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Issues: (i) Whether, after service of notice under Rule 2 of the Second Schedule to the Income-tax Act, 1961 and subsequent attachment, the Tax Recovery Officer could sustain the attachment against purchasers claiming through the defaulter assessee. (ii) Whether the Tax Recovery Officer had jurisdiction to declare the sale transactions void and null.
Issue (i): Whether, after service of notice under Rule 2 of the Second Schedule to the Income-tax Act, 1961 and subsequent attachment, the Tax Recovery Officer could sustain the attachment against purchasers claiming through the defaulter assessee.
Analysis: The main provision in Section 281 applies to transfers made during pendency of proceedings or after completion but before service of notice under Rule 2 of the Second Schedule. The transfer here occurred after Rule 2 notice had been served on the defaulter assessee. Rule 11(3)(a) requires the objector in case of immovable property to show interest or possession as on the date of service of the Rule 2 notice. The petitioners had no such interest on that date. Rule 16(1) also disabled the defaulter from dealing with the property after service of notice, and Rule 51 made any attachment relate back to the date of service of the notice to pay arrears.
Conclusion: The attachment was valid and the challenge to its continuance failed; this issue was answered in favour of Revenue.
Issue (ii): Whether the Tax Recovery Officer had jurisdiction to declare the sale transactions void and null.
Analysis: Section 281 creates a statutory consequence as against the Revenue, but the Tax Recovery Officer cannot assume the function of declaring a transfer void in the sense of adjudicating and annulling the transaction. That function lies with the civil court. The officer could proceed on the statutory consequence for recovery, but could not pronounce the transactions themselves null and void. Rule 11(6) preserved the remedy of parties to work out their rights before the appropriate forum.
Conclusion: The declaration that the transactions were null and void was quashed; this issue was answered in favour of the petitioners.
Final Conclusion: The attachment was sustained, but the impugned declaration of nullity was set aside, resulting in only partial relief to the petitioners.
Ratio Decidendi: After service of notice under Rule 2 of the Second Schedule, an immovable property transfer by the defaulter is vulnerable to Revenue recovery through attachment that relates back to the notice date, but the Tax Recovery Officer cannot himself declare the transfer void; that declaration must be sought from the civil court.
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