1988 (7) TMI 51 - HC - Income Tax

Transferee of agricultural property liable for transferor's taxes if recovery from transferor fails.

The judgment held that the transferee of an agricultural property can be held liable for taxes due from the transferor if efforts to recover from the ... Income Tax, Recovery Proceedings Issues:1. Liability of transferee for taxes due from transferor prior to transfer of agricultural property.Analysis:The judgment addresses the issue of the petitioner, who is the transferee of an agricultural property, being held liable for taxes due from the transferor for the period before the transfer occurred. The assessment on the transferor for the years preceding the transfer was made after due notice, but recovery proceedings were initiated against the petitioner as the transferee. The main contention raised was the lack of notice to the petitioner prior to assessment. The Commissioner rightly rejected this contention, stating that the petitioner, not being the assessee, was not entitled to pre-assessment notice. The revenue recovery proceedings were initiated based on the petitioner's liability under the proviso to section 23 of the Agricultural Income-tax Act. The proviso allows for assessment on the transferee when the tax cannot be recovered from the transferor.The judgment delves into the interpretation of the proviso to section 23, which outlines the circumstances under which the transferee can be held liable for taxes due from the transferor. It explains that the first limb of the proviso applies when the transferor cannot be found, leading to assessment on the transferee. In this case, since there was no assessment on the transferee due to the transferor being locatable, recovery proceedings were initiated as the tax could not be recovered from the transferor. The second limb of the proviso enables the Department to recover taxes from the transferee only after demonstrating that efforts were made to recover from the transferor but were unsuccessful. The transferee must be informed of these attempts and given an opportunity to contest before payment.Furthermore, the judgment emphasizes the transferee's right to be heard before being required to pay taxes that are typically the transferor's responsibility. The Department must satisfy the conditions of the proviso before recovering from the transferee, including notifying them of the unsuccessful recovery attempts from the transferor and allowing them to argue that recovery is still possible from the transferor. If the transferee's argument lacks merit, the Department can proceed with recovery under the proviso. The assessing authority is directed to issue a notice to the petitioner under the second limb of the proviso, and the Revenue Recovery Act action is deferred until a final order is made following the notice and hearing. The original petition is allowed on these terms without costs.