An agreement to purchase attached property does not confer the status of 'a person whose interests are affected by the sale' under rule 61 of the Second Schedule to the Income-tax Act.

K. Shivashankar Bhat, J.

1. In these appeals (see [1992] 194 ITR 409), we are mainly concerned with the scope of rule 16 of the Second Schedule to the INcome-tax Act, 1961 (these rules are referred to hereinafter as "the Rules").

2. The appellants entered into an agreement with the third respondent. It is dated February 23, 1984. The agreement was to purchase a house property belonging to the third respondent for a sum of Rs. 2,80,000, out of which a sum of Rs. 1,30,000 was paid as advance. The third respondent was a defaulter in the payment of taxes under the provisions of the Income-tax Act, 1961 ("the Act", for short), and, consequently, notices in Form I. T. C. P. 1 were served on him in the year 1973, under rule 2 of the Second Schedule to the Act. Subsequently, the property in question was attached under rule 48 of the Rules (read with Form I. T. C. P. 16). Thereafter, there was a proclamation of sale and sale of the property by public auction was held on August 19, 1987. The third respondent defaulter was in arrears of tax in a sum of Rs. 5,99,509. He did not choose to challenge the sale. However, the appellants invoked rule 61 of the Rules to set aside the said sale.

The question is whether the appellants were competent to invoke the said rule 61, the relevant part of which reads :

"61. Application to set aside sale of immovable property on ground of non-service of notice or irregularity. - Where immovable property has been sold in execution of a certificate, the Income-tax Officer, the defaulter, or any person whose interests are affected by the sale, may, at any time within thirty days from the date of the sale, apply to the Tax Recovery Officer to set aside the sale of the immovable property on the ground that notice was not served on the defaulter to pay the arrears as required by this Schedule or on the ground of a material irregularity in publishing or conducting the sale :

Provided that - ...."

3. The Tax Recovery Officer held that there was no irregularity in the auction sale proceedings and, consequently, overruled the objections of the appellants. On appeal, the Tax Recovery Commissioner held, inter alia, that the appellants were not eligible to invoke rule 61 and the agreement between them and the third respondent was ineffective to confer any right on the appellants in view of rule 16 (1) of the Rules. The learned single judge (see [1992] 194 ITR 409) affirmed the view of the Tax Recovery Commissioner on this question and, consequently, did not go into the other questions raised against the validity of the auction sale.

4. The eligibility of the appellants to invoke rule 61 depends upon the answer to the question as to whether they are "persons whose interests are affected by the sale".

Mr. Sarangan, learned senior counsel for the appellants, contended that the words "any person whose interests are affected by the sale" are of wide import so as to include a person who has entered into an agreement to purchase the property in question; it was argued that the sale of property to a third party would defeat the rights of the person to whom the original owner had agreed to sell the property and, therefore, such a person is entitled to invoke rule 61 to have the auction sale set aside. According to learned counsel, there is a distinction between "a person who has an interest in the property" and "a person whose interests are affected by the sale"; therefore, even though an agreement of sale did not create an interest in the property, still the interests of the person to whom property was agreed to be sold is vitally affected by the sale.

5. The learned single judge compared the relevant provisions under Order XXI, rule 58, of the Code of Civil Procedure with the rules with which we are concerned and held that there is no reason to take a different view regarding the eligibility of a person to question the auction sale under these rules, even though the words used in Order XXI, rule 89 Civil Procedure Code,