Court invalidates property attachment by Tax Department, orders release and removal. Taxation

The court held that the attachment of the immovable property by the Income Tax Department was unsustainable as the property did not belong to the third respondent at the time of attachment. The court directed the removal of the attachment, numbering, and release of the sale deed by the Registering Authority. The first respondent was allowed to pursue other properties of the third respondent for tax dues. The writ petition was disposed of with these directions, and no costs were awarded.

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Issues Involved:
1. Legality of the attachment of the immovable property by the Income Tax Department.
2. The status of ownership and completion of the sale transaction.
3. The impact of the tax liability of the third respondent on the property sold to the petitioner.
4. The validity of the actions taken by the Income Tax Department under the Income Tax Act.

Detailed Analysis:

1. Legality of the Attachment of the Immovable Property by the Income Tax Department:

The petitioner firm filed a writ of Mandamus to direct the first respondent to remove the charge and lift the attachment on the immovable property. The property in question was attached by the Income Tax Department on 08.04.2011 due to the tax arrears of the third respondent. The petitioner argued that the attachment was illegal and violative of settled principles of law as the entire sale transaction was completed on 18.02.2010, well before the attachment date. The first respondent contended that the attachment was proper under the provisions of the Income Tax Act, as the third respondent had tax arrears certified for recovery on 30.07.2010.

2. The Status of Ownership and Completion of the Sale Transaction:

The petitioner entered into an agreement of sale on 20.01.2010 and paid the entire sale consideration by 10.02.2010. A supplementary agreement of sale dated 18.02.2010 evidenced the completion of the sale transaction. The property was handed over to the petitioner, and a sale deed was executed on 21.12.2011. The court noted that the petitioner, having paid the entire sale consideration and taken possession, became the absolute owner of the property as of 18.02.2010. The court referenced the Supreme Court decision in Mysore Minerals Ltd. v. CIT, which held that a person who had taken possession and made payment of the consideration was the owner, even without a deed of conveyance.

3. The Impact of the Tax Liability of the Third Respondent on the Property Sold to the Petitioner:

The third respondent had a tax liability for the assessment year 2006-07, which led to the attachment of the property by the Income Tax Department. However, the tax demand notice was issued on 31.07.2010, after the sale transaction was completed. The court highlighted that the dues of the Revenue do not form a charge on the property under the Income Tax Act and can only be recovered through the methods provided under the Act. The court referenced the Calcutta High Court decision in Electro Zavod (India) Pvt. Ltd. vs Commissioner Of Income-Tax, which held that an order of attachment was not sustainable if the property did not belong to the assessee at the time of attachment.

4. The Validity of the Actions Taken by the Income Tax Department Under the Income Tax Act:

The court found that the attachment of the property by the first respondent was not binding on the petitioner, as the property did not belong to the third respondent at the time of attachment. The third respondent had ceased to be the owner on 18.02.2010, when the sale transaction was completed. The court directed the first respondent to lift the attachment and the Registering Authority to number and release the sale deed. The court allowed the first respondent to proceed against other properties of the third respondent for any remaining tax liabilities.

Conclusion:

The court concluded that the attachment of the property in question was unsustainable and directed the removal of the attachment. The sale deed was to be numbered and released by the Registering Authority. The first respondent was permitted to proceed against other properties of the third respondent for any tax dues, pending the disposal of appeals. The writ petition was disposed of with these directions, and no costs were awarded.

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