TAX RECOVERY OFFICER Vs. D V SUBHARAYUDAMMA

JUDGEMENT

(1.) Datla Venkata Narasimha Raju, the debtor, a resident of Rajahmundry, filed an insolvency petition under section 10 and 13 of the Provincial Insolvency Act on April 20, 1976. The learned Subordinate Judge, Rajahmundry, by his order dated April 23, 1977, adjudged Venkata Narasimha Raju as an insolvent. No evidence was adduced on behalf of the Income-tax Officer to substantiate the plea that the insolvent has some more properties which were secreted and that he has not valued his assets. According to the 1st respondent-Income-tax Officer, the petitioner himself valued item No. 2 at Rs. 1,25,000 for wealth-tax purposes and they have got a charge over the assets of the petitioner, respondents Nos. 2 and 3 remained ex parte. Items Nos. 1 and 2 of the schedule were brought to sale by means of a public auction by the Official Receiver. The wife of Venkata Narasimha Raju participated in the auction and she was found to be the highest bidder of the B schedule property building bearing No. 6-2-26/1 situated at Innespeta, Rajahmundry, and the Officer Receiver accepted the bid in her favour on September 8, 1977, on the date of the auction, the 1st respondent filed Exhibit A-3. After the auction. The Income-tax Officer, i.e., the 1st respondent in the main I.P. impleaded the Official Receiver, East Godavari District, as the 1st respondent and the auction purchaser as the 2nd respondent and the insolvent as the 3rd respondent. The 1st respondent filed I.A. No. 147 of 1977 in I.P. No. 4 of 1976 on September 28, 1977, under sections 68 and 4 of the Provincial Insolvency Act and section 151 of the Code of Civil Procedure to set aside the sale of the property described as item No. 2 of the B schedule property building bearing No. 6-2-26/1. Innespeta, Rajahmundry, held on September 8, 1977, by the Official Receiver in favour of the wife of Venkata Narasimha Raju. After contest, the learned Subordinate Judge found that the Income-tax Department filed a memo even on the date of sale. The Official Receiver who conducted the auction might have thought over the provisions contained in the income-tax recovery proceedings pending against the 3rd respondent before the Tax Recovery Officer and those facts are suppressed by the 3rd respondent while the proceedings before the Tax Recovery Officer went on till the sale was held and confirmed and the learned Subordinate Judge found that the sale has to be set aside not only on the question of fact regarding the low value fetched but also on account of the legal flaw on account of the provisions contained in the Income-tax Act and Schedule II and rule 16. He also found that, in the peculiar circumstances appearing in the case, the Official Receiver cannot be a representative-in-interest of the 3rd respondent because the property of the 3rd respondent vested in the 1st respondent-official Receiver and in a way he is interested in the property. He also found that it cannot be said that the Official Receiver is not a representative-in-interest of the 3rd respondent herein or his properties. He allowed that petition. Against that order, the auction-purchaser filed A.S. No. 76 of 1980 on the file of the Second Addl. District Judge, Rajahmundry.

(2.) The Tax Recovery Officer, Income-tax Department, Visakhapatnam, filed I.A. No. 148 of 1977 in I.P. No. 4 of 1976 on September 28, 1977 under sections 68 and 4 of the Provincial Insolvency Act and section 151 of the Code of Civil Procedure, to set aside the sale of property described as item No. 2 of the B schedule, viz., the building bearing No. 6-2-26/1, Innespeta, Rajahmundry, held on September 8, 1977, by the 1st respondent-Official Receiver in favour of the 2nd respondent. This I.A. was tried separately and witnesses were examined and, in this application also, a detailed order was passed by the learned Subordinate Judge, allowing the application. Against that order, A.S. No. 77 of 1980 was filed before the second Additional District Judge, Rajahmundry. Both A.S. Nos. 76 and 77 of 1980 were heard by the learned Additional Judge who allowed the appeals. C.R.P. No. 1934 of 1984 is against the judgment and decree in A.S. No. 76 of 1980 C.R.P. 1933 of 1984 is against the order passed in A.S. No. 77 of 1980. I.A. No. 149 of 1977 in I.P. No. 4 of 1976 was filed by the Tax Recovery Officer Income-tax Department Visakhapatnam. Under rule 16(1) of Schedule II of the Income-tax Act 1961 and section 151 of the Code of Civil Procedure and section 4 of the Provincial Insolvency Act for permission to the petitioner to proceed with the attachment and sale of all the properties of the 3rd respondent, i.e., insolvent declared and shown in the schedules appended to the insolvency petition in accordance with the procedure laid down in the Second Schedule to the Income-tax Act, 1961. This petition also was contested and the learned Subordinate Judge permitted the Tax Recovery Officer to proceed further with the matter and sell the property and recover the tax arrears due to the Department. Against that order, A.S. No. 86 of 1980 was filed and the learned Second Additional District Judge found that the lower court committed an error in granting permission to the income-tax authorities to proceed with the sale of the property which is already vested in the Official Receiver. He allowed the appeal. Against that, C.R.P. No. 300 of 1983 was filed.

(3.) The grounds that have been alleged in the revisions by the revision petitioners are one and the same. The contention of the Official Receiver is that he conducted that auction impartially and followed the procedure and rules and the property vested in him and he discharged the duties as entrusted to him under the Act and the Rules. The contention of the auction-purchaser is that the property was sold for a reasonable price and that she happened to be the highest bidder and there are no infirmities in conducting the sale or confirming the sale and the learned Subordinate Judge was not justified in drawing an inference that some suppression of facts have been made and that the Tax Recovery Officer has got a right to proceed under rule 16 of Schedule II. The submission that has been made on behalf of the respondents is that when once the property is vested by means of an adjudication order that has been passed by the competent court, i.e., the Subordinate judge, the question of divesting the estate basing on rule 16(1) of Schedule II of the Income-tax Rules does not arise. The reason for filing the insolvency petition has already been stated by the insolvent in the petition itself and the main reason for filing the insolvency petition is with regard to the steps that are being taken from time to time by the Income-tax Department for the recovery of the amounts that are due from the insolvent.