Recovery of tax – Attachment of property – Transfer void against the Revenue – Death of seller before executing sale of house property under agreement – Supreme Court directing seller’s heirs to execute sale – Attachment of property for recovery of income tax due from firms in which heirs were partners for periods subsequent to sale agreement – TRO cannot declare transfer void – Non-release of registered sale deed by sub-registrar – Not justified

Recovery of tax – Attachment of property – Transfer void against the Revenue – Death of seller before executing sale of house property under agreement – Supreme Court directing seller’s heirs to execute sale – Attachment of property for recovery of income tax due from firms in which heirs were partners for periods subsequent to sale agreement – TRO cannot declare transfer void – Non-release of registered sale deed by sub-registrar – Not justified

The petitioner, on payment of advance, entered into a sale agreement in respect of the house property (family property) with one JP, the mother of the third and fourth respondents, A and S, who were minors at the time of execution of the sale agreement. However, JP refused to execute the sale deed. During the pendency of the suit filed by the petitioner in the Additional District and Sessions Court, JP died and A and S, who by then had attained majority, were impleaded in the suit filed to execute the sale receiving the balance consideration. On dismissal of the suit, the petitioner filed an appeal before the High Court which directed A and S to refund the advance received by JP. The Supreme Court allowed the special leave petition filed by the petitioner. Thereafter, the petitioner filed a petition before the Additional District and Sessions Court. When A and S failed to execute the sale deed in terms of the sale agreement dated 30th June, 1994 and the order dated 31st March, 2017 of the Supreme Court in the special leave petition, the Additional District Judge executed the sale deed in favour of the petitioner on 29th June, 2018 and presented it before the Sub-Registrar for registration.

The petitioner was informed through a communication that the property in question was attached for recovery of arrears of tax due to the Income-tax Department from the firms in which S and her husband were partners and, therefore, the petitioner should obtain a certificate to the effect that there were no tax dues in respect of the said property from the Tax Recovery Officer of the Income-tax Department. The Tax Recovery Officer took the stand that the purported sale deed executed by the Court was contrary to section 281, that a copy of the attachment order was served on the office of the Sub-Registrar and an entry of encumbrance in respect of the property was also entered, that the petitioner could not perfect the title over the property, and that the Sub-Registrar could not release the registered sale deed in favour of the petitioner unless the tax arrears were cleared.

The Madras High Court allowed the writ petition filed by the petitioner and held as under:

‘i) Section 281 applies only to a situation where an assessee during the pendency of any proceeding under the Act, or after completion thereof, but before the service of a notice under rule 2 of the Second Schedule, creates a charge on, or parts with the possession (by way of sale, mortgage, gift, exchange or any other mode of transfer whatsoever) of any of his assets in favour of any other person. Only such charge or transfer is void as against any claim in respect of any tax or any other sum payable by the assessee as a result of completion of such proceedings or otherwise. According to the proviso to section 281 such charge or transfer shall not be void if it is made (i) for adequate consideration and without notice of the pendency of such proceeding or, as the case may be, without notice of such tax or other sum payable by the assessee; or (ii) with the previous permission of the A.O.

ii) Admittedly, the transfer of the property was on account of the final culmination of the litigation by the order of the Supreme Court. There was only a delay in the execution of the sale deed due to the pendency of the proceedings as the third and fourth respondent’s mother (since deceased) declined to execute the sale deed under the sale agreement dated 30th June, 1994. The third and the fourth respondents, A and S, who were minors at the time of execution of the sale agreement on 30th June, 1994, ought to have executed the sale deed in favour of the petitioner. The subsequent tax liability of the fourth respondent and her husband for the A.Ys. 2012-13 and 2013-14 could not be to the disadvantage of the petitioner, since the petitioner had been diligently litigating since 2004. Therefore, the benefit of the decree in a contested suit could not be denied merely because the seller or one of the persons had incurred subsequent tax liability. The benefit of a decree would date back to the date of the suit. Therefore, the communication dated 6th July, 2018 which required the petitioner to obtain clearance could not be countenanced.

iii) The tax liability of the firms of which S and her husband were partners arose subsequent to the commitment in the sale agreement dated 30th June, 1994. The Sub-Registrar is directed to release the sale deed dated 29th June, 2018 and to cancel all the encumbrances recorded against the property in respect of the tax arrears of the firms of the fourth respondent S and her husband.’