TMI Blog2005 (12) TMI 80X X X X Extracts X X X X X X X X Extracts X X X X ..... ication filed by GVFL for temporary injunction on the above lines. W. P. No. 17576 of 2005 was filed by the applicant/plaintiff (GVFL) challenging the order of the Tax Recovery Officer (TRO) under rule 39 of the Income-tax (Certificate Proceedings) Rules, 1962 ("ITCP Rules"), and to issue a writ of prohibition restraining the Income-tax Department from interfering with the possession of GVFL Ltd. For convenience, the parties are referred to as in their rank in C. S. No. 454 of 2005. Earlier, by order dated August 22, 2005, G. V. Films Ltd. v. S. Priyadarshan [2006] 281 ITR 114 (Mad), F. M. Ibrahim Kalifulla J. has passed the order to restore status quo as it existed on July 13, 2005, to the applicant/plaintiff. To ensure restoration of possession in favour of the applicant/plaintiff-GVFL, Mr. M. Vijaya Raghavan was appointed as Advocate-Commissioner to restore possession to the plaintiff-GVFL. Later, F. M. Ibrahim Kalifulla J. has further heard the parties. Having regard to the stand of the respective parties, the court has directed the "Tax Recovery Officer(TRO) to hear the applicant/plaintiff as to his right to remain in possession and whether at all the applicant/plaintiff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Schedule II, i.e., for the reason that SFL was not competent to contract at the time of the alleged first lease arrangement dated November 28, 1989. The Tax Recovery Officer has categorically found that CVFL has no tenancy rights over the property-Coodluck Preview Theatre and that it is not a tenant of SFL and that CVFL falls under rule 39 of the ITCP Rules. In substance, the Tax Recovery Officer has held: "i. CVFL has been in possession of the property as an entity representing the defaulter as the lease agreement is only a facade to transfer the perpetual enjoyment of the property, even while avoiding the due process of law. ii. CVFL's claim to the property is based on a right, which has all the ingredients of title to the property created after attachment." As noted earlier, in the order dated September 15, 2005, F. M. Ibrahim Kalifulla J. has ordered that "the implementation of the said order shall await further orders in these proceedings". Accordingly, the matter and the impugned order of the Tax Recovery Officer dated September 29,2005, are before the court. Elaborate arguments were advanced on behalf of the parties. The hearing and arguments stretched over a couple ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asa Reddy constitute the board. In both the companies, there are common directors and are the family members. G. Venkateswaran was in managerial position and control of both the companies. SFL is a defaulter and is due of tax arrears of a sum of Rs. 19,57,78,191. The details of tax arrears due have been stated in the proclamation of sale dated February 7, 2005, as noted below: --------------------------------------------------------- After T.R. No. Date Asst. Certified reduction/ Year arrears collection) --------------------------------------------------------- 256/91-92 31.10.90 84-85 Rs. 64,99,442 (Surtax) 256/91-92 16.09.91 86-87 Rs. 1,97,93,873 Income-tax 256/91-92 11.09.91 87-88 Rs. 2,09,33,386 Income-tax 596/03-04 15.10.03 88-89 Rs. 1,36,72,494 Income-tax 597/03-04 15.10.03 89-90 Rs. 4,78,20,955 Income-tax 598/03-04 15.10.03 97-98 Rs. 16,98,289 Income-tax --------------------------------------------------------- Total Rs. 11,04,18,439 --------------------------------------------------------- GVFL claims to be a tenant in occupation of Goodluck Preview Theatre a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0) For the third 3 years-Rs. 15,000 (total Rs. 5,4O,000) The second lease deed dated December l 1990, has been written on Rs.20 stamp paper and the third lease deed dated August 20, 1999, has been written on Rs. 10 stamp paper. The alleged lease deeds are signed by C. Venkateswaran and his wife-Sujatha Venkateswaran as lessee and lessor, respectively. No witnesses have signed. Before the Tax Recovery Officer, the auction purchasers had raised a plea that in consideration of the close relationship of the directors of both the companies, the lease arrangements relied on are bogus and the transaction is a sham and nominal one. The auction purchasers have referred to the number of circumstances in support of their contention that the alleged lease arrangement has been created to defraud the lawful claim of the Department and the auction purchasers. The auction purchasers have also referred to the letter of CVFL dated March 11, 2005, wherein CVFL claimed ownership of the property claiming that Coodluck Preview Theatre was transferred in their name for which there was no liability to pay the rent. In consideration of the submissions of both the parties, the Tax Recovery Officer h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... biased and cannot be implemented. The Tax Recovery Officer has improperly discarded the materials produced by GVFL proving that it is a tenant and such misreading of evidence led to the wrong conclusion. Supplementing the elaborate arguments on behalf of the applicant/plaintiff, written submissions were also submitted. Learned counsel for the applicant/plaintiff has also drawn the attention of the court to a number of decisions reported in Iax Recovery Officer v. Gangadhar Viswanath Ranade [1998] 234 ITR 188 (SC); [1998] 6 SCC 658, Dev Raj Dogra v. Gyan Chand Jain, AIR 1981 SC 981, Puran Chand and Co. v. Ganeshi Lal Tara Chand, AIR 2001 Delhi 175, A. Stephen Samuel v. Union of India [2004] 118 Comp Cas 82 (Mad) ; [2003] 2 MLJ 220 and a number of other decisions. Contentions of auction purchasers-defendants : Countering the arguments, learned senior counsel for the auction purchasers, Mrs. Nalini Chidambaram has drawn the attention of the court to the terms of the lease and contended that the terms of the lease deed are un-usual inevitably leading to the conclusion that the lease arrangement is a sham and fraud played upon the Revenue authorities to escape paying huge arrear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has made the following submissions: Income-tax arrears for the year 1984-85 were cleared only on March 21, 1990, and rule 2 notice was issued on February 27, 1987. The lease deed after issuance of rule 2 notice is hit by rule 16. Form No. 13, ITCP Rules, is a prescribed form and there is no necessity either for manipulation or commission. The mistake that crept in the Tamil translation was only an inadvertent mistake of which the petitioner/plaintiff cannot take advantage. The same parties and family members were in managerial position having control over both the companies. Hence, it has become necessary for the Tax Recovery Officer to lift the corporate veil to look into the realities. The entries in the book, claimed are self-contradictory and are not complete. In view of clear indication of collusive arrangement to evade tax, the Tax Recovery Officer has elaborately gone into the details and found that the claim of tenancy is not proved. Exercising power under article 226, the High Court would not interfere with the findings of the Tax Recovery Officer unless it suffers from fundamental flaws like refusal of admissible evidence or erroneously admitting inadmissible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er becomes incompetent to deal with the property owned by it by way of sale or lease. Rule 16 of Schedule II reads: "Private alienation to be void certain cases.-(1) Where a notice has been served on a 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. (2) Where an attachment has been made under this Schedule, any private transfer or delivery of the property attached or of any interest therein and any payment to the defaulter of any debt, dividend or other monies contrary to such attachment, shall be void as against all claims enforceable under the attachment." Rule 48 of the Second Schedule refers to attachment of immovable property of the defaulter by an order prohibiting the defaulter from transferring or charging the property in any manner. The property of SFL-Goodluck Preview Theatre was attached on September 30, 1992. Under rule 51, the attachment relates back to the date of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... March 20, 1990, undertaking that he would not sell or otherwise encumber the assets till the entire amount due from him is paid to the Tax Recovery Officer. The undertaking reads: "...I specify herein my assets as on this day (as per annexure), and I agree not to sell, give away, transfer, mortgage, or otherwise deviate or encumber these assets in any way until the entire amount due from me is paid to the Tax Recovery Officer-I (Central), Madras, in full. I agree that in the meanwhile, these assets may be continued to remain attached, if considered necessary..." Two things emerge: i. G. Venkateswaran has signed as the chairman of SFL, undertaking not to encumber the assets; ii. If really there had been lease on November 28, 1989, SFL would have certainly mentioned about the lease deed dated November 28, 1999. Non-mention about the lease deed in the bond (Safurdanama) executed by SFL probabilises the doubt about the first lease deed dated November 28, 1989. Further, SFL and G. Venkateswaran have undertaken not to encumber the assets in any manner till the entire amount is paid to the Tax Recovery Officer. The subsequent renewal lease deed (dated December 1, 1990) is a cle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of Rs. 75,00,000 was paid by GVFL to SFL. The bond (Safurdanama) had been executed by G. Venkateswaran on behalf of SFL relating to the arrears amounting to Rs. 2,77,44,312 due in respect of certificate Nos. T.R. 189/89, 190/90 dated February 27, 1987. The certificate T. R. No. 190/89-90 which is dated January 31, 1990, is also covered under the safurdanama. Though the date of that certificate is mentioned as February 27, 1987, the safurdanama is also in respect of certificate T. R. No. 190/89-90, which is dated January 31, 1990. Hence, the undertaking not to sell, alienate or encumber covers the notice dated January 31, 1990, also. Hence, the second lease deed dated December 1, 1990, which is subsequent to the safurdanama is in clear violation of the undertaking in the safurdanama. The unnaturalness of the terms and other features of the lease deed are further elaborated while considering the correctness of the order of the Tax Recovery Officer. At this juncture, suffice it to point out that the unregistered lease deeds are after the issuance of the rule 2 notices for the various assessment years beginning from 1984-85 (February 27, 1987 and subsequent notices). Under rule 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efaulter, which reads as under: "Delivery of immovable property in occupancy of defaulter.-(l) Where the immovable property sold is in the occupancy of the defaulter or of some person on his behalf or of some person claiming under a title created by the defaulter subsequently to the attachment of such property and a certificate in respect thereof has been granted under rule 65 of the principal rules, the Tax Recovery Officer shall, on the application of the purchaser, order delivery to be made by putting such purchaser or any person whom the purchaser may appoint to receive delivery on his behalf in possession of the property, and if need be, by removing any person who refuses to vacate the same. (2) For the purposes of sub-rule (1), if the person in possession does not afford free access, the Tax Recovery Officer may after giving reasonable warning and facility to any woman not appearing in public according to the customs of the country to withdraw, remove or open any lock or bolt or break open any door or do any other act necessary for putting the purchaser, or any person whom the purchaser may appoint to receive delivery on his behalf, in possession." Rule 40 reads as unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roclamation of the intended sale to be made in the language of the district." Rule 53 refers to the contents of the proclamation. Rule 53 reads: "Contents of proclamation.-A proclamation of sale of immovable property shall be drawn up after notice to the defaulter, and shall state the time and place of sale, and shall specify, as fairly and accurately as possible, (a) the property to be sold; (b) the revenue, if any, assessed upon the property or any part thereof; (c) the amount for the recovery of which the sale is ordered; (cc) the reserve price, if any, below which the property may not be sold; and (d) any other thing which the Tax Recovery Officer considers it material for a purchaser to know, in order to judge the nature and value of the property." Drawing the attention of the court to rules 52 and 53, it is contended that the Tax Recovery Officer has considered the leasehold rights of GVFL as a material fact for the purchaser to know and hence, the same was referred to in the column V of the proclamation. In the prescribed sale proclamation, the schedule of property has been described as under: ---------------------------------------------------------------- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to which the property is liable The correct Tamil Translation is : Mistakenly shown as Column V in Tamil translated version Column V of the English version is Claims, if any, which have been put forward to the property and any other known particulars bearing on its nature and value The correct Tamil translation is : Mistakenly stated as Column 4 in Tamil translated version Due to mistake, column "5" is wrongly stated as Due to mistake, the caption is columns "4" and "5" in the Tamil version have been interchanged. The correct translation of column "5" must be * * *1 under which claim of CVFL to be the tenant ought to have been given. The mistake in the translated version of the proclamation of sale is only an inadvertent mistake. The building said to be under lease to GVFL is only a claim put forward to the property by GVFL which has been correctly shown in the English proclamation of sale column No.5. Much arguments advanced by the plaintiff that the D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... crept in. The applicant/plaintiff cannot take advantage of such mistake in the translated version of the Tamil proclamation of sale taking shelter under rule 52(2) of the Second Schedule. As per the Official Languages Act, 1963, English and Hindi would be used for all official purposes of the Union. These documents of the Government of India would be either in Hindi or English or both. The conditions in rule 52(2) of the Second Schedule to the Income-tax Act that the proclamation of sale is to be published in the local language can only be read to mean, in addition to the official language. Learned senior standing counsel for the Department has submitted that the proclamation in English was pasted on the notice board in the Tax Recovery Officer's office. The copy of the proclamation in English is also said to have been served on the defaulter. When the proclamation in English is said to have been pasted on the Tax Recovery Officer's office, the plaintiff cannot raise any objection for the proclamation in English, which is an official format as per Form No. 13, ITCP Rules. Proclamation of sale: Whether there is variance between Tamil proclamation and English proclamation as all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... glish proclamation has been manipulated by the Department, at a later stage, when the enquiry was pending before the Tax Recovery Officer, the Department clandestinely included the certificate of notice T. R. No. 256/91-92 dated January 31, 1990, for the assessment year 1984-85. The argument advanced might appear to be correct; but a careful consideration would disclose that the contention has no force. It is not as if the English proclamation has been hurriedly written or included as contended. Form No. 13 is the format stipulated under the ITCP Rules 22(xii). Form No. 13 of the ITCP Rules stipulates the contents as under: "...Whereas the [Tax Recovery Officer]..................... had forwarded the certificate No.......... dated.............. to the [undersigned], ................... for the recovery of the sum of Rs.............. from.........[defaulter]................; and whereas the said Tax Recovery Officer has sent to the undersigned on the................. day of ................ 19 .... a certified copy of the certificate under section 223(2) of the Income-tax Act, 1961, specifying that an amount of Rs............ is to be recovered from the defaulter; which sum is rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncluded. The contention that T. R. No. 256/1991-92 dated January 31, 1990, has been included later in the English proclamation has no force. The reason for not giving the split up figure of tax arrears in the Tamil proclamation is obvious. As per rule 52 to Schedule II, the proclamation has to be in the language of the district. The proclamation is drawn up stating the time and place and the sale shall also accurately specify the amount due from the defaulter. Since the proclamation is meant for advertising to the public about the intention to sale, it may not have insisted to give split up figure in the Tamil proclamation. For example, we may refer to the court proceedings of sale wherein the proclamation is issued (Order 21, rule 66, of the CPe). In the proclamation of sale issued by the court, the split up details of the decree amount, subsequent interest and the cost are not separately shown. Only the total amount due is stated in the proclamation. The contention advanced that T. R. No. 256/91-92 dated January 31, 1990, for the assessment year 1984-85 has been deliberately included has no force and the same is to be brushed aside. The contention of the plaintiff is that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ake an order dismissing the application. Rule 44 deals with dispossession by the purchaser and that rule provides that where any person other than the defaulter is dispossessed of immovable property sold in execution of a certificate by the purchaser, he is empowered to file an application before the Tax Recovery Officer complaining of such dispossession and the Tax Recovery Officer is required to investigate into the matter. Rule 45 provides that where the Tax Recovery Officer is satisfied that the applicant was in possession of the property on his own account or on account of some person oHler than the defaulter, he shall direct that the applicant be put into possession of the property. Rule 47 deals with the right to file a suit by a person other than the defaulter to establish the right which he claims to be in possession of the property in question. Learned counsel for the plaintiff drew parallel from the Code of Civil Procedure, Order 21, rule 95, and Order 21, rule 96, c.P.c. and contended that the auction purchasers would be entitled to possession only in accordance with rule 40, ITCP Rules, and the delivery contemplated under rule 39, ITCP Rules, cannot be effected. Dr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upation of the properties under a title created by the judgment debtor subsequent to the attachment of the properties by the Recovery Officer, nor do they claim that they entered into possession subsequent to the recovery certificate issued by the Recovery Officer. There is no doubt that the appellants are tbe lawful tenants of the defaulter to the bank even before the initiation of the proceedings by the bank against the defaulter. Therefore, when the property was in the occupation of tenants at the time when it was sold, the auction purchaser would be entitled to symbolical possession of such property, but he would not be entitled to claim that the tenants should be directed to hand over actual possession of the respective portions of the property in their possession. In our view, it is impermissible for the auction purchaser to get actual possession of the property by throwing the tenants out of the property. The auction purchaser, in our view, will be entitled to possession in accordance with rule 40 of the ITCP Rules and the delivery contemplated in the rule is not actual delivery, but symbolical delivery of the property to the auction purchaser." The case before the Divisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roceedings by handing over possession, iii. the terms of the agreement of lease and the security deposit of huge amount of Rs. 75,00,000 are unusual, serious doubts arise as to the genuineness of the tenancy. Hence, the abovesaid decisions cannot be applied to the case in hand. Whether the Tax Recovery Officer has no jurisdiction to adjudicate upon the validity of lease deeds: By its order dated September 15, 2005, this court has directed the Tax Recovery Officer shall pass his orders as to the applicability of rule 39 of the Income-tax (Certificate Proceedings) Rules, 1962. The Tax Recovery Officer has passed the order that none of the lease deeds are registered and that the lease arrangement is invalid and not enforceable. The Tax Recovery Officer has further held that the terms and conditions of payments are doubtful and that serious doubts arise as to the genuineness of the transactions since the property was already under order of attachment by the Department. After elaborately considering the facts and circumstances, the Tax Recovery Officer has held that the lease arrangements are sham and nominal and are invalid and not legally enforceable. The order of the Tax Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... immovable property can be declared as void, all the requirements of law must necessarily be satisfied. The fact that a statute provides for such a declaration being made, if the conditions mentioned in the statute are satisfied, does not imply that an officer exercising powers under the provisions of the statute can assume to himself the power and jurisdiction tp declare what is otherwise a legally valid transaction as void. Adjudication is the function of the courts. Any declaration ora:transaction being void must be sought in the civil court. The Income-tax Officer moreover in this case is an interested party as it is in the interests of the Revenue to make such a declaration and proceed to recover the vendor's arrears of tax from such person. 7. The Supreme Court of India in its recent decision rendered in the case of TRO v. Gangadhar Viswanath Ranade [1998] 234 ITR 188 has held that if the Department finds that the assessee has transferred a property to a third party with the intention to defraud the Revenue, the Revenue will have to file a suit under rule 11(6) of Schedule II to the Income-tax Act to have the transfer declared void under section 281 of the Income-tax Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tax Recovery Officer shall make an order dismissing the application." Thus, to determine whether the plaintiff is a bona fide claimant or not, it was essential for the Tax Recovery Officer to enquire and determine the bona fides or otherwise of the claimant. In fact, even before the Tax Recovery Officer, GVFL has taken a stand that the question with regard to tenancy rights and the veracity of lease deeds cannot be examined in the proceedings before the Tax Recovery Officer since it is beyond the scope of the Tax Recovery Officer. The Tax Recovery Officer has considered the submissions and found that even though the veracity of the lease deeds and the tenancy rights are not going to, be decided by him, it has become essential to make an observation and finding based on the documents produced and the submissions made during the hearing as to whether GVFL is a tenant of SFL, which has a bearing on the question with regard to the applicability of rule 39 of the ITCP Rules. The Tax Recovery Officer derives his powers under the Second Schedule and the Income-tax (Certificate Proceedings) Rules under section 136 of the Income-tax Act. All proceedings before the Tax Recovery Officer are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... passed under rule 40 has been referred to as one of the causes of action. For which, no suit is maintainable under rule 47, ITCP Rules. As per rule 11(6), Second Schedule, where a claim or an objection is preferred, the party against whom an order is made may institute the suit in a civil court to establish the right. Rule 11(6) reads as follows: "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." In the suit, the claimant or the objector has to therefore establish that the property is not liable to be attached or sold in execution of a certificate. The suit filed by the plaintiff for bare injunction insisting upon "due process of law" attacking the order of the Tax Recovery Officer dated May 4, 2005, cannot be construed as a suit under rule 11(6). Under section 293 of the Income-tax Act, such a civil suit against any proceedings or order of the officer is barred. Section 293 of the Income-tax Act is as under: "Bar of suits in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctly, setting aside or modifying any proceeding taken under the Act or order made thereunder. In the present case, search and seizure were effected as per the provisions of the Act, assets and documents seized and the statement of Babulal recorded under sub-section (4) of section 132 of the Act wherein he admitted that the gold was acquired from his and his brother's undisclosed income which he was even prepared to surrender to tax. It was thereafter, in the course of further enquiry that he came up with a version that the gold ornaments in question belonged to his step-mother who beq eathed the same for the benefit of the children of the plaintiff and other children that would be born to the second wife of his father. This version did not find favour with the Income-tax Officer and he was not satisfied that the gold ornaments in question did not belong to Babulal. It was, therefore, not necessary for him to issue any notice under sub-section (7) of section 132 of the Act to the plaintiff. In any case, the plaintiff was well aware of the proceedings before the Income-tax Officer and she could have also filed objection to the order made by the Income-tax Officer under section 132(5) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te gives finality to orders of the special Tribunals, the jurisdiction of the civil court must be held to be excluded." Learned senior standing counsel for the Income-tax Department has mainly urged that the civil court has no jurisdiction and the civil suit is not maintainable. The effect of section 293 which bars suits in civil courts is that, even where the assessment or other proceeding is erroneous or wrong, no suit can be initiated in any civil court to set aside or modify the assessment unless it be that the assessment or other proceeding is taken under an ultra vires provision. We will now consider the scope of the other relevant provisions of the Income-tax Act and the Income-tax (Certificate Proceedings) Rules. Rule 9 of the Second Schedule to the Income-tax Act limits the jurisdiction of the civil court to decide questions arising between the Income-tax Officer and the defaulter or the representatives, relating to the execution, discharge or satisfaction of the certificate duly filed under the Income-tax Act, or relating to the confinnation or setting aside by an order under the Act of the sale held in execution of such certificate. Such disputes shall be determined on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rule 39. Rules 41, 42 and 43 relate to the proceedings the purchaser can initiate for the purpose of removal of resistance or obstruction to delivery of possession. It is clear from the scheme of the rules that the civil court has only limited jurisdiction to examine the case as to whether the Tax Recovery Officer has or has not acted in accordance with law and the fundamental principles of judicial procedure. In other words, jurisdiction of the civil court to the extent indicated in the abovesaid rules must be deemed to have been excluded. That is the effect of section 293 also. If that be so, the suit filed by GVFL is neither under rule 11(6) of the Second Schedule nor under rule 47 of the ITCP Rules and the same is not maintainable. W. P. No. 17576 of 2005 is filed to quash the order of the Tax Recovery Officer in letter No. Auction/05-06 dated May 4,2005, and also for injunction restraining the Department from interfering with the petitioner (GVFL) physical possession of the premises-Goodluck Preview Theatre. In this writ petition, the subsequent order passed by the Tax Recovery Officer on September 29, 2005, is also now sought to be quashed. The question arises to what ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther giving a complete go-bye even to the facts specifically found by the Tribunal below." In the decision reported in Kanda Lakshmana Bapuji v. Government of Andhra Pradesh [2002] 3 SCC 258, the Supreme Court held that the findings of the special court cannot be interfered with when neither any relevant material was excluded from consideration nor any irrelevant material was taken into consideration by the special court. The settled legal position is that in a writ petition under article 226 of the Constitution of india, if there is some legal evidence on which the findings is based the adequacy or even reliability of that test is not a matter for canvassing before the High Court. While exercising the jurisdiction under article 226 of the Constitution of India, the High Court would interfere only when there is violation of the principles of natural justice or violation of statutory requirements prescribing the mode of such enquiry or the order is so arbitrary that no reasonable person could have arrived at such a conclusion. Exercising jurisdiction under article 226 of the Constitution of India, the High Court does not act as a court of appeal over the findings recorded by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -------- ----------------------------------------------------------- Qualification Date of commencement Last experience of employment employment ----------------------------------------------------------- B. Com., F.C.A. 01-09-1989 Chartered (18 years) accountant ----------------------------------------------------------- Notes: 1. Gross remuneration includes salary and company's contribution to provident fund. 2. The nature of employment is contractual. 3. Mr. G. Venkateswaran is related as brother to M/s. Mani Rathnam and G. Srinivasan, directors of the company. G. Venkateswaran's last employment was "chartered accountant". As noted earlier, GVFL was incorporated, when SFL was in huge arrears of income-tax. Being a chartered accountant, G. Venkateswaran must have been quite conscious of the implications of non-payment of huge arrears of income-tax by SFL and must have been well acquainted with the provisions of the Income-tax Act and the Rules. The alleged lease deeds and the contention of lease deposit of Rs. 75,00,000 are to be considered in this factual ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le, every officer acting under this Schedule shall be deemed to be acting judicially within the meaning of Judicial Officers Protection Act. Under rule 83, every officer acting under the Second Schedule shall have the powers of a civil court for the purpose of receiving evidence. Under rule 41 of the ITCP Rules, where the purchaser of immovable property sold in execution of a certificate is resisted, the Tax Recovery Officer shall investigate the matter summoning the party against whom an application is made to appear and answer the same. For the purpose of investigation and enquiry, the Tax Recovery Officer is conferred with the powers of a civil court and by virtue of their office and experience, the Tax Recovery Officer is an officer with trained judicial mind. The contention that the Tax Recovery Officer cannot conduct the enquiry as that of a judicial proceedings has no merit. Learned senior counsel for the auction purchasers has submitted that since SFL and GVFL are the family concerns of G. Venkateswaran and G. Venkateswaran himself holding major shares, the Tax Recovery Officer has rightly lifted the corporate veil. In support of the contention of lifting the corporate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and that Thyagaraja Chettiar who was the moving figure both in the bank and in each of the assessee-companies had knowledge of this arrangement. It is well-established that in a matter of this description the income-tax authorities are entitled to pierce the veil of corporate entity and to look at the reality of the transaction. It is true that from the juristic point of view the company is a legal personality entirely distinct from its members and the company is capable of enjoying rights and being subjected to duties which are not the same as those enjoyed or borne by its members. But in certain exceptional cases the court is entitled to lift the veil of corporate entity and to pay regard to the economic realities behind the legal facade. For example, the court has power to disregard the corporate entity if it is used for tax evasion or to circumvent tax obligation." In the decision reported in Juggilal Kamlapat v. CIT [1969] 73 ITR 702 (SC) ; [1969] 1 SCR 998, the Supreme Court has held the corporation may be a legal personality distinct from its members. But, the court is entitled to lift the mask of corporate entity if the conception is used for tax evasion, or to circumve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ehind the corporate entity. The Tax Recovery Officer is entitled to disregard the corporate entity if it is used for tax evasion or to circumvent tax obligation or to perpetrate fraud. The Tax Recovery Officer has rightly lifted the corporate veil to ascertain the economic realities of SFL and GVFL. Correctness of the order of the Tax Recovery Officer: The first lease deed dated November 28, 1989, is for a period of one year. The second lease deed dated December 1, 1990, and the third lease deed dated August 20, 1999, were for a period of nine years. Though the lease deeds are for a period of more than one year, none of the lease deeds were either registered or witnessed. Pointing out that the lease deeds are unregistered, the Tax Recovery Officer has rightly said the other reliable documents, viz., board resolution or the approval of the other directors to authorise G. Venkateswaran and Sujatha Venkateswaran to enter the transactions were not produced. No documentary evidence or supporting evidence were produced to prove the alleged lease deeds. All three lease deeds being unregistered documents cannot be looked into for any purpose. Unregistered lease or agreement for lease ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of lease cannot be taken into consideration. Even for collateral purpose, including the proviso to section 49 of the Registration Act as the terms of lease are not for collateral purpose. The unregistered document being inoperative, its terms cannot have effect in law and the Tax Recovery Officer has rightly discarded the unregistered documents of lease. In the absence of a valid lease instrument (for want of registration), it is contended that the tenancy cannot be presumed from payment of rent. In support of his contention that from payment of rent, tenancy could be presumed, learned counsel for the plaintiff has relied upon the decisions' reported in Ram Kumar Das v. Jagdish Chandra Deo, Dhabal Deo, AIR 1952 SC 23, Hitkarini Sabha v. Corporation of City of Jabalpur, AIR 1972 SC 2017 and Biswabani P. Ltd. v. Santhosh Kumar Dutta, AIR 1980 SC 226. These cases arise on the factual circumstances of those cases. In the case in hand, no inference of tenancy could be drawn, since the lease deeds appear to have been created for the purpose of evasion of tax. Hence, GVFL or SFL cannot use the unregistered lease deeds in any legal proceedings to bring about indirectly the effect which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee in favour of a third party as void. If the Department finds that a property of the assessee was transferred by him to a third party with the intention to defraud the Revenue, it will have to file a suit under rule 11(6) to have the transfer declared void under section 281... From rule 11(4), it is clear that 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 own right, he will have to raise the attachment. If the Department desires to have the transfer declared void under section 281, the Department being in the position of a creditor, will have to file a suit for a declaration that the transaction of transfer is void under section 281 of the Income-tax Act. In the present case, the Tax Recovery Officer could not have examined whether the transfer was void under section 281. His adjudication of the transfer as void, under section 281 is without jurisdiction. The Tax Recovery Officer has relied upon the earlier order of the Income-tax Officer dated May 9, 1974, declar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of rule 2 notice. In the case in hand, the first lease deed was executed on November 28, 1989. Rule 2 notice was issued on February 27, 1987, for the assessment year 1984-85. The lease deeds are subsequent to the issuance of rule 2 notice and clearly hit by rule 16. The contention urged placing reliance upon the above decision do not merit acceptance. Applicability of rule 39 : For want of registration, the lease deeds are inadmissible. That apart, in analysis of the materials, the Tax Recovery Officer has found that the terms of the lease are unusual and are not supported by contemporaneous documents. It is the case of GVFL that Rs. 15,00,000 was deposited by way of a cheque dated November 20, 1989, towards security deposit. GVFL has not produced any documentary books as evidence for payment of the security deposit; but has produced only a copy of panchanama drawn on behalf of the CBI, Bangalore, and explained that the related account books were seized by them. Learned counsel for GVFL has drawn the attention of the court to the annual report and the balance-sheet of GVFL for the year ending on March 31, 1990, and attempted to prove that under the heading "Loans and advances ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nual report 1990-91 Schedule 9-Lease deposit of Rs. 79,00,000 (Rs. 75,00,000 to SFL and Rs. 4,00,000 to Anand Theatre). Reliance is also placed upon the entry Schedule 16-Theatre Division Rent-Rs. 60,000. Before the Tax Recovery Officer, ledger entry of GVFL for the year April 1, 1990, to March 31, 1991, was relied upon to show five payments made by cheques on various banks and dates, alleged to be towards the lease deposit. The entries for five cheques which were relied upon by the plaintiffs do not specifically state under which heading of account such payments were made to SFL. Absence of names of the persons (in the ledger) to whom the cheques were issued raised a lot of suspicion as to the authenticity to entries in the ledger produced before the Tax Recovery Officer. In consideration of the same, the Tax Recovery Officer has found that the ledger pages produced (other than the one mentioned above) as corroborative evidence for payment of Rs. 60,00,000 do not indicate the names of the persons on whom the cheques were drawn. No cash book/bank book/day book wherein the immediate entries are made was produced. The book of journal entries wherein the nature of the business transac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the lease deposit does not mean that the lease got extinguished. The observation of the Tax Recovery Officer that the entries are self-contradictory is assailed contending that the applicant never made any claim for Rs. 75,00,000 and that CVFL had only been pointing out its tenancy right under which originally it had deposited totally Rs. 75,00,000 as refundable deposit. This explanation offered is clearly an after thought and nothing but a futile attempt to explain the contradictory entries. It is pertinent to note that such explanation was not offered before the Tax Recovery Officer. It is alleged that by the third lease deed (dated August 20, 1999) the lease is alleged to have been renewed for a further period of nine years. Here again, as in other lease deeds, the third lease deed is also unregistered deposited on Rs. 10 stamp paper. As per the terms of the third lease deed, no liability to pay rent, interest at the rate of 10 per cent. per annum and the security deposit of Rs. 75,00,000 which works out to Rs. 62,500 per month the same is to be set off towards the rent payable. In the terms of the lease, it is alleged "the lessee has already paid a sum of Rs. 75,00,000 toward ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oth under the English law and the Indian law. Lifting the veil of incorporation under statutes and decisions of the courts is an equally settled position of law. This is more readily done under American law. To look at the realities of the situation and to know the real state of affairs behind the facade of the principle of the corporate personality, the courts have pierced the veil of incorporation. Where a transaction of sale of its immovable property by a company in favour of the wives of the directors is alleged to be sham and collusive, as in the instant case, the court will be justified in piercing the veil of incorporation to ascertain the true nature of the transaction as to who were the real parties to the sale and whether it was genuine and bona fide or whether it was between the husbands and the wives behind the facade of the separate entity of the company. This is what was done by the High Court in this case." The Supreme Court has further held: "There can be no dispute that a person who attacks a transaction as sham, bogus and fictitious must prove the same. But, a plain reading of question No.1 discloses that it is in two parts; the first part says, 'whether the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... guments were advanced on the presumptive footing that GVFL is a tenant of SFL. On the footing that GVFL is a tenant of SFL, learned counsel for the plaintiff has submitted that GVFL being a tenant cannot be evicted except under due process of law. It is further submitted that the tenant cannot be directed to hand over actual possession. In support of his contention, learned counsel for the plaintiff has relied upon the decision reported in A. Stephen Samuel v. Union of India [2004] 118 Comp Cas 82; [2003] 2 MLJ 220, which we have referred to earlier in para. (59) Submitting that the tenant in person in possession of the property cannot be dispossessed without due process of law, learned counsel for the plaintiff has submitted that GVFL is entitled to remain in possession till evicted under due process of law. Learned counsel for the plaintiff drew analogy from the identical provision in the Civil Procedure Code under Order 21; rules 98 and 99, and submitted that the tenant is entitled to be in possession till the adjudication of his right under Order 21, rules 98 and 99, C.P.C. Insisting on due process of law, learned counsel for the plaintiff has relied upon the decisions repo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of due process of law has been adopted by GVFL mainly with obscure intention to i. resist the delivery of possession under the cover of lawful tenant; ii. to protract the proceedings by squatting on the property, rental free without any liability to pay damages for use or occupation. the case of the plaintiff/writ petitioner is nothing but a clear case of perpetrating fraud upon the Department. That apart, the conduct of the plaintiff is nothing but abuse of process of court putting bogus claim against the bona fide auction purchaser. The process of the court must be used bona fide and must not be abused. The court will prevent improper use of its machinery and will in a proper case summarily prevent its machinery from being used as a means of tax evasion. The expression of concern that the process of the courts being abused by the tax evaders and bank loan dodgers, in S. P. Chengalvaraya Naidu v. Jagannath [1994] 1 SCC 1 ; AIR 1994 SC 853, the Supreme Court has held, "... The courts of law are meant for imparting justice between the parties and the one who comes to the court must come with clean hands. We have no hesitation to observe that when a person comes to the cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use of the process of court is relitigation. It is an abuse of the process of the court and contrary to justice and public policy for a party to relitigate the same issue which has already been tried and decided earlier against him. The reagitation mayor may not be barred as res judicata. But if the same issue is sought to be reagitated, it also amounts to an abuse of the process of court. A proceeding being filed for a collateral purpose, or a spurious claim being made in litigation may also in a given set of facts amount to an abuse of the process of the court. Frivolous or vexatious proceedings may also amount to an abuse of the process of court especially where the proceedings are absolutely groundless. The court then has the power to stop such proceedings summarily and prevent the time of the public and the court from being wasted. Undoubtedly, it is a matter of courts' discretion whether such proceedings should be stopped or not; and this discretion has to be exercised with circumspection. It is a jurisdiction which should be sparingly exercised, and exercised only in special cases. The court should also be satisfied that there is no chance of the suit succeeding." The only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his behalf who is obstructing the possession or the property. The terms and conditions of sale by public auction also reiterates the same as is clear from the following: "..In case, the property is occupied by the defaulter himself or any other person on his behalf who is not a tenant then the purchaser is at liberty to go and take possession of the property. However, if any resistance is offered either by the defaulter or any person on his behalf, if an application is made by the purchaser under rule 39 of the Income-tax (Certificate Proceedings) Rules, 1962, then efforts will be taken to put the purchaser in the possession of the property and if need be removing the defaulter or any other person on his behalf. who is obstructing the possession of the property." The matter is before the court for implementation by the further orders of this court. If the matter had not come before the court (for implementation), the Tax Recovery Officer would have invoked the above provisions/rules to hand over possession to the auction purchaser. If need be, by removing the obstructions. While implementing the order of the Tax Recovery Officer, the court is also duty bound to order posses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... undue indulgence to SFL, which is a defaulter to an extent of huge sum, viz., more than Rs. 19,00,00,000. It is not known as to why the Department has not taken immediate and appropriate steps to realise for recovery of such huge amount of tax arrears due. It is high time that the Income-tax Department rises to the occasion and takes appropriate steps for collecting the income-tax due and without showing undue indulgence to film celebrities. C. S. No. 454 of 2005: This suit has been filed by the plaintiff for permanent injunction to restrain the defendants from interfering with plaintiff s peaceful possession and enjoyment of the property. Since GVFL is only in possession of the property, on behalf of the defaulter GVFL cannot seek for permanent injunction insisting for due process of law. The suit in C. S. No. 454 of 2005 itself is not maintainable and is liable to be dismissed. Accordingly, the suit is dismissed with costs of the defendants. Application No. 543 of 2005 : For the foregoing reasons, it is held that the plaintiff is not entitled to the relief of temporary injunction and the application is dismissed with costs of the defendants. Application No. 2302 of 2005: Fo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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