Supreme Court

Before taking any steps for recovery under Second Schedule service of notice under section 156 on defaulter is mandatory and sale held in the recovery proceeding initiated by TRO without issuing notice of demand is held to be invalid.

Tax recovery certificate can be issued under section 222 of IT Act, 1961, when assessee is in default. [Decision of Allahabad High Court in Mohan Wahi vs. CIT set aside and Decision of M.P. High Court in Sunil Kumar Singh vs. TRO (1987) 166 ITR 882 (M.P.) approved by Supreme Court]

The provisions of section 281 of IT Act, 1961 do not empower the TRO to pass a prohibitory order.

It is not obligatory on the purchasers of property in a tax recovery sale to get the certificate of sale registered in order to perfect his title.

Power to grant Stay of recovery can be exercised by ITAT even after ITAT has passed the order in appeal and reference arising out of the ITAT’s order is pending before the High Court.

High Court can grant Stay only in deserving cases – Grant of Stay can be neither an exception nor the rule – High Court issues Stay in appropriate cases.

TRO should first apply for leave of winding up Court under section 446 of Companies Act, 1956 before taking any steps for recovery of tax and before drawing up requisite certificate under the IT (Certified Proceeding) Rule, 1962.

When appeal is pending before ITAT, power to Stay recovery can be exercised by the ITAT as incidental or ancillary to its appellate jurisdiction.

Collector vs. Errimal (1957) 32 ITR 124 at 132 (SC)

On payment of due amount by defaulter, he can be entitled to be released from custody.

Bombay High Court

Recovery from a property already sold to a third person prior to raising of demand, against transferee is not possible.

T.R.O. has no power u/s 281 to declare a transfer void.

Ghanshyamdas vs. Union of India (1983) 139 ITR 1013 (Bom)

TRO or Appellate Authorities may on reasonable cause condone delay in filing application or Appeal and can entertain Application/Appeal filed before them beyond the period of limitation.

Sunil Kumar vs. CIT 139 ITR 880 (Bom)

Recovery of tax on the basis of "protective" assessment cannot be permitted under the law and same cannot be recovered from both the assessees in respect of same income. Though "protective" assessment is permitted, protective recovery is not permissible.

Balkishan vs. Addl. Collector (1977) 106 ITR 77 (Bom)

Rule 86 of Second Schedule of IT Act, 1961, specifically provides right of appeal against the order of TRO to the CCIT/CIT and pending decision of appeal, CCIT/CIT may direct the Stay of execution of certificate issued by TRO. Appeal can be preferred against order of rejection of claim/objections to the attachment of sale of property passed under Rule 11 of Second Schedule. An appeal can also be preferred against order of TRO confirming a sale under Rule 63.

Vimlaben Khimji vs. H.S. Manvikar 51 ITR 29 (Bom)

A prohibitory order in excess of assessee’s liability is invalid.

Other Courts

Maruti Udyog Ltd. vs. CIT (2003) 264 ITR 487 (Del)

First Appeal before CIT(A) on account of additions and disallowances mainly under sections 43B, 80-IA and 80HHC were pending. Application for Stay was made till disposal of appeal. Stay was granted on similar facts for earlier year against deposit of part of disputed amount. The direction of AO to pay the whole amount in dispute as a pre-condition for Stay of recovery proceedings at a stage when First Appeal was pending, could not be said to be reasonable.

Shaw Wallace & Co. vs. Union of India (2003) 262 ITR 528 (Cal)

TRO cannot become blow hot and cold in order to exercise jurisdiction under section 226(3) of IT Act, 1961, when he had some other device or mode of recovery of tax due. It is only when amount is found due and payable, section 226(3) can be resorted to. But by reason of clause (vi) of 226(3), the judgment debtor/garnishee has right to object. As soon as objection is raised, TRO cannot proceed to recover until discovery of falsity of objection. If executability of decree is challenged, TRO cannot assume jurisdiction to decide dispute between garnishee and assessee. TRO’s jurisdiction is confined only to the dispute between assessee and Income-tax authority. Until determination by appropriate forum, TRO cannot sit over the judgment for denial and come to his own conclusion.

JCT Ltd. vs. ITAT (2002) 258 ITR 291 (Del)

Scope of power and duty of ITAT while considering Stay Application when appeal is pending before it is highlighted by Delhi High Court and following 154 ITR 172 (SC) in Asst. Collector vs. Dunlop India Ltd., held that:–

Normally four factors for grant of a Stay order should be kept in view:

a prima facie case in favour of assessee,

balance of convenience qua deposit of amount,

possibility of irreparable injury or loss, if any, that may cause in case Stay is not granted, and

safeguarding the public interest.

If any one of these vital aspects is ignored by the ITAT, it may warrant the interference by Court even under a limited scope of judicial review, because such an order would have the attributes of arbitrariness and irrationality.

An authorised controller who has taken over the company under the Industrial (Development and Regulation) Act, 1951 cannot be treated as Representative assessee u/s 160 of the I.T. Act, 1961 and therefore no arrears of tax could be recovered from the authorised controller.

Where the defaulter owns more than one property, the defaulter has no right to claim that the recovery should be effected from a particular property.

Recovery is not possible from property belonging to a person other than a defaulter.

Krishan Prasad Singh & Others vs. T.R.O. 221 ITR 720 (Cal)

T.R.O is not competent to adjudicate upon and decide questions of title.

In respect of arrears of tax of husband no recovery proceedings can be taken against a property purchased by the wife from the husband after obtaining I. T. clearance certificate.

Sultan Leather Finishers P. Ltd. vs. Asst. CIT 191 ITR 179 (All)

No recovery is possible during the pendency of a rectification application.

Balaji Trading Co. vs. CTO (1989) 175 ITR 428 (Mad)

If appeal pending before the Appellate Authorities is not frivolus, AO or TRO can refrain from enforcing payment of tax and grant extension of time for payment till disposal of appeal. If AO/TRO fails to discharge his duty, he can be compelled by writ petition before High Court.

CIT vs. Golecha Properties Ltd. (1987) 167 ITR 737 (Raj)

In case of company in liquidation, interest u/s. 220(2) of I.T. Act, 1961 cannot be levied for period subsequent to winding up. [158 ITR 791 followed]. Similarly, Department’s claim for interest u/s. 220(2) can be disallowed by Court in fit case under section 446(2)(b) of Companies Act, 1956.

Mohd. Ibrahim Khan vs. U.O.I. 155 ITR 10 (AP)

Recovery proceedings once begun must be proceeded with reasonable expedition. Unexplainable delay in taking successive steps is liable to be termed as unreasonable and oppressive and may call for judicial interference.

U.O.I. vs. Smt. Malina Ghosh 153 ITR 263 (Cal)

Recovery not possible from property attached under criminal law.

Purushotam vs. Atg. ITO (1984) 149 ITR 120 (Ker)

Power to Stay recovery proceeding when appeal is pending before CIT(A) can be exercised by the CIT(A) as incidental or ancillary to his appellate jurisdiction.

Deys Medical Stores P. Ltd. vs. Dhanya Kumar Dharamdas & Co. 148 ITR 165 (MP)

Recovery can be effected from out of a particular property to the extent to which the defaulter had interest therein.

Precision Instruments P. Ltd. vs. Union of India 104 ITR 723 (All)

A recovery certificate meant to demand & recover a particular sum specified in the certificate from a particular defaulter. No clubbing of demand of 2 persons are possible.

Kisanchand vs. Union of India (1975) 100 ITR 496 (P&H) (FB)

Application to set aside sale can be made by the party affected under Rule 61, to TRO within 30 days from date of sale on ground of non-service of notice or on ground of material irregularity in publishing or conducting of sale, provided the applicant had sustained substantial loss by reason of non-service or irregularity.

Laxmi Comm. Bank vs. Dharam Singh (1974) 94 ITR 416 (Del)

The provisions of Chapter XVII – Collection and Recovery of Tax (Sections 190 to 234A, B, C of Income-tax Act, 1961), the provisions contained in second and third Schedule of Income-tax. Act, 1961, and the provisions of the Income-tax (Certificate Proceedings) Rule, 1962 – Constitute self contained code for recovery of tax, interest and other sums payable under the Income-tax Act, 1961.

Shiv Narayan vs. ITO (1967) 65 ITR 233 (All)

Application for Review to CCIT/CIT can be made under Rule 87 of Second Schedule. Even TRO or other officer who made order or order made by his successor in office can be reviewed after notice is issued to all persons interested.

A second application for review is also maintainable, if first application was not considered on merits.

Annamma vs. TRO (1967) 64 ITR 85 (Ker)

The High Court can issue writ of Habeas Corpus to release the detained person from action of illegal detention order of TRO.

Anita Rani vs. TRO (1998) 97 Taxman 342 (P & H)

Rights of bona fide purchaser for value/adequate consideration without notice and the transfer of properties made with the prior permission of TRO/AO are protected and in case of any infringement thereof, in appropriate cases, the High Court may issue writ of certiorari to quash quasi-judicial proceedings initiated without jurisdiction or in excess of jurisdiction.

U. P. Glass Works (Public) Ltd. vs. CST (1987) 66 STC 46 (All)

Incorrect amount mentioned in the notice mars recovery proceedings.