11 October 1996
Supreme Court


Case number: C.A. No.-013049-013050 / 1996
Diary number: 84665 / 1992






DATE OF JUDGMENT:       11/10/1996




JUDGMENT:                       J U D G M E N T S.B. Majmudar, J.      Leave granted in these Special Leave Petitions.      By consent  of learned  advocates of contesting parties the appeals  were heard finally and are being disposed of by this judgment.       A  short question falls for our consideration in these two appeals  arising out  of a  common judgment  or Division bench of  the Karnataka  High Court in Writ Appeal No 293 of 1991 connected  with Writ Appeal No.721 of 1991 the question is whether  the common  appellant in  these appeals  who was original petitioner  no.2 in  these Special  Leave Petitions had any  locus standi to prefer an application under Rule 60 of the  Second Schedule  to the  Income Tax  Act,  1961  for setting  aside   the  sale  of  immovable  property  of  the defaulter income  tax assessee  from whom  he is  alleged to have agreed to purchase the said property and which property was  sold  in  auction  by  the  Income  Tax  Department  in execution of  Certificate of  Recovery of  lncome Tax issued against the defaulter, owner of the property.      In order to answer this question the backdrop facts may be noted at the outset. One Y.S. Devendra Murthy who was the owner of the property auctioned by the income Tax Department had committed default in payment of income tax dues assessed against him  for the  relevant  assessment  years.  The  Tax Recovery Officer  under the  Income Tex Act issued notice to him on  3rd September  1973 as  per Rule  2  of  the  Second Schedule to  the Income  Tax Act  which deals with Procedure for Recovery of Tax. The said defaulter Shri Y.S, Devendra Murthy entered  into an  agreement dated  20th November 1982 with  the  common  appellant  to  sell  his  property  being agricultural land  being Survey  No.20 and  part  Of  Survey no.21 for  Rs.2,80,000/-  and  received  an  advance  of  Rs 1.62,000/-. The  Sale deed  was to  be executed by said shri Y.S.Devendra Murthy within eight months which time limit was further extended  by five months. The appellant filed a quit for specific  performance of  the Agreement  to sell  on 2nd January 1984  alleging that  said Shri  Y.S. Devendra murthy had  failed  to  execute  the  sale  deed  pursuant  to  the agreement. Earlier an ex parte decree was passed in the said



decree was  set aside  and the proceedings remained pending. In the  meantime by  an order  dated aforesaid properties to Y.S. Devendra Murthy and thereafter proclamation of sale was issued for  putting the  tax dues  of the defaulter. the Tax recovery officer  brought the  said attached  properties  to sale on  14th march  1988. The   third respondent herein was the successful  bidder at  the said  auction and  he  became auction purchaser  of these  properties. thereafter  on 12th April 1988,   that  is, within  thirty days from the date of the auction  sale the  appellant filed  an application under Rule 60 of the Second Schedule to the Income Tax Act. To the said application was annexed a letter from the general power of attorney  holder of  the  defaulter    Shri  Y.S.Devendra Murthy authorising him to deposit the amount of tax arrears. The appellant  along with  the said  application  sought  to deposit the  interest and  solatium at  the rate  of 5% with costs. The  appellant also deposited Rs.3,42,322/- being the arrears of  tax with  interest and  solatium with costs with the tax   recovery  officer on  the same  day, that  is 12th April 1988  He accordingly  prayed  for  setting  aside  the auction sale.  The tax  Recovery officer  by his order dated 20th April  1988 rejected by the commissioner of Income Tax, Karnataka II,  Bangalore to  confirm the auction sale he had confirmed the auction sale he had confirmed the auction sale and hence  the appellant carried the matter in appeal before the Tax  Recovery commissioner  who rejected the said appeal and passed  order dated  13th June  1988. At  that stage the appellant along with the general power of attorney holder of Y.S. Devendra  Murthy, named Shri Y.S. Surender filed a writ petition in  the Karnataka High Court challenging the orders of the Tax Recovery Officer and Tax Recovery Commissioner. A learned  single Judge of the High Court by his order dated 14th December 1990 allowed the writ petition and quashed the orders dated  20th April 1988 passed by Tax Recovery Officer and  dated   13th  June   1988  passed   by   Tax   Recovery Commissioner.  The   learned  Single  Judge  held  that  the application moved  by the  appellant was  maintainable under Rule 60  and  as  he  had  in  the  meantime  withdrawn  the deposited amount he permitted the general  Power of Attorney holder of  Y.S. Devendra  Murthy to  make deposit within the weeks and directed the Tax Recovery Officer to deal with the matter in  accordance with  law. An amount of Rs. 4,45,783/- was accordingly deposited with the Tax Recovery Officer. The aforesaid order  of the learned  Single Judge was challenged by the  Tax Recovery  Commissioner. Karnataka II., Bangalore and Tax  Recovery Officer  by way  of Writ  Appeal No.293 of 1991 while  respondent no. 3 preferred Writ Appeal No.72I of 1991 against  the very  judgment and  order of  the  learned Single Judge  as by  the said  order of  the learned  Single Judge the  auction sale  in favour  of respondent  no.3  was liable to  be set  aside if  the remanded  proceedings under Rule by were successful. Both these writ appeals  were heard together by  a Division  Bench of  the Karnataka  High Court consisting of S.P. Bharucha, CJ (as he then was) and Justice Shivraj Patil.  The Division Bench of the High Court came to the conclusion  that the  appellant‘s application under Rule 60 was  not maintainable  and he had no locus standi to file such an  application. Consequently  the  writ  appeals  were allowed and  the writ petition was dismissed with the result that the  order of the Tax Recovery Officer dated 20th April 1988 and  the further order of the Tax Recovery Commissioner dated 13th June 1988 came to be confirmed.  Aggrieved by the common order  of the Division Bench of the high Court in the aforesaid two  writ appeals two Special Leave petitions were moved in  this Court initially by two petitioners. The first



petitioner was  Y.S. Surendra, the general Power of Attorney holder of  the  defaulter  and  the  present  appellant  was petitioner no.2.  But during the proceedings at notice stage the original  petitioner  no.1, the Power of Attorney holder of the  defaulter , Y.S. Surendra withdrew from contest with the  result  that  original  petitioner  no.2  remained  the solitary petitioner in both the  S.L.Ps and has now pursued the present two appeals as the sole appellant.      Learned  senior   counsel,  Shri  P  P.  Rao,  for  the appellant submitted  that the  Division Bench  of  the  High Court  arred   in  taking  the  view  that  the  appellant‘s application under  Rule 60  of Second Schedule to the Income Tax Act  was not  maintainable.  That  his  application  was backed up  by the  authority letter entitling him to deposit the tax amount on behalf of the defaulter and that authority letter was  duly signed  by the  Power of Attorney holder of the defaulter  and that  application was moved within thirty days of  the auction  sale.  It  was,  therefore,  perfectly maintainable and  it  was  too  much  to  contend  that  the defaulter cannot be the amount deposited through anyone much less through  the appellant who had interest in the property ad his suit for specific performance was not only pending on the date  of the auction sale but had got decreed by consent on the  very next  day of moving such application. Shri P.P. Rao submitted  that the  application was moved on 12th April 1986 and  the suit in favour of the appellant was decreed by consent of  parties on  the day  on which  the Tax  Recovery Officer rejected  the appellant‘s application he was already having the  full title  in this  property  as  successor-in- interest of  the defaulter. It was vehemently submitted that even assuming  it is  held that  the defaulter  through  his Power  of   Attorney  holder   had  not   filed  a  separate application under  Rule 60  and  had  merely  supported  the application of  the appellant even then as per the said Rule the  appellant   had  sufficient  locus  standi  as  he  was interested in  the property  which was subject-matter of the auction sale  and that  Revenue was  only concerned with its tax dues.  Once the  deposit fully met the said claim of the Revenue it  could not insist on such a technicality that the appellant‘s application  was not  maintainable  the  auction purchaser respondent  no.3 who  did not get any better right by the  auction in  his favour  which was  liable to  be set aside on payment of tax within thirty days of the auction by the defaulter  or by  any of  his agents. In support of this contention strong  reliance of  the Kerala High Court in the case of  H. Rajgopal v. Secretary state Transport Authority, Trivandrum and others (1978) 115 I.T.R. 364.      On the  other hand  learned counsel  for the Revenue as well as  learned senior counsel Shri Salve for respondent no 3 auction  purchaser vehemently  contended that the Division Bench of  the High  Court was  perfectly justified in taking the View  that appellants  application was  not maintainable under Rule  60 of  the Rules  as his  alleged  agreement  to purchase the  property was  avoid from  the inception as the said agreement  dated 20th  November 1982 few in the face of statutory prohibition  engrafted by  Rule 16 sub-rule (1) of the Rules  in the  Second Schedule of the Income Tax Act. It was also  submitted that  once the  defaulter’s property was attached on  11th February  1988 as per Rule 51 of the Rules the attachment  related back  to  the  date  of  service  of notice, that  is, 3rd  September 1973  and,  therefore,  the agreement itself  became void. In any case according to Shri Salve the  application moved by the appellant could not have been  entertained  and  was  rightly  rejected  by  the  Tax authorities as  because  of  such  an  agreement  which  was



violative of  provisions of Rule 16 sub-rule (1) and Rule 51 read with  Rule 48  the appellant  could not be said to be a person having  any legal  interest in  the property  put  to auction. That  such an  interest must be of a person who had required some  legal right or interest in the property prior to the  issuance of  notice  under  Rule  2  of  the  Second Schedule and would not cover a person whose transaction with the defaulter  was within  the sweep  of the  prohibition of Rule 16  sub-rule (1)  and Rule  51 read with Rule 48 of the Rules. In  Rejoinder learned senior counsel Shri Rao for the appellant  submitted  that  the  application  moved  by  the appellant could  not be said to be by an unauthorised person or a  stranger to  the property  as he was having sufficient legal interest  in the  property and  his agreement  was not void at  initio but  was subject  of the  superior right  of recovery of the tax by the Revenue and once that was assured by the  appellant  by  depositing  the  entire  amount  with interest and  costs the  Revenue could  not contend  that it would still  insist on  going ahead  with  the  auction  and getting  it   confirmed.  That   the  appellant   had  moved application under  Rule 60  within the  permissible limit of thirty days from the date of auction.      In the  light of the aforesaid rival contentions we now proceed  to   deal  with   the  question   posed   for   our consideration. Rule  60 of  the Rules in the Second Schedule to the Income Tax Act reads as under:      "60 (1)  Where  immovable  property      has been  sold in  execution  of  a      certificate, the  defaulter, or any      person whose interests are affected      by the  sale may at any time within      thirty days  from the  date of  the      sale, apply  to  the  Tax  Recovery      Officer to  set aside  the sale, on      his depositing-      (a) the  amount  specified  in  the      proclamation of  sale as  that  for      the recovery  of which the sale was      ordered. with  interest thereon  at      the rate  of fifteen  per cent  per      annum, calculated  from the date of      the proclamation  of  sale  to  the      date when the deposit is made; and      (b) for  payment to  the purchaser,      as penalty, a sum equal to five per      cent of the purchase money, but not      less than one rupee.      (2)  Where   a  person   makes   an      application  under   rule  61   for      setting  aside   the  sale  of  his      immovable property,  he shall  not,      unless    he     withdraws     that      application, be entitled to make or      prosecute an application under this      rule."      It is  no doubt  true that original defaulter Shri Y.S. Devendra Murthy  whose  property  was  put  to  auction  had sufficient locus  standing to move an application under Rule 60 within  thirty days  of the sale far getting it set aside on his  depositing the  requisite amount as laid down by the said provision  and his  general Power  of  Attorney  holder could also  legitimately contend that he had locus standi to move such an application on behalf of the defaulter. However for reasons  best known to him he had not done so. It is not the case  of the appellant that Shri Y.S. Devendra Murthy or



his Power  of Attorney  holder Shri  Y.S. Surendra had moved such an  application. On the contrary his consistent case is that he  himself had  moved such  an application  but he was supported by  the authority  given by  the Power of Attorney holder of  Y.S. Devendra Murthy to deposit the amount of tax arrears, Shri  P.P. Rao,  learned  senior  counsel  for  the appellant  was   right  when   he  contended  that  once  an appropriate application  is moved  by   the defaulter or his Power of Attorney holder under Rule 60, the further question as to from which source he gets money for being deposited or through whom  be gets  the money  deposited would  pale into insignificance and  that even  a peon  of the  defaulter can also carry  out the  ministerial act  of actually depositing the money on his behalf. But unfortunately for the appellant such is  not the  case here.  When we run to the application dated 12th  April 1988  moved by the appellant under Rule 60 it becomes  at once  clear that  it was not the defaulter or his Power of Attorney holder who was moving this application but it  was  only  the  appellant  who  was  armed  with  an agreement to  purchase the  property put  to auction who was moving this  application and the moneys were being deposited by him  on his  own behalf  and for  which action he had got authority  from   the  Power   of  Attorney  holder  of  the defaulter.  The   following  pertinent   recitals   in   the application make this position clear:      "I am  the prospective purchaser of      the   properties    bearing    Nos.      20/1,2,3  and   21.   situated   at      Byaderahalli  village,  Viswaneedam      Post, Bangalore-560  091, and  Y.S.      Devendra  Murthy  has  executed  an      agreement in  this behalf  agreeing      to  sell  the  properties.  I  have      filed   the   suit   for   specific      performance  of   the  contract  to      enforce the  said agreement in O.S.      No.5/1984  on   the  file   of  the      Additional Civil  Judge, Bangalore.      I have  paid  the  amount  also  in      advance.  In   the  meantime,  your      Hon‘ble Authority  was  pleased  to      hold  auction   on   14.3.1988   in      respect of  arrears due  in respect      of Sri  Y.S. Devendra Murthy. Still      there is  time to pay the amount by      the said Y.S. Devendra Murthy. As I      am having  right and  interest over      the   property    that   has   been      auctioned. I  am ready  and willing      to pay  the amount in full. To this      effect.  Sri   Y.S.  Surendra   the      brother and  the Power  of Attorney      Holder of  Sri Y.S. Devendra Murthy      has  authorised   in  to   pay  the      amount.  The   said   authorisation      letter   is    enclosed   herewith.      Accordingly, I  am prepared  to pay      the  amount   that   your   Hon‘ble      Authority is  entitled  to  recover      from  Y.S.   Devendra  murthy.  The      amount detailed below may kindly be      accepted and the sale may kindly be      set aside."      In the  prayer clause  of the  said application  it has been stated that above application is filed under Rule 60 of



Schedule II  of Income  Tax Act,  1961 and  the sale  be set aside by  accepting the  amount deposited  by him.  It is of course. true as contended by learned senior counsel Shri Rao for the  appellant that  along with this application he also annexed the  authority letter  given to  him by the Power of Attorney holder  of the  defaulter. He invited our attention to the  said letter  annexed to  the appellant’s application under Rule  60. The  said letter  is addressed to the Income Tax Commissioner  by the  Power of  Attorney holder  of  the defaulter Shri  Y.S. Devendra Murthy. by the said letter the Power  of  Attorney  holder  has  informed  the  Income  Tax Commissioner that he was prepared to pay the amount that was due to  his brother  as his  Power of Attorney holder and in this behalf he had authorised K. Basavarajappa, plaintiff in Original Suit  No.5 of  l984 on the file of Additional Civil Judge Bangalore  (the appellant  herein), to pay the amount. Now it  becomes clear  that this  letter  addressed  to  the Income Tax  Commissioner, Third  Circle. Bangalore, could by no stretch of imagination be considered to be an application under Rule  60, moved  by the  defaulter  or  his  Power  of Attorney holder  Shri Y.S.  Surendra as  such an application has to  be moved  before the  Tax Recovery  Officer who  has conducted the  auction sale  with the  prayer to  get it set aside. That letter is merely an intimation to the Income Tax Commissioner that he had authorised the appellant, plaintiff of the  suit, to  make payment  on behalf  of his  defaulter brother. Such  a letter.  therefore. could not constitute an appropriate application  under Rule  60 by  the defaulter or his Power  of Attorney  holder for  getting the section sale set aside.  So for as the appellant is concerned he no doubt moved that  application under  Rule 60.  But his application was moved  on the  basis that  he was  already filed a civil suit for  specific performance  of his agreement to purchase the suit  property which was subject matter of auction. Thus he  was   putting  forward  his  own  claim  as  prospective purchaser of the property. On the date of the application he was not  armed with any decree granting specific performance of the agreement. We also find considerable substance in the submission of  Shri Salve  learned senior  counsel  for  the auction purchaser  that when  equities are  to  be  balanced between the  two rival  claimants, namely,  the  prospective purchaser of  the auctioned  property under  an agreement to set on  take one  hand and  the auction  purchaser  who  had purchased the  property in  the tax  recovery proceedings on the other,  it has  to be  seen further  the appellant could claim any legal interest and even a preferential interest in the property which would entitle him to get the auction sale set aside.  In this  connection Rule  16(2) on  which strong reliance was  placed by Shri Salve, is found clearly to have hit the  said agreement  in  favour  of  the  appellant.  To recapitulate, notice  under Rule 2 of the Second Schedule of the Income  Tax Act  was issued  to  the  defaulter  on  and September 1973.  It may  be that  the attachment  might have taken place  years afterwards but on 20th November 1982 when the  defaulter  agreed  to  sell  off  his  property  to  be appellant he  totally bypassed the requirement of Rule 16(2) which lays  down that  where a  notice has  be served on the defaulter under  Rule 2 the defaulter or his representative- in-interest shall  not be  competent  to  mortgage.  charge, lease or  otherwise deal  with any property belonging to him except with  the permission of the Tax Recovery Officer, nor shall  any  civil  court  issue  any  process  against  such property in  execution of a decree for the payment of money. By entering  into such an agreement to sell his property the defaulter had  clearly committed  breach of  Rule 16 and had



bypassed  the   procedure  laid  down  therein  for  getting permission of  the Tax  Recovery Officer. In this connection Shri P.P.  Rao, learned senior counsel for the appellant was right when  he contended that such dealing with the property by the  defaulter was  not absolutely  prohibited but it was subject to  the permission of the Tax Recovery Officer while under sub-rule  (2) of Rule 16 once attachment has been made under this  sub-rule any private transfer or delivery of the property attached or any interest therein and any payment to the default  of any  debt, dividend or other moneys contrary to such  attachment, shall  be void  as against  all  claims enforceable under  the attachment.  However  this  does  not improve the  situation for  the  appellant  for  the  simple reason that once attachment was levied on 11th February 1988 by virtue  of Rule  51 it  related back  to the  date of the notice. that  is, 3rd  September 1973  and  the  appellant’s agreement was  in between. It was contended by Shri P.P. Rao relying on the judgment of the Kerala High Court in the case of M.  Rajgopal (supra)  that all that Revenue was concerned with was  security of  its dues and consequently even though any transaction  which was  hit by  the provisions  of Rules 16(1) and  (2) the  parties to  such transaction  would have sufficient interest to move an application under Rule 60 for setting aside  the auction sale on offer to deposit full tax dues. It  is not possible to countenance this submission. If a party with open eyes bypasses the statutory requirement of Rule 16(1)  and gets  an agreement  to sell  executed by the defaulter, it cannot on the basis of such an agreement claim to get the auction sale of defaulter‘s property set aside by depositing the  amount after  the property is put to auction for recovering  the tax  dues of  the department.  It  would amount to  circumventing statutory  provisions of rule 16(1) and (2)  read with  Rule 51  and 48  of the  Rules. It must, therefore, be  held as  rightly  submitted  by  Shri  Salve, learned  senior   counsel  for   respondent  no.3  that  the appellant had  no locus standi to move the application dated 12th April  1988 for  getting the auction sale set aside. It is also  to be  noted that  he had  no legal interest in the said  property  on  the  date  of  the  application.  It  is axiomatic that  mere agreement  to  sell  creates  no  legal interest or  right in  the property  which is  the  subject- matter of the agreement. In this connection a Division Bench of the  Karnataka High Count in D.V. Satyanarayana & Ors. v. Tax Recovery  Officer &  Ors. (1992) 197 I.T.R 407 has taken the view that a person who had obtained an agreement to sell which is hit by Rule 16 of the Second Schedule to the Income Tax Act cannot make an application under Rule 61 for setting aside the sale as a person holding interest in the property. On the  scheme of  the Rules  aforesaid this view represents the correct  legal position.  On the  same analogy  such  an agreement holder  cannot equally  apply under Rule 60 in his own right  to get  such auction sale set aside. The decision of the learned Senior Judge of the Kerala High court heavily relied upon  by learned  senior counsel for the appellant is of no assistance to him for the simple reason to in the case The court  was not  concerned with  any attachment following the notice  under Rule  2 of  Schedule II  to the Income Tax Act. The Court was concerned with the short question whether the Tax  Recovery Officer  could issue  any  notice  to  the transferee from  the defaulter who had received notice under Rule 2  and whether  such a  Power few from Rule 16 sub-rule (1). It  is no  doubt true  that it  has been  observed that there would  be time  lag between  the service of notice and attachment of  property and  such time  lag was  fairly long since  the   Revenue  might   take  time  to  ascertain  the



properties the  defaulter is  possessed of.  And because  of Rule  51  any  attachment  of  immovable  property  is  made operative from the date of service upon the defaulter to pay the arrears.  The question  in the  present case is entirely different. By  mere agreement  to sell  the appellant got no interest in  the property  put to  auction to  enable him to apply for  setting aside  such auction  under  Rule  60  and especially when  his transaction  was hit by Rule 16(1) read with Rules  51 and  48. Consequently he could not be said to be having  any legal interest to entitle him to move such an application. Consequently  no fault  could be found with the decision of  the Division  Bench of the High Court rejecting the  entitlement   of  the   appellant  to   move  such   an application. It  is, however,  pertinent to note that though originally the Power of Attorney holder of the defaulter was also a  party  to  these  proceedings  as  petitioner  no.l, pending  these  proceedings  he  had  withdrawn  from  these proceedings and  he has  acquiesced in the order of the High Court rejecting the appellant’s claim for being entitled to move such  an application,  The order  of the High Court qua the defaulter  and his  Power of  Attorney holder has become final. Therefore,  as on date the appellant is not supported by the  defaulter or his Power of Attorney holder either. He has to  swim or  sink on his own. Under these circumstances, therefore, the  appellant must  be held  to be devoid of any locus standi  for moving an application under Rule 60 of the Rules for setting aside this auction sales.      In the  result these appeals fail and are dismissed. In the facts  and circumstances of the case to there will be no order as to costs.