Second schedule to Income Tax Act, provides for recovery procedure, providing for the following modes of recoveries

i. Attachment/sale of movable/ immovable property,

ii. Appointment of receiver for management of movable/ immovable properties.

iii. Arrest and detention of defaulter

Procedure of Procedure of recovery under Income Tax Act, 1961

1. Tax Recovery Officer (TRO) draw a certificate for execution u/s 222 mentioning the amount to be recovered

2. Certificate is drawn u/r 117B in form 57 and issue a notice requiring payment in 15 days and mentioning that if defaulted steps will be taken to realize via either attachment/sale of movable/ immovable property, arrest and detention of assesse and appointment of receiver for management of movable/immovable properties.

3. Recovery u/s 222 may continue irrespective of recovery via other modes have been taken

Attachment/ sale of movable/ immovable property

4. Once certificate for execution is drawn u/s 222, any person who fraudulently remove, conceal, transfer or deliver any property or interest therein, with intent to prevent execution of certificate issued u/s 222, stand punishable with rigorous imprisonment up to 2 years and fine

5. Attachment and sale of movable/ immovable property includes the properties transferred to spouse, minor child, son’s wife or son’s minor child otherwise than for adequate consideration

6. Action can be taken even prior to expiry of notice period of 15 days by recording reason in writing that defaulter is likely to conceal, remove or dispose of movable property and realization u/s 222 would be delayed or obstructed.

7. Defaulter can submit security based which TRO if satisfied may cancel attachment. Waiver application towards the interest to be decided by Principal Commissioner or Commissioner within 12 months from month end in which application is made.

8. The proceed on sale or otherwise of property first be utilized towards dues under certificate in execution followed by adjustment against any other dues and balance to be returned to defaulter, if defaulter dispute adjustment value then TRO will be deciding authority

9. Every question arises between TRO and defaulter relating to execution of certificate or setting aside of an order the Act for sale held in execution of such certificate shall be determined not by suit but by order of TRO however suit may be filed in civil court on ground of fraud

10. Properties which are exempt from attachment under CPC also exemption under the Act and TRO decision as to what property is so entitled to exemption shall be final

11. Where any claim is made or objection is raised w.r.t. attachment or sale of property then investigation by TRO but where TRO feel that investigation will cause unnecessary delay then no investigation be made. Claimant or objector must present evidence that he had some interest in or was in possession of the property on date of service of notice for immovable property and on date of attachment for movable property. On investigation if it reveal that on date of attachment sale etc. such property was in possession of defaulter or his tenant then such claim is rejected.

12. Once attachment been made any transfer or delivery or payment towards debt, dividend or other money shall be void.

13. Attachment of immovable property of the defaulter be made prohibiting any transfer/ charge and prohibiting all person from taking any benefit under such transfer/ charge. Copy of order of attachment be served upon defaulter.

14. The attachment shall relate back to and effect from date on which notice to pay arrear issued and served upon defaulter. If TRO decide to sell, proclamation shall be drawn upon defaulter stating time and place of sale, property to be sold, amount of recovery for which sale is ordered, reserve price or any other thing TRO considered purchaser to know.

15. Proclamation can be published in official gazette or local newspaper.

16. No sale of immovable property be made up to 30 days of proclamation except with written consent of defaulter. Sale to be by public auction to highest bidder, subject to confirmation of TRO and purchaser to pay immediately 25% deposit and balance money in 15 days else deposit money be forfeited and property be resold after issue of fresh proclamation u/r 38 & 39 of second schedule.

17. In case bidding is postponed due to bidding below reserve price, then with permission of chief commissioner/ commissioner AO can bid for next time and if turnout to be highest bidder then no payment will be required amount of property stand adjusted with dues under certificate.

18. Further u/r 68A AO can accept in satisfaction of whole or any part of dues such price as agreed between AO and defaulter, defaulter handover the possession to AO and on such handover property shall vest with Central Government and such information is send to registration officer appointed under Registration Act, 1908. Where the price agreed exceed dues from defaulter such excess is paid to defaulter within 3 months from date of possession given to AO beyond which interest @ 6% stand payable

19. When property has been sold, defaulter can within 30 days, pay all dues under certificate with interest @ 15% and pay purchase money to buyer with penalty of 5%, except when defaulter has made an application to set aside the sale unless application is withdrawn.

20. Application to set aside sale can be made in 30 days of sale by ITO authorized by chief or commission, defaulter or any other person before TRO on ground that notice not served on defaulter to pay or any material irregularity in sale.

21. No sale be set aside unless TRO is satisfied that applicant has suffered substantial injury and if applicant is defaulter all dues under certificate are paid.

22. Application can be made by purchaser also to set aside on ground the defaulter had no sellable interest in property. If no application is made or TRO rejects then TRO pass order which make sale as absolute. Purchaser’s carry only interest in property unless sale become absolute and TRO grant a certificate specifying that property sold, name of purchaser and date when sale became absolute. In case application to set aside is accepted, purchaser is repaid with interest money paid for the property.

23. When order of sale has been made, however defaulter satisfy TRO then funds can be arranged through mortgage or lease or private sale of such property, TRO may postpone public auction, issuing a certificate to defaulter specifying time so allowed with condition that funds to directly flow to TRO instead of to defaulter, however no such arrangement become absolute unless confirmed by TRO.

24. No sale of immovable property can be made after 3 years from end of FY for which tax stand dues, however in computing period of limitation exclude

  • Period for which order has not become conclusive in terms of section 245I i.e. under settlement proceedings or under chapter XX i.e. under appeal proceedings
  • Recovery of dues or proceeding of attachments are stayed by order or injunction of any court
  • Time when appeal against TRO order is filed till it is decided

25. Period of limitation is extended by 180 days where period after exclusions is less than 180 days

26. Where sale is made in violation of period of limitation the attachment stand vacated on expiry of time of limitation

Appointment of receiver to manage the movable or immovable property seized

27. Where the property attached consist of business, TRO appoint receiver to manage. Copy of attachment be served to defaulter and displayed at business premises and at TRO office. Receiver may be appointed in case immovable property is attached instead of sale of such property however TRO anytime can withdraw management and attachment

Arrest and detention of defaulter

28. TRO can issued warrant for arrest of defaulter(other than women, minor or person of unsound mind) where he has served the notice of defaulter to appear on date specified to show-cause why he should not be committed to civil prison and TRO record in writing that

    • Defaulter has not appeared for hearing
    • Defaulter has refused or neglected to pay the dues
    • TRO is satisfied that defaulter with object of delaying the execution of the certificate, the defaulter is likely to abscond the local limits of jurisdiction of TRO

29. Such warrant can also be executed by TRO of another jurisdiction in whose jurisdiction defaulter is found and to be brought before TRO who issued the warrant within 24 hours

30. Where defaulter pay the amount mentioned in warrant as due and cost of arrest TRO at once should release him.

31. With view to give defaulter an opportunity to satisfy arrear, TRO may leave him in custody of officer arresting him for up to 15 days or may accept the security of defaulter and release him for appearance when required

32. Person detained in civil prison may be detained for a period of six months however on discharge from prison he is not discharged from his liability for the arrears but he shall not be liable to be rearrested.

33. TRO may order release where defaulter has disclosed whole of his properties and has placed at disposal of TRO and has not committed an act of bad faith. TRO may also cancel arrest on ground of serious illness but where TRO believe that disclosure made is untrue he may order re-arrest but put together period be less than six months.

34. No certificate cease to in force by reason of death of defaulter and proceeding may be continued against legal representative

35. Appeal against the order of TRO can be filed before chief commissioner or commissioner within 30 days and appellate authority may stay execution of certificate

36. U/r 117C, Chief Commissioner or Commissioner may authorize TRO to rectify apparent mistakes u/s 154 w.r.t. order passed by AO, consequent to which a sum is payable and TRO has drawn a certificate u/s 222

Thank you for the patient reading. Hope this document to be relevant. For feedback or comments, may please write to [email protected]

{Disclaimer: This document had been written to provide Income Tax provisions in simple manner. The author shall not be responsible for any of the decision made based on the contents of this document}

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February 2021