8 Sections 179(1), 220, 222, 281 and Schedule II, rr 2, 16 – Recovery of tax – Attachment and sale of property – Private alienation to be void in certain cases – Condition precedent for declaring transfer void – Issuance of notice to defaulter – Failure by Department to bring on record service of notice under Rule 2 –Charge registered by Sub-Registrar six and a half years after sale deed registered in favour of purchaser – Order declaring transfer null and void and notice for auction of property set aside

Rekhadevi
Omprakash Dhariwal vs. TRO; 406 ITR 368 (Guj): Date of order: 2^nd
July, 2018

A.
Y. 1998-99

The
petitioner acquired the property in question under a sale deed dated 11/12/2008
for consideration through the power of attorney of the original owner VCT. The
transaction was carried out after due diligence like public advertisement and
title clear certificate. The property had been attached on 28/09/2006, towards
the outstanding tax dues of VCT, the original owner but the petitioner had no
knowledge of such attachment and came to know about the attachment subsequently
on 29/09/2011. Thereafter the petitioner made efforts to find out the details
with regard to such attachment, but ultimately, an order dated 26/05/2015 was
passed by the Tax Recovery Officer under rule 16 of Schedule II to the Act
declaring the sale to the petitioner null and void. The petitioner communicated
with the Department on various occasions with a request to withdraw the order
declaring the sale null and void. On the basis of the order dated 26/05/2015,
which was affixed on the property along with information that the charge of the
Department had been registered on 08/12/2017, on 19/12/2017, a notice of
auction was issued to satisfy the outstanding demand of the original owner VCT.

The
petitioner filed writ petition challenging the said action by the Department.
The petitioner submitted that the order declaring the sale null and void after
a delay of six and half years and not within a reasonable period was arbitrary
and illegal and without jurisdiction and that therefore, the subsequent
communication for auction of the property was also illegal. Criminal
proceedings u/s. 276B of the Act were initiated against a company for
non-payment of tax deducted at source. Notice was issued to the petitioner who
was the non-executive chairman of the company treating him as the principal
officer of the company and an order was also passed.

The
Department contended that the property in question originally belonged to VCT,
that the order u/s. 144/147 for the A. Y. 1998-99 was passed on 23/03/2006,
that the demand was certified by the Assessing Officer on 22/08/2006 and the
tax recovery certificate was issued on 06/09/2006, and that on account of
default by the assessee VCT, the original owner of the immovable property, it
was attached by the Tax Recovery Officer on 28/09/2006 and copies were sent to
the Sub-Registrar. The notice of demand, the certificate, the order of
attachment of the property as well the panchnama by which the property was attached
were produced. The Sub-Registrar submitted that the order of attachment was
received on 26/06/2015 and subsequent thereto the charge was registered.

The
Gujarat High Court allowed the writ petition and held as under:

“i)    The petitioner being a bonafide purchaser
for consideration after due diligence could not be made to suffer on account of
the tax dues that ran in the name of the original owner. The sale deed was for
a consideration and the index copy was also issued in connection with the
transaction. The public notice for executing the sale deed was issued in
vernacular newspaper on 26/10/2007 and thereafter, a search was carried out.
The search report dated 01/10/2008 was also on record along with the title
clearance certificate of the advocate. It was evident from the documents that
the property in question was free from all encumbrances having clear title and
was available for transaction.

ii)    The documents produced along with the additional affidavit being
order u/s. 179(1), the certificate u/s. 222, the order of attachment and
panchnama drawn were all against the defaulting assesee VCT, and the petitioner
was not in the picture. The proviso to section 281 provided that such transfer
or charge might not be declared void if such a transfer or charge was made for
adequate consideration and without notice of pendency or completion of such
proceeding or without the notice of any tax liability or other sum payable by
the assessee.

According to the procedure for recovery of tax, Rule 16 of Schedule II to the
Act provides for issuance of notice for recovery of arrears by the Tax Recovery
Officer upon the defaulter requiring the defaulter to pay the amount specified
in the certificate within fifteen days from the date of the service of the
notice and intimating that in default, steps would be taken to realise the
amount.

iii)    Rule 16 of Schedule II to the Act provides
for private alienation to be considered void in certain cases and requires
service of notice on the defaulter under Rule 2. In the affidavit as well as in
the additional affidavit the Department had not brought on record service of
notice under Rule 2 of Schedule II.

iv)   Moreover, it was evident from the affidavit
filed on behalf of the Sub-Registrar that for the first time the order of
attachment was given effect to by him only on 26/06/2015, when the charge was
registered which was six and a half years after the sale deed was registered in
favour of the petitioner.

v)    The order of the Tax Recovery Officer
declaring the transfer null and void and the subsequent communication for
auction of the property were to be set aside.”