Recovery of tax – Provisional attachment – Certain transactions to be void – Powers of TRO – Petitioner purchased a property belonging to a deceased person through his legal representative – Same was declared void as it was under attachment proceedings for recovery of tax dues of said deceased person – Petitioner contended that he was a bona fide purchaser of property for adequate consideration and was not aware of attachment of property for recovery of tax of its owner – TRO could not declare a transaction of transfer as null and void u/s. 281 and if department wanted to have transactions of transfer nullified u/s. 281, it must go to civil court under rule 11(6) of Second Schedule to have transfer declared void u/s. 281

25.  Agasthiya Holdings (P.) Ltd. vs. CIT; [2018]
93 taxmann.com 81 (Mad):

Date of Order: 13^th April,
2018

Section 281 r.w.s. 222 and
rule 11 of second schedule of I. T. Act 1961

Recovery of tax – Provisional
attachment – Certain transactions to be void – Powers of TRO – Petitioner
purchased a property belonging to a deceased person through his legal
representative – Same was declared void as it was under attachment proceedings
for recovery of tax dues of said deceased person – Petitioner contended that he
was a bona fide purchaser of property for adequate consideration and was
not aware of attachment of property for recovery of tax of its owner – TRO
could not declare a transaction of transfer as null and void u/s. 281 and if
department wanted to have transactions of transfer nullified u/s. 281, it must
go to civil court under rule 11(6) of Second Schedule to have transfer declared
void u/s. 281

The appellant/writ petitioner
company, engaged in real estate business, purchased a property through the
legal representatives of one deceased ‘PJ’. Before purchasing property the
petitioner got legal opinion from its Advocate and also by verifying the
encumbrances through encumbrance certificate which showed no encumbrance. After
a search of original assessee’s house after two years, four months and two
days, the Revenue found about the sale of the said property in favour of the
petitioner and registration on the file of the Joint Sub-Registrar, Tuticorin.
The Tax Recovery Officer, Tuticorin held that the legal representatives of the
original assessee had illegally transferred the attached property in favour of
the appellant.

On appeal before the
Commissioner (Appeal), the assessee contended that the Tax Recovery Officer had
acted outside his jurisdiction Madurai. The Commissioner (Appeals), noted that
on a perusal of the Assessing Officer’s and the Tax Recovery Officer’s report
and other evidence, the attachment of the said property was made on 18/12/1987
and it was duly intimated to the Sub-Registrar’s Office by the Tax Recovery
Officer on 28/09/2007 and it was served on 03/10/2007 and only after the said
information, the transfer of property had taken place and in the light of the
rule 16(1)(2) of the Second Schedule, the defaulter or his legal representative
not competent to alienate any property except with the permission of the Tax
Recovery Officer and since the Tax Recovery Officer had acted within his
jurisdiction in the light of the said rule, the representation/petition
submitted by them was to be rejected and accordingly, the same was rejected on
the ground of no merits. On appeal, the Tribunal also upheld the order of the
Commissioner (Appeals).

The petitioner filed appeal as
well as writ petition challenging the order. The petitioner contended that it
was for the department to move the civil court to declare the transaction in
the form of sale in their favour u/s. 281 as null and void. It further claimed
that assessee was the bona fide purchasers for value and consideration without
any notice of pre-encumbrance and therefore, the property was liable to be
released from attachment.

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

“i)  The Tax Recovery Officer, Tuticorin, had sent a communication to
the legal representatives of the original assessee by pointing out that they
had illegally transferred the attached property, which was, as per proceedings
dated 18/12/1987, attached on 06/01/1988 in favour of the appellant in writ
appeal in W.A. (MD) No. 1186 of 2017/writ petitioner and they are calling upon
to show cause as to why the illegal transaction made by them should not be
declared as null and void as per rule 16(1) of the Second Schedule.

ii)   The appellant/writ petitioner submitted a representation to the
Commissioner, Madurai, narrating the events that had happened and claimed that
they are innocent and bona fide purchasers for valid and consideration
without any notice of prior encumbrance and therefore, prayed for appropriate
direction to direct the Assessing Officer to drop any further proceedings
pertaining to the said property and raise the attachment and also enclosed the
supporting documents.

iii)  The Commissioner, Madurai, has taken into consideration the said
representation and noted that on a perusal of the Assessing Officer’s and the
Tax Recovery Officer’s report and other evidence, the attachment of the said
property was made on 18/12/1987 and it was duly intimated to the
Sub-Registrar’s Office by the Tax Recovery Officer on 28/09/2007 and it was
served on 03/10/2007 and only after the said information, the transfer of
property had taken place and in the light of the rule 16(1)(2) of the Second Schedule,
the defaulter or his legal representative is not competent to alienate any
property except with the permission of the Tax Recovery Officer and since the
Tax Recovery Officer has acted within his jurisdiction in the light of the said
rule, the representation/petition submitted by them is to be rejected and
accordingly, the same is rejected on the ground of no merits.

iv)  As already pointed out, the Tax Recovery Officer has noted that the
property has been illegally transferred by way of a registered sale deed dated
18/06/2008 and since it has been sold after service of the demand notice, it
has to be declared as null and void as per the provisions of the Income-tax
Act.

v)   The facts projected would also lead to the incidental question as
to whether the sale by the legal representatives of the deceased in favour of
the appellant/writ petitioner was done with a view to defraud the revenue. It
is the categorical case of the appellant/writ petitioner that before purchasing
the property, they got the legal opinion and also obtained encumbrance
certificates and any entries therein have not declared any succeeding
encumbrance including the attachment of the said property by the Income Tax
Department.

vi)  Now, coming to the facts of the case, the order of attachment was
made on 18/12/1987 and as per the additional affidavit of the second appellant,
dated 12/12/2011, filed in writ petition, the intimation was sent to the Joint
Sub-Registrar, Tuticorin, on 28/09/2007 and it was acknowledged by him on
03/10/2007 and notice for settling a sale proclamation u/s. 53 of the Second
Schedule of the Income-tax Act was served on the legal heirs of the original
assessee as such the sale of the property to the writ petitioner was to be held
as null and void on 09/08/2011 which was the subject matter of challenge in the
writ petition.

vii) In the light of the ratio laid down by the Supreme Court of India in
TRO vs. Gangadhar Vishwanath Ranade [1998] 100 Taxman 236, it is not
open to the Tax Recovery Officer to declare the said sale as null and void. The
above said decision also held that ‘the Tax Recovery Officer is required to
examine whether the possession of the third party is of a claimant in his own
right or in trust for the assessee or on account of the assessee. If he comes
to a conclusion that the transferee is in possession in his or her own right,
he will have to raise the attachment. If the department desires to have the
transaction of transfer declared void u/s. 281, the department being in the
position of a creditor, will have to file a suit for a declaration that the
transaction of transfer is void u/s. 281.’

viii)      In the light of the ratio laid down in the
above cited decision, it is not open to the Tax Recovery Officer to declare the
said transfer/alienation as null and void as per the provisions of the
Income-tax Act. It is also brought to the knowledge of this Court by the
appellant/writ petitioner that he also sought information under the Right to
Information Act, from the Public Information Officer – the Joint Sub-Registrar,
Tuticorin, as to the order of attachment by the Income Tax Officer in respect
of the property concerned. The said official informed that no such document is
available on file. Therefore, this Court is of the considered view that it is for
the Income Tax Department, to file a suit to hold the transaction declared as
null and void as per the ratio laid down by the Supreme Court of India
Gangadhar Vishwanath Ranade case (supra).

ix)  The writ petition is partly allowed and the order of the Judge in
granting liberty to the writ petitioner to move the Tax Recovery Officer under
rule 11 of the Second Schedule seeking adjudication of his claim is set aside
and the revenue is granted liberty to file a civil suit to declare the sale
transaction/sale deed in favour of the writ petitioner as null and void.”