SRI MOHAN WAHI versus COMMISSIONER, INCOME TAX, VARANASI AND ORS

Citation: [2001] 2 S.C.R. 912 · Decided: 30-03-2001 · Supreme Court of India · Bench: A.S. ANAND · Disposal: Appeal(s) allowed

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Judgment (excerpt)

A 
SRI MOHAN WAH! 
~ 
·~
COMMISSIONER, INCOME TAX, VARANASI AND ORS. 
~
MARCH 30, 2001 
B 
[DR. A.S. ANAND, C.J., R.C. LAHOTI AND DORAISWAMY RAJU, JJ.] 
c 
Income Tax Act, 1961 : 
Section 225(3)-lncome Tax-AYs 1967-68 to 1969-70-Tax recovery 
ce11ificate issued against assesseejirm-House property belonging to assessee 
attached and proclamationforsale issued-Auction-purchaser's bid accepted-
In appeal, demand of income tax against assessee-firm stood wiped out and 
reduced to nil-But Tax Recove1y Officer confirmed the sale and issued sale 
certificate infavourof auction-purchaser-Validity of-Held: If the demand of 
tax is reduced to nil, Tax Recovery Officer is obliged not to confirm the sale-
D 
R. 56 is neither a redundant nor afonnal provision-It casts an obligation on 
the Tax Recove1y Officer to confirm the sale consciously-If a subsequent event 
goes to the root of the matter, Tax Recovery Officer must refuse to confirm the 
sale-Hence, auction sale set aside-Income Tax Rules-Second Schedule, 
Rule 56. 
E 
Rule 56 in Second Schedule--AYs 1967-68 to 1969-70-Notice of De-
F 
G 
mand--Se111ice o,f-Tax recove1y ce11ificate issued against assessee-finn-House 
proppry belonging to assessee attached and proclamation for sale issued-
Auction-pwdwser's bid accepted-In appeal, demand of income tax against-
assessee Jinn stood wiped out and reduced to nil-It was also held that the 
assessee ivas not served 1vith a d.emand notice-But Tax Recovery Officer 
confinned the sale and issued sale certificate infavourof auction-purchaser-
Validity of-Held: Sen>ice of notice of demand on assessee is mandat01y-
Non-sen,ice of notice of demand goes to the root of recovery proceedings-Sale 
.':.
of prope11y without service of notice of demand is invalid and liable to "w 
mmulled. 
Words and phrases : 
"Reduced"-Meaning of-In the context of S. 225( 3) of the Income Tax 
Act, 1961. 
Appellant and his brother entered into a partnership and income tax 
H 
assessments of the partnership firm were finalised for the assessment years 
912 
'y 
SRI MOHAN WAH! v. C.I.T. 
913 
1967-68 to 1969-70. Recovery certificates were issued pursuant to which 
the house property belonging to the appellant and his brother was attached 
and a proclamation for the sale of the property was issued. Respondent 
No.J's bid was accepted. However, in appeal, the several demands of in-
come tax against the assessee·firm stood wiped out and, therefore, reduced 
to nil. In the appeal it was also held that the assessee•firm was not served 
with the demand notice. But the Tax Recovery Officer confirmed the sale 
and issued a sale certificate in favour of respondent No. 3. The High Court 
dismissed the writ petition filed by respondent No. 3. Hence this appeal. 
The following question arose before this Court : 
(i) Whether the Tax Recovery Officer could have confirmed the sale 
when the demands on account of tax for the recovery of which tax recovery 
certificates were issued had admittedly ceased to exist? 
A 
B 
c 
(ii) What is the effect of a notice of demand under Section 156 of the 
Income Tax Act, 1961 having not been served on the assessce on the sale 
D 
held for recovery of arrears of income tax'? 
Allowing the appeal, the Court 
HELD : 1. The term "reduced" occurring in Section 225(3) of the 
Income Tax Act, 1961 would also include a case where the demand conse-
quent upon an appeal or any proceedings under the Income Tax Act has 
been reduced to nil. The Tax Recovery Officer is obliged to give effect to 
such reduction in demand and accordingly amend or cancel the certificate. 
The scheme of Part III of Second Schedule indicates that the sale proceed-
ings terminate on their becoming absolute where after all that remains to 
be done is the issuance of sale certificate. However, an order confirming the 
sale by the Tax Recovery Officer is a must. The efficacy of the sale by 
public auction in favour of the highest bidder has been made to depend on 
the order of confirmation by the Tax Recovery Officer by incorporating 
Rule 56 in the Schedule. It is true that ordinarily if there is no application 
filed for setting aside the sale under Rules 60, 61 or 62 of the Income Tax 
Rules and 30 days from the date of the sale have expired, the Tax Recovery 
Officer has to make an order confirming a sale. Nevertheless, an order 
shall have to be actually made. The combined effect of Section 225(3) of the 
Act and Rules 56 and 63 of the Second Schedule is that if before an 

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