Income Tax Department Cannot Attach Properties Indefinitely Without Pursuing Steps To Resolve Matter: Delhi High Court
The Delhi High Court has held that the Income Tax Department cannot, suspecting escapement of tax on income by an assessee, indefinitely attach its properties without taking further steps to resolve the matter.Single judge Justice Sachin Datta observed that Section 222 of the Income Tax Act, 1961 which empowers the Tax Recovery Officer to proceed with “attachment and sale of assessee's...
The Delhi High Court has held that the Income Tax Department cannot, suspecting escapement of tax on income by an assessee, indefinitely attach its properties without taking further steps to resolve the matter.
Single judge Justice Sachin Datta observed that Section 222 of the Income Tax Act, 1961 which empowers the Tax Recovery Officer to proceed with “attachment and sale of assessee's movable property” to recover the due taxes, explicitly states “attachment and sale,” signifying a sequential process where the property, once attached, must subsequently be sold to recover the arrears.
The Court was dealing with a petition filed by a private company which had emerged as the successful bidder in an auction for sale of helicopters owned by Summit Aviation Private Limited, which was facing action for failure to pay taxes.
Significant to note that the helicopters were purchased by Summit Aviation by availing financial assistance from Punjab National Bank (PNB/ respondent no.3) under a hypothecation agreement. As the company also defaulted in repaying the loan, the bank auctioned the helicopters, bringing the Petitioner in picture.
The Petitioner opposed a prohibition order passed by the Income Tax Department (respondent no. 2) restraining the release of the helicopters. The Department however claimed that the auction was illegal as it violated the prohibitory order and failed to prioritize tax recovery.
The Petitioner claimed that it had fulfilled all auction terms by making full payments for both helicopters. PNB also supported Petitioner's case, claiming that the Department was adequately informed prior to the auction yet no objection was raised by the Department then.
PNB also argued that it was a secured creditor, having precedence over the dues of Revenue. The petitioner also submitted that the Income Tax Act does not contain any provision that accords priority to tax dues over secured creditors.
The High Court agreed that dues of a secured creditor take precedence over government debts.
“In this regard, the respondent no. 3, as a secured creditor, had priority over the revenue's claims and, accordingly, was entitled to exercise its rights over the secured assets and subsequently sell the concerned helicopters…Despite being duly notified, the tax authorities neither raised any objection to the auction nor initiated any proceedings to challenge it,” Court observed at the outset.
It then cited Section 222 of the Income Tax Act and observed, “in the present case, while respondent no. 2 initiated attachment proceedings by issuing the prohibitory order, no further action has been taken by respondent no. 2 towards the recovery of the outstanding amount. It is impermissible to keep the properties attached indefinitely without pursuing subsequent steps to resolve the matter.”
As such, the Court allowed the petition.
Appearance: Mr. Rana Mukherjee, Sr. Advocate along with Mr. Siddharth Mehta, Mr. Samarth Mohanty, Ms. Amrita Kumari, Ms. Dindrilla and Ms. Jasleen Kaur, Advs. for Petitioner; Ms. Nidhi Banga, Sr. Panel Counsel along with Mr. Nishant Kumar, Advocates for R-1/UOI. Mr. R. P. Vats, Mr. Apoorv Sarvaria, Ms. Yashika Sarvaria, Mr. Sahaj Aggarwal and Ms. Simran Chadha, Advs. for R-3/PNB. Mr. Puneet Rai, Sr. Standing Counsel along with Mr. Ashvini Kumar, Mr. Rishabh Nangia, Jr. Standing Counsel for Income Tax Department.
Case title: Fasttrack Tieup Pvt. Ltd v. Union of India
Citation: 2025 LiveLaw (Del) 296
Case no.: W.P.(C) 15237/2023
