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MODES OF RECOVERY OF INCOME TAX UNDER SECOND

SCHEDULE OF INCOME TAX RULES AND HOW THEY’RE


DIFFERENT FROM ORDER 21 OF CIVIL PROCEDURE CODE

The Income Tax Department main function is to make sure that every assessee pays tax to the
country because tax is one of the most important incomes for a country and most important
source of development. Therefore, to make sure no one gets away from the obligation of paying
tax, the Income Tax Act, 1961 consists of a schedule called Second Schedule (“Schedule”)
which states ways of recovering tax in case assessee becomes a defaulter.

The Schedule talks about the procedure which a Tax Recovery Officer (“TRO”) has to follow
after receiving a certificate from Income-Tax Officer (“ITO”) regarding recovery of arrears from
the defaulters. After receiving such certificate, a notice has to be served to the Defaulter and if
after 15 days from the service of notice there have been no actions has been taken by the
Defaulter, TRO shall proceed to realize the arrears by one or more of the following modes:

1. Attachment and Sale of the Defaulters movable property


2. Attachment and sale of the Defaulters immovable property
3. The arrest of the Defaulter and his detention in prison
4. Appointing a receiver for the management of the Defaulter’s movable and immovable
properties.

Attachment and Sale of movable property:

1. For attaching any movable property, warrant has to be furnished by the TRO and copy of
such warrant needs to be furnished before the defaulter.
2. After serving the copy, if the Defaulter does not pay the amount then, excluding
agriculture produce, actual seizure shall take place.
3. In case of Agriculture produce, property shall be attached by affixing a copy of the
warrant of attachment and TRO shall take care of it. After the produce is grown fully, it
shall be sold and arrears shall be recovered.
4. Attachment could be done of decrees, salary or allowances of Government Servants,
Negotiable Instrument, property in custody of court or public officer, partnership
property, debts, shares and other movable property not in the possession of the defaulter.
5. After seizure of all the property, the officer shall make an inventory of all the property
attached and forward to the TRO.
6. Proclamations shall be made regarding sale of seized property with all the required
details. With the consent of the defaulter the sale shall be made but after 15 days of sale
proclamation affixed at the TRO.
7. Sale of movable property shall be made only through public auction but in case of
negotiable instrument shall be sold through a broker.
8. If the properties attached are current coins or currency notes then TRO may consider
them directly as payment towards the arrears.

Attachment and sale of immovable property:

1. To attach an immovable property, an order shall be passed prohibiting the defaulter from
any transfer or charge in the property in any way prohibiting all people from taking any
benefit under such transfer or change.Such attachment takes effect from the date on
which the notice was served upon the Defaulter.
2. Proclamation of such order regarding attachment shall be made and a notice of the order
shall be affixed on a conspicuous part of the property and the notice board of TRO.
If necessary it could be published in Official gazette or local newspaper. In case the
property is divided in a lot, one proclamation is enough rather than separate ones.
3. Attached property may be sold as it may seem necessary to satisfy the certificate but such
sale shall take place, after receiving written consent from the defaulter to make such sale,
after 30 days from the date of the proclamation at the property or at the TRO’s office, is
later.
4. When auction takes place for the attached property then the purchaser shall pay,
immediately after the declaration, 25% amount as deposit and within 15 days of purchase
full amount shall be paid.
5. Within 30 days of the sale, if anyone has interest in the property and has been affected
because of such sale shall apply to the TRO and after depositing a penalty of 5% and
payment to ITO amount specified in proclamation sale and get the sale set aside. If the
notice was not served or there are some irregularities with the service then also the sale
can be set aside by applying to the TRO (only if he is completely satisfied) within 30
days of such sale.
6. In case of setting aside of sale, purchaser shall be returned the purchase-money. If there's
a possibility that
7. Co-sharers shall have a preference while bidding takes place as they have a share in the
undivided movable property.

Arrest and Detention of the Defaulter:

1. TRO has the power to arrest and detain a defaulter after he has served a notice to the
Defaulter to defend his arrest and only if he is satisfied-
(a) The Defaulter, after receiving notice, has dishonestly transferred,
concealed or removed any part of the property to obstruct the execution
of certificate, or
(b) The Defaulter despite having means to pay the arrest or substantial part
thereof neglects to do so.
Such notice of arrest shall be served only if the TRO is satisfied that the defaulter might
or leave local limits of the jurisdiction of the TRO.
2. All the basic rights provided to an arrested person mentioned in the Constitution of India
and the Criminal Procedure Code are provided in this Schedule as well. E.g.- dwelling
house not to be entered before sunrise or sunset, within 24 hours of arrest he shall be
presented before TRO, etc.
3. During an appearance before TRO, first the ITO will present his evidence and thereafter
defaulter will state reasons why he should not be committed to the civil prison.
4. If the inquiry is pending, TRO may order to detain the defaulter in the custody of any
officer he may think fit. If the inquiry is completed, the defaulter will be detained
provided he has been given sufficient time (not more than 15 days under the custody of
any officer) to satisfy his arrears.
5. Punishment: 6 months in case the certificate is for a demand of an amount exceeding two
hundred and fifty rupees or 6 weeks in any other case.
6. Every person detained may be released either by payment of the amount mentioned in the
warrant or on the request of ITO or TRO on any of the above-mentioned reasons:
(c) Illness- if there is any infectious or contagious disease or serious illness
(d) Disclosure of property- if TRO is satisfied that the defaulter has
disclosed the whole of his property at the disposal of Tro and has not
concealed anything.
7. As per Rule 81 of the Schedule, TRO shall not arrest and detain any woman or person
who, in his opinion, is a minor or of unsound mind.

Appointment of the receiver:

1. Receiver is appointed when the property of the defaulter consists of business. For
attaching business, TRO must order prohibiting Defaulter from making any transfer or
charge on the business in any way.
2. Copy of the order, regarding the appointment of Receiver, must be affixed on a
conspicuous part of the premises where the business is carried on and on the notice board
of the office of TRO.
3. The attachment will be withdrawn at the discretion of TRO or payment of default.

Order 21 and the Second Schedule

Order 21 (“Order”) of the Civil Procedure Code talks about the execution of decrees by the Civil
Court. In the Order, various modes of execution are mentioned like delivery of property,
attachment and sale of property, arrest and detention, the appointment of receiver, partition,
cross-decrees and cross-claims, payment of money, etc. Now, the Second Schedule also talks
about various modes of recovery of tax but it is limited to only four ways through which TRO
can recover arrears.
On referring both the provisions of respective Acts following differences can be observed:

1. The Order does not make auction the sole way to sell any property whereas Rule 56
clearly states that only through public auction any immovable property shall be sold1.
2. The Order does not talk about preference given to a co-sharer in case of an
immovable property being sold through auction but Schedule under Rule 68 gives
priority to the Co-sharer.
3. Even if the property is not attached, the sale can take place if it is an execution
petition under the Order but in the Schedule, attachment plays an important role and
without attachment, no sale can take place.

The Order clearly talks about how a decree can be executed and if not executed what measures
could be taken by the Civil Courts to make the Judgment-Debtor gets its justice, whereas the
Schedule solely focuses on recovering of taxes from the defaulter. Also, as per Rule 27 decrees
also get attached provided notice has been served requesting the civil court to stay the execution
of the decree.

The Schedule is completely governed by the Income Tax Department and the Order is governed
by the Civil Courts, it is the way through which Civil Courts make sure that any order/decree
passed by them is abided by the Decree-Holder. Therefore, it can be stated that both the
provision differs on a few Rules but the motive is the same, to recover the loss which is unpaid
tax in case of Income Tax Rules or damages in case of Civil Procedure Code.

1
Sri Mohan Wahi Vs. Commissioner, Income-Tax, Varanasi & Ors, Appeal (civil) 2488 of 2001