Court quashes tax declaration, upholds property attachment, directs civil court action.

The court partially allowed the writ petitions, quashing the Tax Recovery Officer's declaration of transactions as null and void but sustaining the attachment of the property. The petitioners were directed to seek civil court intervention for further relief. No costs were awarded, and connected miscellaneous petitions were closed.

---

---

Issues Involved:
1. Jurisdiction of Tax Recovery Officer to declare transactions null and void.
2. Applicability of Section 281 of the Income Tax Act, 1961.
3. Protection of bonafide purchasers under the proviso to Section 281.
4. Competency of the defaulter-assessee to deal with the property post notice under Rule 2 of the Second Schedule.
5. Interpretation and application of Rule 11(3), Rule 16(1), and Rule 51 of the Second Schedule to the Income Tax Act.
6. Validity of attachment of property post-purchase by the petitioners.
7. Requirement for civil court declaration to nullify transactions.

Issue-wise Detailed Analysis:

1. Jurisdiction of Tax Recovery Officer to Declare Transactions Null and Void:
The petitioners contended that the Tax Recovery Officer (TRO) does not have the jurisdiction to declare transactions as null and void under Section 281 of the Income Tax Act, 1961. This was supported by the Supreme Court's decision in Tax Recovery Officer II, Sadar, Nagpur vs. Gangadhar Vishwanath Ranade, which held that the TRO can only attach property in possession of the assessee and cannot declare transactions void. The Madras High Court affirmed this, stating that only a civil court can make such declarations.

2. Applicability of Section 281 of the Income Tax Act, 1961:
Section 281(1) of the Income Tax Act, 1961, states that any transfer of assets by an assessee during the pendency of proceedings or after completion but before service of notice under Rule 2 of the Second Schedule is void against tax claims. The proviso protects transactions made for adequate consideration and without notice of tax arrears. The court noted that the sale transactions by the defaulter-assessee occurred after the notice under Rule 2 was served, making the transactions void under Section 281(1).

3. Protection of Bonafide Purchasers under the Proviso to Section 281:
The petitioners argued that they were bonafide purchasers for adequate consideration without notice of tax arrears, thus protected under the proviso to Section 281. However, the court held that since the transactions occurred after the notice under Rule 2 was served, the proviso did not apply. The court cited the Punjab and Haryana High Court's decision in Karnail Singh vs. Union of India, which emphasized that statutory declaration of voidness under Section 281 cannot be ignored.

4. Competency of the Defaulter-Assessee to Deal with the Property Post Notice under Rule 2 of the Second Schedule:
The court examined Rule 16(1) of the Second Schedule, which states that a defaulter-assessee cannot deal with the property post-notice under Rule 2 without the TRO's permission. Since the defaulter-assessee was served with the notice under Rule 2, he became incompetent to sell the property, rendering the transactions void.

5. Interpretation and Application of Rule 11(3), Rule 16(1), and Rule 51 of the Second Schedule to the Income Tax Act:
Rule 11(3) requires the claimant to show interest in the property at the date of notice for immovable property. The court noted that the petitioners did not have any interest or possession of the property at the date of notice under Rule 2. Rule 51 states that attachment relates back to the date of notice, reinforcing the voidness of the transactions.

6. Validity of Attachment of Property Post-Purchase by the Petitioners:
The court concluded that the attachment of the property post-purchase by the petitioners relates back to the date of notice (05.01.2013), making the attachment valid. The court rejected the petitioners' argument that Rule 11(3)(a) should override the proviso to Section 281, affirming that both operate independently.

7. Requirement for Civil Court Declaration to Nullify Transactions:
The court quashed the TRO's declaration of the transactions as null and void, reiterating that only a civil court can make such declarations. The petitioners were advised to seek relief through civil court as provided in Rule 11(6) of the Second Schedule if they wished to lift the attachment.

Conclusion:
The court partially allowed the writ petitions, quashing the TRO's declaration of transactions as null and void but sustaining the attachment of the property. The petitioners were directed to seek civil court intervention for further relief. No costs were awarded, and connected miscellaneous petitions were closed.

---