality laid roads as shown in the layout. The petitioner society was formed in the year 1971, for establishing a school in the area reserved for the school and the said area was handed over to them in July, 1972. The petitioner‑society obtained due sanction on June 17, 1972, from the authorities to start a school. Thereafter, on November, 26, 1973, a temporary recognition was given with aid to start from standards 1 to 5 by the authorities. Ultimately, they have got the sanction to start 7th and 8th and as on the date of filing the writ they had a student strength of about 600 and six teachers. They have also obtained licence under the Madras Public Buildings (Licensing) Act, 1965. Regarding all these aspects there is no dispute. It is also admitted that the petitioner society herein has been running the school in the property in question since 1972, and also it is significant to note that for running such a school the petitioner has got due sanctions from the authorities concerned properly. That being so, the first respondent issued the impugned proceedings to the petitioner herein intimating that the property now in the possession of the petitioner herein would be sold in auction for the arrears of tax to be paid by the owner of the land Sathyanathan since the said property has already been attached by the Department. In this regard it has been stated by the petitioner herein that only they are the owners of the property in `question since they have been in possession of the said land since 1972, and it is also their case that the said land has been handed over first by the erstwhile owner one Sathyiyanathan to the Pallavaram Municipality as the same was earmarked for a public purpose to start a school and in turn the said Pallavaram Municipality handed it over to the petitioner‑society to start a school and accordingly they have started a school and are running the same. Even though the above aspects are admitted by the first respondent‑Department, they have sent a notice even on March 30, 1992, to the petitioner herein stating that the said property would be brought to auction on May 27, 1992, for the income‑tax dues from the erstwhile owner T.P. Sathiyanathan. On this, the petitioners gave explanations to the Department that at present they are the owners of the same and they have been in continuous possession of the said land openly for more than 20 years. But such a request was rejected. Thereafter, the petitioners caused lawyer notice to the Department reiterating their stand. But there was no reply. Thereafter, after a lapse of about three years the first respondent issued a similar notice on February 12, 1996, and aggrieved by the same, the petitioner herein has come forward with the present writ petition. The claim of ownership of the petitioner‑herein over the property in question has been rejected by the Department on the ground that no registered deed has been produced by the petitioner‑society either to prove and establish that it had either purchased the property in question or the same was gifted to it by the erstwhile owner who is the defaulter before them, and that therefore, their defaulter T. P. Sathiyanathan continued to be the owner of the area in question and hence the proceedings taken by the Income‑tax Department for recovering the arrears of tax due from him by sale of the said property is perfectly valid and justified in law. It is also their stand that even the Commissioner, Pallavaram Municipality, has specifically endorsed in his letter, dated September 1, 1993, that the possession of the land has not been handed over by T.P. Sathiyanathan either to the Chrompet Educational Society, the petitioner herein, or to the Pallavaram Municipality, the second respondent herein: In this case it is significant to note that it is no doubt true that the petitioner herein‑has failed to produce any documentary evidence to show when actually the land in question was handed over to the municipality and also when the municipality handed over the same to the petitioner for the school purpose. But, at the same time, it is admitted even by the first respondent Department that in the sanctioned layout it is seen that an area of about 20 grounds was reserved for the school, and that the petitioner‑society has been in occupation of the said land. That apart the petitioner herein has placed a number of documentary evidence before this Court to show that they have obtained sanction from the authorities to start a school in the property in question even in the year 1972 and now they are running a school having classes up to 8th standard and a student strength of 600. Apart from that they have also established that to run such a school in the property in question they have got all the necessary sanctions and licences from the authorities concerned. They have also constructed a pucca building to accommodate the children and for the said building they have also got a licence under the Madras Public Buildings (Licensing) Act, 1965, as the owners of the said building. In this regard they have got a no objection certificate from the municipality. Thus, it is proved beyond any doubt that the petitioners herein alone are in continuous possession of the land openly for more than 20 years. Another significant aspect herein is that since 1972, regarding the property in question all the municipal documents are also in the name of the petitioner‑society. It is also not the case of the respondent Department that their defaulter the erstwhile owner of the property in question is having any claim over the same. That apart it is admitted even by the respondent Department that in the sanctioned layout it is seen that an area of about 20 grounds was reserved for the school. That being so even the erstwhile owner also cannot have any right whatsoever over such a public place and the classification of the public place can never be changed. In such circumstances as such there is no documentary proof with the respondent Department to contend that their defaulter‑‑‑the erstwhile owner of the property in question Sathiyanathan alone continues to lie the owner of the property and that, therefore, their action is in order and it cannot be interfered with. Further, it is significant to note that as per rule 48 only the immovable property of the defaulter can be brought to sale after its attachment. But when there is no evidence before the respondent that the property in question is owned by the defaulter, their action in this regard and also the proposed auction are totally without jurisdiction and invalid.

In support of their case, learned counsel appearing for the petitioner relied upon a judgment of the Supreme Court reported in TRO v. Gangadhar Viswanath Ranade (1998) 234 ITR .188, wherein it has been held that the Tax Recovery Officer has to examine who is in possession of the property and in what capacity. He can only attach property in the possession of the assessee in his own right, or in the possession of a tenant or a third party on behalf of/for the benefit of the assessee. He cannot declare any transfer made by the assessee in favour of a third party as void. Further it has been specifically held in the said judgment by the apex Court that if the property attached is claimed by a third party who adduces evidence to show that he was possessed of the property under some kind of title, the property will have to be released from attachment. The Supreme Court has also observed therein that the procedure is not meant to decide intricate questions of law as to title to the property. The Supreme Court has also made it clear that as per rule 11(4), the Tax Recovery Officer is required to examine whether the possession of the third party is of a claimant in his own right or in trust for the assessee or on account of the assessee. If he comes to a conclusion that the transferee is in possession in his or her right, he will have to raise the attachment. Thus, from all the above it is very clear that the above proposition of law laid down by the apex Court in the above judgment squarely applies to the facts of the case on hand also.

Therefore, for all the aforesaid reasons and in the facts and circumstances of this case and also in view of my above discussion with regard to various aspects of the case on hand and also in the light of the above Supreme Court judgment, I am of the clear view that the petitioner herein has made out a case in its favour and consequently the impugned proceedings of the first respondent are liable to be quashed as the same are totally without jurisdiction and invalid. Thus, the writ petition succeeds and the same is deserved to be allowed as prayed for.

In the result, the writ petition is allowed as prayed for. No costs. Consequently, the impugned proceedings, dated February 12, 1996, is hereby quashed and the first respondent herein is hereby restrained from bringing the property belonging to the petitioner‑society, shown as a school layout No.44/58 issued by the Joint Director of Town Planning, Government of Madras W.M.P. Nos.4848 of 1996 and 8315 of 1998 are dismissed.

M..B.A./380/FC Order accordingly.