Bona fide purchaser protection under Income-tax Act preserved transfer where clearance was obtained and no notice of tax liability existed.

Section 281(1) of the Income-tax Act voids transfers against revenue claims only where they are made during pending proceedings or before service of notice in the Second Schedule, while the proviso protects transfers for adequate consideration made without notice of the tax liability or with prior permission of the Assessing Officer. The Court noted that the purchasers obtained an Income Tax Clearance Certificate, acted as bona fide purchasers after due enquiry, and no material showed absence of consideration or notice of any subsisting liability. It also observed that the department had no independent power to declare the sale void in the manner attempted, particularly when the underlying transfer was already in civil litigation. The proceedings and attachment were quashed.

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Issues: Whether the proceedings under Section 281(1) of the Income-tax Act, 1961 and the consequential attachment order could be sustained against purchasers who acquired the property for consideration after obtaining an Income Tax Clearance Certificate and without notice of any subsisting tax liability.

Analysis: Section 281(1) renders a transfer void as against revenue claims where it is made during the pendency of proceedings or before service of notice in the second schedule, but the proviso saves transfers made for adequate consideration, without notice of the proceedings or tax liability, or with the previous permission of the Assessing Officer. The record showed that the seller had obtained clearance from the department, the purchasers acted as bona fide purchasers after due enquiry, and no material established absence of consideration or notice. The Court also noted that the department's challenge to the underlying transfer was already the subject of a civil suit, and there was no independent power under the Act to declare the sale void against the purchasers in the manner attempted.

Conclusion: The proceedings under Section 281(1) and the attachment order were quashed, and the challenge succeeded in favour of the petitioners.

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