Holding

The civil court was within its jurisdiction to order the sale of the estate property to recover outstanding tax dues because the tax liabilities constituted a first charge on the estate and the statutory recovery procedure under Section 222 was not applicable.

Summary

The deceased V. Madhava Raja left unpaid income tax, wealth tax and agricultural income tax. A partition suit was filed, and the State sought to recover the tax dues by attaching the estate, eventually ordering the sale of the property Devi Vilas Palace by public auction. The auction purchaser sought extensions and withdrawal, leading to multiple proceedings, including a special leave petition before this Court, which stayed confirmation of the sale. The appellants argued that, under Section 222 of the Income Tax Act and Schedule II, the tax recovery should have been pursued through the statutory procedure, and that the dues were already liquidated, rendering the sale unlawful. The Court held that the tax dues constituted a first charge on the estate, the Tax Recovery Officer had not invoked Section 222, and therefore the statutory procedure was unnecessary; the civil court had jurisdiction to order the sale to satisfy the outstanding tax. Consequently, the appeals were dismissed and the sale was allowed to be confirmed.

Issues considered

Whether the civil court had jurisdiction to order the sale of estate property for recovery of income tax, wealth tax and agricultural income tax when Section 222 of the Income Tax Act was not complied with
Whether the tax dues were already liquidated at the time of auction, making the sale impermissible
Whether the procedural requirements of Order 21 Rule 90 of the CPC barred the civil suit

Legislation cited

Code of Civil Procedure, 1908s. Order 21 Rule 90
Income Tax Act, 1961s. Schedule II, s. Section 222

Subjects

auction saletax recoveryestate of deceasedpartition suitcivil court jurisdictionIncome Tax Act Section 222first chargeexecutionorder 21 rule 90wealth taxagricultural income tax

Judgment

JANAKI S. MENON AND ORS. A
v.
DR. V.R.S. KRISHANAN AND ORS.

OCTOBER 4, 1996

[K. RAMASWAMY AND S.P. KURDUKAR, JJ.]
B

Code of Civil Procedure, 1908 :

Order 21, Rule 90-Auction sale for recovery of State dues-Objections
to-Suit for partition of estate of decease~Arrears of Income Tax Wealth C
Tax etc. to be recovered from the estate of decease~ertain property put to
auction sale-Objections on the ground that since procedure provided under
S. 222 of Income Tax Act was not followed, civil court had no jurisdic-
tion-Held, Income Tax and other dues are the first charge on the estate of
the decease~Proceedings to recover the arrears of tax from the estate of the D
deceased were rightly taken before partition of the estat~n the circumstances
need to proceed under the Income Tax Act was obviated-Executing court
has rightly proceeded with the recovery of the Tax due and to pay over the
same to the State.

Income Tax Act, 1961 : E
S. 222 and Schedule fl-Proceedings for recovery of tax-In a suit for
partition of estate of the deceased proceedings for recovery of Income-tax and
other taxes initiated-Held, in the circumstances, need to proceed under the
Act was obviated.
F
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 13216-17
of 1996.

From the Judgment and Order dated 1.11.95 of the Kerala High
Court in C.R.P. No. 1745 and 1980 of 1995. G
D.D. Thakur and Ramesh Babu M.R. for the Appellants.

AS. Nambiar, S. Balakrishnan, S. Prasad, Mrs. Revathy Raghavan,
Mrs. Shanta Vasudevan, P.K. Manohar and K.K. Aggarwal for the
Respondents. H
207
208 SUPREME COURT REPORTS (1996] SUPP. 7 S.C.R.

A The following Order of the Court was delivered :

Leave granted.

We have heard learned counsel on both sides.

B
These appeals by special leave arise from the order of the High Court
of Kerala made on November 1, 1995 in CRP Nos. 1745 and 1980 of 1995.
The case has a chequered history, details of which need no repetition.
Suffice it to state that the late V. Madhava Raja owed certain dues towards •;
~
income tax, wealth tax and agriculture income-tax. On his demise, when a
C partition suit, viz., OS. No. 1/64 was filed for division of the properties by
meets and bounds amount the sharers, an attempt was made by the State
to have the estate attached for recovery of the tax dues. Pursuant to an
agreement between the parties, the Court passed an order avoiding attach-
ment and directed the Joint Commissioners to recover the dues from the
D estate and pay over the same to the Income-tax and other Government
dues. On an application, final decree was passed on July 15, 1967 in which
the appellants had purchased 4/13th share. In the final decree proceedings
for recovery of dues of the State certain properties came to be identified
and ultimately Devi Vilas Palace was also agreed to be sold by order of
the Court dated January 28, 1983 for recovery of the arrears. Several
E attempts were made to sell out the properties to the co-sharers for realisa-
tion of the tax dues of the State remained unsuccessful. Consequently, by
order of the court dated April 8, 1992, direction was given to sell the
property by public auction. After due publicity, the property in dispute was
sold on June 15, 1992 for a sum of Rs. 31,15,000. Under the terms of the
F sale, 1/4th of the bid amount was required to be deposited forthwith and
the balance amount was to be deposited within 15 days thereafter. In
default, 1/4th amount was to be forfeited. In the meanwhile, pending the
litigation, the matter reached twice to this Court. SLP (C) No. 8040/92
came to be filed in this Court wherein this Court passed an interim order
G directing stay of the confirmation of the sale. Resultantly, the auction
purchaser-respondent filed an application in the Court on June 26, 1992
seeking permission to withdraw from the auction. Pending that application,
they filed another application on June 29, 1992 for extension of time to
deposit 3/4th amount. Ultimately, by order dated September 19, 1992, this
Court has dismissed the special leave petition with liberty to the executing
H Court to confirm the sale already made etc, In the meanwhile, the Court
JANAK! S. MENON v. V.R.S. KRISHANAN 209
passed vague orders on auction-purchaser's applications for permission to A
withdraw from auction and for extension of time. Auction purchaser filed
a revision in the High Court The learned single Judge further directed the
trial Court to consider the matter in the light of the direction issued by this
Court in the special leave petition.

The appellarlts also filed an application under Order 21, Rule 90,
B
CPC to set aside the sale. All these matters were heard together and by
order dated August 16, 1995, the executing Court rejected the objections
to the sale and extended time for payment of the balance amount. The
matter was then carried in revisio~ to the High Court and the High Court
dismissed the revision petitions. Thus, these appeals by special leave. c
Shri D.D. Thakur, learned senior counsel for the appellants, has
contended that it is clear from the record that the arrears for recovery of
the tax were liquidated as on the date of the sale. Therefore, the property
was not liable to be sold. This Court having considered the contention, D
passed an order on November 27, 1995 directing the respondents to place
on record whether any liability as on the date of the auction, viz., June 15,
1992 was subsisting. In pursuance thereof, a certificate dated December 6,
1995 was produced in which the Income Tax Officer, Ward-2, Palghat had
certified that a sum of Rs. 5,15,824 was still due and recoverable from the
estate of Venugopala Verma Raja, Kollengode estate. In view of these E
facts, the question arises : whether the objections raised by the appellants
are tenable?
•

It is true that in the order passed by the executing Court the plea
that the property was not liable to be sold since the arrears had already F
been liquidated as on the date of the sale, was not properly considered on
the mistaken view that this Court had already directed whether or not the
sale should be confirmed and the sale that was sanctioned by the executing
Court was upheld by this Court in yet another previous order. But in view
of the certificate issued by the Tax Recovery Officer, admittedly, the G
amount of Rs. 5 lakhs and odd was due and recoverable from the estate
of the deceased Venugopal Verma Raja. Shri Thakur has pl.aced .reliance
on Section 222 of the Income Tax Act and the procedure prescribed in
Scheduled II of that Act for the recovery of the arrears of the income tax,
wealth tax etc. Since that procedure was not followed and Rule 9 of the
Rules being a bar to the jurisdiction of the civil Court, proceedings taken H
210 SUPREME COURT REPORTS [1996]SUPP. 7S.C.R.

A for recovery of the amount were without authority of law. We find no force
in the contention. Section 222 and Schedule II are relatable to the proce-
<lure to be adopted by the Tax Recovery Officer for recovery of arrears of
tax from the assessee or the estate of the assessee. In this caoe, the Tax
Recovery Officer ha~ not proceeded under the Act. It is seen that when
an attempt was made by the State, as stated earlier, to proceed against the
,_
B estate, by consensus and consent of the parties, the property was directed
"
to be sold to liquidate the arrears due to the State. Income tax and other
dues are first charge on the estate of the deceased. Therefore, they had
rightly proceeded to recover the arrears of the tax from the estate before
partition of the properties. Resultantly, the Income Tax Officer had not
c invoked the provisions of Section 222 and Schedule II of the Act to recover
the same. Therefore, the need to proceed under the Act was obviated. The
executing Court was well within its power to proceed with the recovery of
the tax due and to pay over the same to the State.

Shri Thakur sought to place reliance on two documents in which
D
there was a mention that the amounts had been adjusted and thereby
sought to draw an inference therefrom that no amount was due from the
estate of Venugopala Verma Raja. We do not find any force in his
submission. These letters do indicate that out of the total amount
recoverable from the estate, a sum of Rs. 6,60,000 was collected from the
E Joint Commissioners appointed by the Civil Court and the sum was ap-
propriated towards specified amounts outstanding ~wards expenditure tax
and wealth tax. As regards the agriculture income tax, certain properties
were sold and a sum of Rs. 12,000 and odd had remained surplus. For
refund thereof, one of the defendants to the suit, viz., 7th defendant made
an application and thereon refund of the amount was ordered. These two
F
documents would not indicate that there was no amount due from the
assessee. As seen earlier from the certificate issued by the Income Tax ·''
Officer on December 6, 1995, an amount of Rs. 5,15,000 and add was still
due and recoverable from the estate.

G It is then contended that since the property is valuable property and
was sold for a meagre amount, this Court may interfere and direct the
appellants to pay interest on the 1/4th amount deposited and also some "
compensation to the auction purchaser. Having considered the contention,
we find on the facts in this case that it would not be justifiable on the part
H of the Court to interfere with the sale. It is seen that on the earlier occasion,
JANAK! S. MENON v. V.R.S. KRISHANAN 211

the executing Court had unsuccessfully limited the sale inter se between the A
parties. This Court in the first round of the present litigation, by several
orders tried to save the estate but the &ame proved fruitless. This Court
had on the second occasion, directed to consider whether or not confirma-
tion of sale would be made. This Court had gone into that question. Even
the tax liability was one of the issues in this case by some of the judgment-
B
debtors and this Court had not agreed with the contention that there was
no liability subsisting towards arrears of the tax. Considered from this
backdrop, viz., the nature of the litigation which has been going on and
several opportunities given by this Court to have the matter settled by
negotiation by way of sale between the parties to reach an amicable
settlement, having rendered futile, we do not think it is a fit case wa~ranting C
interference. We do not find any procedural infraction. Otherwise, no cou.rt
sale would successfully be proceeded within execution.

The appeals are accordingly dismissed, but in the circumstances
without costs.
D
We are informed that the amount due has already been deposited.
Therefore, it is open to the executing Court to have the sale confirmed. Six
months' time from today is granted to the appellants for vacating the place,
portion of which is occupied by the appellants, subject to their filing usual
undertaking within a period of six weeks from today.
E
R.P. Appeal dismissed.