Void transfer against tax recovery: gift made during pending assessment was ineffective under section 281

A transfer of immovable property made during pending income-tax proceedings was treated as void against the Revenue under section 281 because it was not a bona fide transaction and appeared intended to defeat recovery of outstanding tax dues. The Court relied on the assessee's existing tax liabilities, the pendency of further assessment proceedings, joint liability relating to firm tax dues, and the fact that recovery efforts were underway while the assessee continued to enjoy the property. Separate assessment of gift-tax did not bar action under the Income-tax Act, and the property could be proceeded against for recovery of the demand.

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Issues: Whether the gift of immovable property made by the assessee during pending tax proceedings was void under section 281 of the Income-tax Act, 1961, and liable to be proceeded against for recovery of outstanding tax demand.

Analysis: The assessee had substantial outstanding tax liabilities, with further assessment proceedings pending when the gift was executed. The Court found that the assessee and the other partners had joint liability in respect of firm-related tax dues under the scheme governing registered and unregistered firms, and that the transfer was made while recovery efforts were underway and the assessee continued to enjoy the property. On these facts, the transfer was held not to be a bona fide transaction. Section 281 rendered transfers void against claims for tax or other sums payable by the assessee during pendency of proceedings or before service of notice under the relevant recovery provisions. The fact that gift-tax had been assessed separately did not prevent action under the Income-tax Act.

Conclusion: The gift was void under section 281 and could validly be treated as liable for recovery of the outstanding tax demand.

Ratio Decidendi: A transfer of assets made during pending income-tax proceedings, in circumstances showing an attempt to defeat recovery of tax dues, is void against the Revenue under section 281 of the Income-tax Act, 1961.

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