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Tax officer as business manager
July, 15th 2006


The CBDT should think twice before directing the Department to exercise the power to appoint receivers to manage the business of the defaulter.

The Central Board of Direct Taxes (CBDT) seems concerned about the mounting arrears of income-tax and corporate tax. With the dues rising year after year, it is feared that the uncollected arrears will more than equal the annual collection of direct taxes. The Board is, therefore, considering major steps for realisation of the arrears. It is not as if the Income-Tax Department is powerless to go after the defaulters. Though there are provisions for stay of disputed tax, the undisputed tax also remains unpaid. One of the objects for establishment of the National Tax Tribunal was speeding up tax collections. However, the process of setting up tribunals to hasten tax collections has been stayed through writ petitions in various High Courts. And the Bombay High Court has made the stay absolute.

Section 222

Defaulting taxpayers may have to soon face the tax recovery officer (TRO) who is clothed with powers for attachment and sale of movable and immovable property, and to arrest and detain in prison the defaulter. Section 222 (d) of the Income-Tax Act, 1961 empowers the TRO to appoint a receiver for the management of the defaulter's movable and immovable property. Part IV of Schedule II of the I-T Act contains provisions for appointment of receiver for managing the business of the defaulter.

Rule 69 authorises the TRO to attach the business and appoint a person as receiver to manage the business. It is this rule that is now engaging the attention of the CBDT. Imagine a situation where the managing director of a company is asked to vacate his seat and the TRO comes in as receiver in his place to manage the business. Attachment will mean prevention of, alienation of, or creation of a charge on, the property by the defaulter. If the property is other than a business, Rule 70 comes into play. The TRO may attach the immovable property and appoint a person to manage it.

The receiver will have all the powers to realise the profits or rent and appropriate the same towards tax arrears. The attachment and management of property may be withdrawn any time at the discretion of the TRO or if the arrears are discharged.

The Second Schedule of the I-T Act and the Certificate proceedings are a complete code of recovery. Rule 9 bars the jurisdiction of civil courts, except where fraud is alleged. Courts are reluctant even to entertain writ petitions. Rule 86 provides for appeal to the Commissioner from the order passed by the TRO. The appellate authority may stay the execution of the recovery certificate pending disposal of the appeal. The defaulting assessee cannot pursue both the remedies, that is, of appeal and writ petition. If there is absolute lack of jurisdiction, a writ petition will be entertained against the TRO by the High Court.


Part IV of the Second Schedule of the I-T Act draws inspiration from Order XL of the Code of Civil Procedure, 1908. That relates to appointment of receivers by courts in civil disputes. The court can confer on the receiver powers such as management, protection, preservation and improvement of property, collection of rent and profits thereof and the application and disposal of such rent and profits.

In civil law, the appointment of a receiver is considered one of the harshest remedies, allowable only in extreme cases. The power is to be utilised only when there is obvious peril to the interests of the Revenue. Under civil law, the receiver is treated as an officer of the court. He has to maintain accounts for the period of his management. He has to act in good faith and protect the business and the property with due care and caution. It is because of the onerous duties cast on the receiver that the special provision in the I-T Act is seldom used.

The management of a business, realisation of profits and rent, and preservation and maintenance of business and property will cast a huge responsibility on the Department. The departmental officers lack expertise in business management, and the appointment of a receiver through court process will relieve the TRO of much of responsibilities in this regard.

At any rate, the Act has enough provisions for recovery through attachment and sale or even arrest and detention. The CBDT should think twice before directing the Department to exercise the power to appoint receivers to manage the business of the defaulter. This is something that the departmental officer is not used to.

T. C. A. Ramanujam
(The author is a former Chief Commissioner of Income-Tax.)

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