Attachment after Rule 2 notice prevails, but a Tax Recovery Officer cannot declare the property transfer void.

After service of notice under Rule 2 of the Second Schedule, a defaulter-assessee cannot rely on the proviso to Section 281(1) to defeat attachment of immovable property, because the transfer is hit by the recovery framework and the attachment relates back to the notice date. A purchaser who acquired no interest or possession as on that date cannot object successfully under Rule 11(3)(a). However, the Tax Recovery Officer has no jurisdiction to declare the transfer null and void; that power lies with the civil court. The attachment was sustained, but the declaration voiding the sale was set aside.

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Issues: (i) Whether purchasers of immovable property from a defaulter-assessee, after service of notice under Rule 2 of the Second Schedule to the Income-tax Act, 1961, could invoke the proviso to Section 281(1) and resist attachment; (ii) Whether the Tax Recovery Officer could declare such transfer null and void.

Issue (i): Whether purchasers of immovable property from a defaulter-assessee, after service of notice under Rule 2 of the Second Schedule to the Income-tax Act, 1961, could invoke the proviso to Section 281(1) and resist attachment.

Analysis: Section 281(1) applies to transfers made during pendency of proceedings or after completion thereof but before service of notice under Rule 2 of the Second Schedule. The sale by the defaulter-assessee in the present case was after service of Rule 2 notice. Rule 16(1) made the defaulter incompetent to deal with the property, and Rule 51 caused the attachment to relate back to the date of service of the Rule 2 notice. Rule 11(3)(a) required an objector in respect of immovable property to show an interest in or possession of the property on the date of service of the Rule 2 notice, which the purchasers did not have.

Conclusion: The proviso to Section 281(1) was not available to the purchasers, and the attachment could not be defeated on that basis.

Issue (ii): Whether the Tax Recovery Officer could declare such transfer null and void.

Analysis: The power to declare a transaction void lay with the civil court and not with the Tax Recovery Officer. The statutory scheme enabled the Revenue to proceed with recovery and attachment, but it did not authorise the Tax Recovery Officer to grant a declaration that the transaction itself was null and void. The remedy under Rule 11(6) and recourse to civil court remained available for the respective parties.

Conclusion: The declaration that the transactions were null and void was unsustainable and was quashed.

Final Conclusion: The attachment was sustained, but the order declaring the sale transactions void was set aside, resulting in a partial success for the petitioners.

Ratio Decidendi: After service of notice under Rule 2 of the Second Schedule, a defaulter-assessee cannot validly transfer immovable property so as to defeat recovery, and the attachment of such property relates back to the date of that notice; however, a Tax Recovery Officer has no jurisdiction to pronounce a transfer null and void, that being a matter for civil jurisdiction.

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