Tax Dept. is Liable to Lift Attachment If Bank Claims & Exercises Its 1st Charge Over Debt Under SARFAESI Act | HC

Case Details: City Union Bank Limited vs. Tax Recovery Officer - [2023] 157 taxmann.com 233 (Madras)

Judiciary and Counsel Details

• • Mrs S. Srimathy, J.
  • R. Sivaraman for the Petitioner.
  • N. Dilip Kumar & R. Suresh Kumar, Additional Government Pleader for the Respondent.

Facts of the Case

The petitioner bank challenged the attachment order issued by the income tax department under Rule 48 of the Second Schedule of the Income Tax Act. The bank contended that the borrower had executed the mortgage by deposit of title deeds on 02.04.2009 and subsequently executed the memorandum of extension of equitable mortgage dated 17.04.2014. Thus, the bank has priority over the Income-tax department.

However, the Income-tax Dept. argued that the deposit of title deeds was not registered. The date of registered mortgage was on 17.04.2014, and as of 17.04.2014, the assessment proceedings were initiated. Thus, any mortgage executed during that period was void as per Section 281.

High Court Held

The High Court held that the deposit of title deeds dated 02.04.2009 falls under the “not compulsory” category. It was w.e.f. 01-12-2012, the registration of the instrument evidencing the agreement relating to the deposit of title deed was made compulsory under section 17(i) of the Registration Act.

Further, non-registration of the deposit of title deeds alone would not determine the party’s rights. Income Tax Act has not provided any 1st charge of its debts. However, there is 1st charge over the bank’s debt under the SARFAESI Act.

Thus, even though it is a statutory duty to attach the property to the Income Tax Department, as and when the bank claims and exercises its 1st charge over the property, the Dept. is liable to issue a no-objection certificate and lift the attachment.