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A. BALASUBRAMANIAM AND OTHERS VS. COMMERCIAL TAX OFFICER, THIRUVANMIYUR ASSESSMENT CIRCLE, MADRAS AND ANOTHER , decided on Friday, October 9, 1998.
[ In the High Court of Madras, Writ Petition No. 13421 of 1989 . ] 09/10/1998
Judge(s) : The Honourable Mr. Justice T. Meenakumari
Advocate(s) : Mr. G. Desappan, . Mr. G. Paulraj, Government .
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  "1998 (3) CTC 742"   ==   "1999 WLR 45 "  







judgment - 1.The present writ petition is filed aggrieved by the notification No.9 dated 7.8.1989 issued by the first respondent relating to the attachment and proposed sale by public auction of the land measuring about 3.35 acres in total comprised in survey No.439/5 and patta No. 513 of No. 189 Sholinganallur village Saidapet Taluk Chingleput District and another extent of 1 acre in the same Survey No. 2. The case of the petitioner is that in order to discharge the loan obtained by M/s Easwari Engineers Private Limited and on a request of one Mrs. Rajeswari Duraisamy the original owner of the land measuring an extent of 2.35 acres the petitioner herein rendered financial assistance to the tune of Rs.7 lakhs which had been deposited in the main branch of Karur Vysya Bank in November 1983 and subsequently credited on 18.11.1986 in the account of the said loan. It is the case of the petitioner that in order to discharge the said sum of Rs. lakhs the said Mrs. Rajeswari Duraisamy offered to sell an extent of 2.35 acres of land given as security to Karur Vysya Bank for a sum of Rs.5 lakhs and promised to sell the remaining extent of 1 acre of land for the balance of Rs.2 lakhs. In view of the above understanding the owner of the land has executed three sale deeds which were registered on 23.11.1988 at the office of the Joint Sub Registrar Madras. It is also stated that the possession of the land has been handed over to the petitioner herein. While things stood thus on 23.9.1989 the petitioner was served with a notice of the first respondent dated 29.8.1989 enclosing the notification that the land measuring about 2.35 acres comprised in Survey No.439/5 and patta No.513 of No.189 Sholinganallur Village and another extent of one acre in the same survey number had been attached under Section 27 of the Madras Revenue Recovery Act (Act 2 of 1864) and that the said land would be sold by public auction under the provisions of the Tamil Nadu Act 2 of 1864. It is also stated in the said notification that the said attachment and the sale have been initiated for the alleged non payment of sales tax arrears by M/s Easwari Engineering Co. and M/s. Easwari Engineers Private Limited. It is also averred in the writ petition that the vendor of the petitioner has never mentioned that there was such attachment over the said property. As the entire consideration amount has been paid to Karur Vysya Bank towards discharge of the loan he bonafidely agreed to purchase the entire land of 3.35 acres and it has been argued that the said proposed attachment and the auction could not be sustained in law. It has also been argued that he was not aware of the attachment and also the arrears of sales tax being the bonafide purchaser of the property. He had no notice of the charge also. Hence the charge under Section 24(1) of the Sales Tax Act cannot be enforced against the transfer of property from a defaulter. It has also been argued that the Revenue Recovery Act cannot be resorted to against a person who is not a defaulter. It is the further argument of the learned counsel for the petitioner that under Section 100 of the Transfer of Property Act a bonafide purchaser for consideration without notice of the sales tax arrears is protected. to substantiate his contention learned counsel for the petitioner has relied upon the decision of the Division Bench of this court in Deputy Commercial Tax Officers. Thudiyalur Assessment Circle Coimbatore v R.K. Steels 1998 (I) CTC 124 : 108 STC 161 wherein the Division Bench relying upon the decision of the Supreme Court in Ahmedabad Municipal Corporation of the City of Ahmedabad v Haji Abdul Gafur Haji Hussenbhai AIR 1971 SC 1201 has held that the property of the bona fide purchaser without notice of the charge under Section 24(2) of the Sales Tax Act cannot be proceeded against for recovery of the sales tax arrears. In this case also the petitioner has stated that he was a bona fide purchaser for consideration without notice of the charge over the property by virtue of the sales tax arrears. In view of the above position and relying upon the decision in Deputy Commercial Tax Officer v R.K. Steels 1998 (I) CTC 124 : 108 STC 161 it has been argued that the authorities have no power to attach and sell the land in auction. 3. A counter has been filed by the respondents stating that the property can be proceeded under the Revenue Recovery Act from the subsequent purchaser as the charge has been created over the properties in the years 1981-82 and 1982-83. 4. In the material papers filed along with the writ petition the notice RC.1541/83/B3 dated 28.7.1989 of the first respondent itself makes it clear that a charge has been created over the property purchased by the petitioner herein in the years 1981-82 and 1982-83. As the vendor of the property has failed to pay the arrears of the sales tax it has also been stated in the notice that the sale of the immovable properties i.e. 1 acre of land in S.No.439/5 Patta No.513/819 Sholinganallur village arrears being Rs.2 90 695 and 2.35 acres in S.No. 439/5 Patta No. 513/189 Sholinganallur village Chingleput District arrears being Rs.3 54 541 was published in Chingleput District Special Edition Government Gazette No.38 dated 21.10.1989 and the date of sale was fixed on 19.11.1986 at 11.00 a.m. As there was no bidders the sale was adjourned. It has also been stated that attachment was ordered after complying with all the formalities and from the date of attachment the lands measuring 3.35 acres are under sarkar management under Section 28 of Act II of 1964 of the Revenue Recovery Act. It has also been stated that the charge was already in force and the property was already under attachment and the remaining 1 acre in S.No.439/5 was not sold by Tmt. D. Rajeswari. In pursuance of the above notification the respondents have again issued the notification dated 7.8.1989 keeping 30.9.89 as the date of sale. It is not in dispute that the petitioner has purchased the said lands and the same was under the attachment by the respondent in view of sales tax arrears of Thiru V.S. Duraisamy Proprietor Thiruvalargal Eswari Engineering Company. The contention of the petitioner is that he had purchased the property under the bona fide impression and without notice regarding the sales tax arrears. It is also not in dispute that late Duraisamy Proprietor Tvl. M/s Eswari Engineering Company and M/s Eswari Engineers Private Limited were in arrears of sales tax. for the years 1981-82 to the amount of Rs.2 90 695 and to the tune of Rs.3 54 541/- for the years 1981-82 and 1982-83. As the said Doraisamy fell in arrears the properties owned by late Duraisamy have been attached and the lands in question were also attached after complying with the formalities and published in the Government Gazette dated 21.10.1986. As per Section 19 of the Tamil Nadu General Sales Tax Act 1959 where any firm is liable to pay any tax or other amount under the said Act the firm and each of the partners of the firm shall be jointly and severally liable for such payment. As per Section 24 of the Act if default is made on paying according to the notice of assessment the whole of the amount outstanding on the date of default shall become immediately due and shall be a charge on the properties of the person or persons liable to pay the tax under the said Act. The defaulter are liable to pay penalty. Section 24 of the Act which is relevant in the present context reads as follows: 24. Payment and recovery of tax. (1) The tax assessed under this Act shall be paid in such manner and in such instalments if any and within such time as may be specified in the notice of assessment not being less than twenty-one days from the date of service of the notice. If default is made in paying according to the notice of assessment the whole of the amount outstanding on the date of default shall become immediately due and shall be a charge on the properties of the person or persons liable or pay the tax under this Act. (Italics supplied) (2) Any tax assessed on or any other amount due under this Act from a dealer or person and any fee due from his under this Act may without prejudice to any other mode of collection be recovered (a) as if it were an arrears of land revenue or (b) X X X X X X X X As the company has failed to pay the sales tax the respondents herein have issued the notice attaching the properties and bringing them to sale towards the recovery of arrears of sales tax. Learned counsel for the petitioner has relied upon the decision of a Division Bench of this Court in Deputy Commercial Tax Officer Thudiyalur Assessment Circle Coimbatore v R.K. Steels 1998 (I) CTC 124 : 108 STC 161 to substantiate his contention that bona fide purchaser for consideration without notice of the charge is protected. However in a recent decision of the Apex Court reported in State Bank of Bikaneer and Jaipur v National Iron and Steel Rolling Corporation and others 1995 (96) S.T.C. 612 it has been held by the Supreme Court that when a first charges created by operation of law over any property the charge will have precedence. In the above case the Apex Court was dealing with the effect of Section II-AAAA of the Rajasthan Sales Tax Act 1954 which is similar to Section 24 of the Madras General Sales Tax Act 1959. The Supreme Court further observed as follows: Under this Section the amount of sale tax or any other sum due and payable by a dealer or any other person under the Rajasthan Sales Tax Act 1954 is a first charge on the property of the dealer or of such person. It is on account of the provisions of this section that the Commercial Taxes Officer claimed priority for the recovery of the sales tax dues from the sale proceeds of the mortgaged property. The appellant however contended that since the mortgage in their favour is prior in point of time their claim will have precedence over the claim of the sales tax authorities. It is therefore necessary to consider the effect of section 11- AAAA of the Rajasthan Sales Tax Act 1954 on an existing mortgage in respect of the property of the dealer or the person liable to pay sales tax or other sums under the Rajasthan Sales Tax Act 1954. Section 100 of the Transfer of Property Act deals with charges on an immovable property which can be created either by an act of parties or by operation of law. It provides that where immovable property of one person is made security for the payment of money to another and the transaction does not amount to mortgage a charge is created on the property and all the provisions in the Transfer of Property Act which apply to a simple mortgage shall so far as may be apply to such charge. A mortgage on the other hand is defined under Section 58 of the Transfer of Property Act as a transfer of an interest in specific immovable property for the purpose of securing payment of money advanced or to be advanced as set out therein. The distinction between a mortgage and a charge was considered by this Court in the case of Dattatreya Shanker Mote v. Anand Chintaman Datar 1974 (2) S.C.C. 799. The Court has observed at pages 806-807 that a charge is a wider term as it includes also a mortgage in that every mortgage is a charge but every charge is not a mortgage . The court has then considered the application of the second part of Section 100 of the Transfer of Property Act which inter alia deals with a charge not being enforceable against a bonafide transferee of the property for value without notice of the charge. It has held that the phrase transferee of property refers to the transferee of entire interest in the property and it does not cover the transfer of only an interest in the property by way of a mortgage. In the present case we have to consider whether the statutory first charge which is created under Section 11-AAAA of the Rajasthan Sales Tax Act over the property of the dealer or a person liable to pay sales tax and/or other dues under the Rajasthan Sales Tax Act is created in respect of the entire interest in the property or only the mortgagors interest in the property when the dealer was created a mortgage on the property. In other words will the statutory first charge have priority over an earlier mortgage. It was urged by Mr. Tarkunde learned counsel for the appellant-bank that at the time when the statutory first charge came into existence there was already a mortgage in respect of the same property. Therefore the only property which was possessed by the dealer and/or person liable to pay tax or other dues under the Rajasthan Sales Tax was equity of redemption in respect of that property. The first charge would operate therefore only on the equity of redemption. The argument though ingenious will have to be rejected. Where a mortgage is created in respect of any property undoubtedly an interest in the property is carved out in favour of the mortgagee. The mortgagor is entitled to redeem his property on payment of the mortgage dues. This does not however mean that the property ceased to be the property .The title to the property remains with the mortgagor. of the mortgagor. Therefore when a statutory first charge is created on the property of the dealer the property subjected to the first charge is the entire property of the dealer. The interest of the mortgage is not excluded from the first charge. The first charge therefore which is created under Section 11-AAAA of the Rajasthan Sales Tax Act will operate on the property as a whole and not only on the equity of redemption as urged by Mr. Tarkunde. We find support for this conclusion in the observations made in Fisher and Lightwoods Law of Mortgage 10th Edn. at page 33 where the statutory charges are discussed. In dealing with the statutory charge in favour of rating authorities in respect of rating surcharges for unused commercial buildings under the General Rate Act 1967 it is stated that a statutory charge has priority to be interest of the mortgage under a mortgage existing when the charge arose. In the case of Westminister City Council v. Haymarket Publishing Limited 1981 (2) All. E.R. 555 CA the English Court of Appeals was required to consider whether a statutory charge on the property under the General Rate Act would have priority existing when the charge came into being. It was argued that the charge would be only on the mortgage-owners interest in the property i.e. on the enquiry of redemption. The Court negatived this contention. It held that charge on the land imposed for an unpaid surcharge was not confined to a charge on the owners interest in the premises when the charge arose but extended to a charge on all the estates and interests in the premises existing when the charge arose. The rating authoritys charge would have priority over the banks interest as a mortgagee. In the present case the section creates a first charge on the property thus clearly giving priority to the statutory charge over all other charges on the property including a mortgage. The submission therefore that the statutory first charge created by Section 11-AAAA of the Rajasthan Sales Tax Act can operate only over the equity of redemption cannot be accepted. The charge operates on the entire property of the dealer including the interest of the mortgagee therein. Looked at a little differently the statute has created a first charge on the property of the dealer. What is meant by a First Charge? Does it have precedence over an earlier mortgage? Now as set out in Dattatreya Shanker Motes case 1974 (2) SCC 799 a charge is a wider term than a mortgage. It would cover within its ambit of mortgage also. Therefore when a first charge is created by operation of law over any property that charge will have precedence over an existing mortgage. Following the decision of the Supreme Court cited supra /the learned single Judge in State of Tamil Nadu v. Anop BaiI I.L.R. 1998 (2) Mad. 631 has observed as follows: The recent pronouncement of the Apex Court referred above is directly applicable to the facts of our case. As a matter of fact Their Lordships have also considered the defence of the purchaser under Section 100 of the Transfer of Property Act. Their Lordships have made it clear that a charge is a wider term than a mortgage. It is further held that when a first charge is created by operation of law over any property that charge will have precedence over an existing mortgage. 5. In the decision relied upon by the learned counsel for the petitioner had no judgment reported in State Bank ofBikaneer and Jaipurs case 1995 (96) S.T.C. 612 was not brought to the notice of the Division Bench. It should be ultimately concluded that there is a default in paying according to notice of assessment the whole of the amount outstanding on the date of the default shall become immediately due and shall be a charge on the properties of the person or persons liable to pay the tax under Section 24 of the Madras General Sales Tax Act 1959. In view of the categorical pronouncement of the Supreme Court in State Bank ofBikaneer and Jaipurs case 1995 (96) S.T.C. 612 which directly covers this point it has to be concluded that the contention of the petitioner that he has been protected as he is a bona fide transferee for consideration without notice of charge is not sustainable. Hence the writ petition is dismissed. Consequently. W.M.P .No. 19332 of 1989 is dismissed.