RADHAKRISHNA ERADI V Vs. TAX RECOVERY OFFICER

JUDGEMENT

(1.) THE question raised in this original petition is as regards the construction of Section 281 of the Income-tax Act, 1961 (as it stood before the Act was amended in 1975), and Rule 16 of the Second Schedule to the Act. Is the Tax Recovery Officer, conducting an investigation under Rule 11 of the said Schedule concerning matters coming within the ambit of Rule 16, bound to act in accordance with the principles mentioned in Section 281? No direct authority has been referred to me on this question, and I shall, therefore, deal with it on general principles.

(2.) BEFORE I consider the relevant statutory provisions, I shall briefly state the facts and the respective contentions of the parties. The petitioner is a partner of a firm engaged in timber and banking business. His firm granted a loan of Rs. 25,000 to another firm called M.K. Raru & Sons on the basis of an equitable mortgage created by M.K. Raru, one of the partners of the latter firm, in certain properties belonging to Raru. Upon the death of Raru on December 24, 1971, his properties devolved on the remaining partners of the firm in their capacity as legal representatives. Raru had been assessed to income-tax in the sum of Rs. 1,38,703 for the assessment years 1957-58 to 1965-66. On the basis of a certificate issued by the Income-tax Officer under Section 222 of the Income-tax Act, proceedings were initiated by the respondent for recovery of the said sum. A number of notices under Rule 2 of the Second Schedule to the Act had been issued to Raru during the period March 24, 1967, to March 12, 1969. The equitable mortgage was created by Raru in favour of the petitioner's firm only on March 15, 1969. These properties were attached by the respondent under Rule 48 of the Second Schedule by his order dated April 19, 1972. The petitioner's firm then filed under Rule 11 of the said Schedule its objections before the respondent stating that the properties were the subject-matter of an equitable mortgage in its favour, and, therefore, the right of the revenue was subject to the superior rights of the mortgagee. The respondent disposed of the objections by exhibit P-1 order dated November 15, 1973.

(3.) I shall now read Section 281 (as it stood at the relevant time):