Section 281 transfer protection narrowed; pending tax recovery transfer remained vulnerable, with no import of property law doctrine.

A transfer made by an assessee during pending income-tax recovery proceedings was treated as vulnerable to the Revenue where the conditions of section 281 of the Income-tax Act, 1961 were satisfied. The proviso to section 281 was confined to transfers for valuable consideration without notice of the proceedings and was not expanded into a separate equitable protection for the transferee. Section 281 was held to operate in a different sphere from section 53 of the Transfer of Property Act, 1882, and rule 16 of the Second Schedule, which concerns post-attachment transfers, could not be used to dilute the statutory effect of a transfer made during pending recovery proceedings.

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Issues: Whether a transfer made by an assessee during the pendency of income-tax recovery proceedings is protected by the proviso to section 281 of the Income-tax Act, 1961 as a bona fide purchase for value without notice, and whether section 281 can be read with section 53 of the Transfer of Property Act, 1882 or harmonised with rule 16 of the Second Schedule to the Income-tax Act, 1961.

Analysis: The transfer in question was made after recovery certificates had already been issued and while proceedings under the Income-tax Act were pending against the assessee-transferor. Section 281, as it then stood, treated transfers made during the pendency of proceedings with intent to defraud revenue as void against claims for tax due on completion of those proceedings. The proviso was held to protect only transfers made by the assessee for valuable consideration without notice of the proceedings, and not to import a separate equitable protection in favour of the transferee comparable to section 53 of the Transfer of Property Act. The Court held that the two enactments operate in different spheres and cannot be read together. Rule 16 of the Second Schedule was also held to concern a different situation, namely transfers after attachment, and could not be harmonised with section 281 so as to dilute the statutory effect of a transfer made during pending recovery proceedings.

Conclusion: The transfer was not protected as a bona fide purchase without notice, section 281 could not be read with section 53 of the Transfer of Property Act, and rule 16 of the Second Schedule did not save the transfer.

Final Conclusion: The suit failed because the property transfer remained vulnerable to the revenue's claim, and the plaintiffs were not entitled to the declaratory or injunctive reliefs sought.

Ratio Decidendi: A transfer made by an assessee during the pendency of income-tax proceedings is void against revenue claims where the statutory conditions of section 281 are satisfied, and the proviso cannot be enlarged by importing the doctrine of bona fide purchase from the Transfer of Property Act or by reading section 281 with rule 16 of the Second Schedule.

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