1987 (7) TMI 26 - HC - Income Tax

Court dismisses suit, upholds order & attachments. Trust deeds invalid. Properties liable for tax dues.

The court dismissed the suit and upheld the validity of the order dated August 10, 1971, the attachment orders from July 25 and 27, 1970, and the ... Jurisdiction To Levy Penalty, Penalty Issues Involved:1. Validity of the registration of the two trust deeds.2. Liability of the properties under the trust deeds for recovery of income-tax dues.3. Validity of the order dated August 10, 1971.4. Validity of the attachment orders dated July 25 and 27, 1970.5. Validity of the proclamation of sale dated January 13, 1972.Detailed Analysis:Issue 1: Validity of Registration of the Two Trust DeedsThe primary issue revolves around the registration of the two trust deeds on March 11, 1971, when the attachment of the property was subsisting. The court held that the circumstance of the attachment does not affect the validity of the trust deeds if they are otherwise valid and operative. However, the registration was found invalid for failing to comply with Section 230A of the Income-tax Act, 1961. As per Section 230A, no registering officer shall register any document unless the Income-tax Officer certifies that the person has either paid or made satisfactory provision for payment of all existing liabilities under various tax laws. The plaintiff conceded that no such certificate was filed. The court emphasized that the certificate under Section 34 of the Wealth-tax Act, 1957, was insufficient as it did not cover all liabilities under the relevant tax laws and was signed by an Income-tax Officer instead of a Wealth-tax Officer. Therefore, the registration was void and ineffective.Issue 2: Liability of Properties for Recovery of Income-tax DuesThe properties under the trust deeds were found liable to be proceeded against for the recovery of income-tax dues from the settlor. The court noted that mere execution of the trust deeds in March 1959 did not create any rights or obligations as the registration was mandatory under Section 17 of the Indian Registration Act, 1908. Consequently, the properties continued to vest in the deceased settlor until his death and thereafter in his legal representatives. The attachments in July 1970 were thus valid.Issue 3: Validity of the Order Dated August 10, 1971The court upheld the order dated August 10, 1971, as valid and operative. This order had affirmed the validity of the two attachments and other related orders issued under Section 226(3) of the Income-tax Act, 1961.Issue 4: Validity of the Attachment Orders Dated July 25 and 27, 1970The court found that the attachment orders dated July 25 and 27, 1970, were valid and not liable to be set aside. The attachments were effective as the properties were still vested in the settlor and his legal representatives at the time of attachment.Issue 5: Validity of the Proclamation of Sale Dated January 13, 1972The proclamation of sale dated January 13, 1972, was also upheld as valid. The court noted that the attachments and subsequent actions were in accordance with the law and the properties were liable for recovery of the tax dues.Conclusion:The suit was dismissed with costs, and the court upheld the validity of the impugned order dated August 10, 1971, the attachment orders dated July 25 and 27, 1970, and the proclamation of sale dated January 13, 1972. The registration of the trust deeds was found invalid due to non-compliance with Section 230A of the Income-tax Act, 1961, rendering the trust deeds ineffective in law.