Court rules in favor of petitioner, protects purchasers from tax liabilities without property charges

The court ruled in favor of the petitioner, setting aside the proceedings directing encumbrance on properties for tax arrears. It emphasized the protection granted to bona fide purchasers and clarified that the tax department could not enforce the seller's liability on the purchaser when there was no charge on the property and the purchaser acted in good faith. The judgment underscored the importance of safeguarding the rights of purchasers and ensuring lawful tax recovery actions.

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Issues:
1. Validity of proceedings directing encumbrance on properties for tax arrears.
2. Rights of a purchaser in relation to tax liabilities of the seller.

Analysis:

Issue 1: Validity of proceedings directing encumbrance on properties for tax arrears
The petitioner challenged the proceedings of the first respondent dated 29.08.2018, directing the second respondent to create encumbrance on certain properties to recover tax arrears from a dealer, M/s.Ashok Spinners. The petitioner, not connected to the dealer, had purchased the properties much earlier to the tax assessment order. The petitioner argued that creating encumbrance after a significant period from the assessment order was illegal, especially when the properties were never attached before. The court noted that the properties were indeed purchased before the assessment order and were free from encumbrance at the time of purchase. The court found the proceedings unsustainable in law due to lack of attachment and the petitioner's bona fide purchase.

Issue 2: Rights of a purchaser in relation to tax liabilities of the seller
The court referred to past decisions where similarly situated purchasers were protected from encumbrances related to the tax liabilities of the sellers. Citing cases like Deputy Commercial Tax Officer Vs. R.K.Streels and Raghuvar (India) Limited Vs. Deputy Commissioner (Appeals) I, the court emphasized the protection granted to bona fide purchasers without notice of charges. The court highlighted that in cases where there was no charge on the property and the purchaser acted in good faith, the tax department could not enforce the seller's liability on the purchaser. The court, based on the precedent, allowed the writ petition, setting aside the impugned order, and safeguarded the petitioner's rights as a purchaser. The court clarified that the decision did not hinder the department's right to pursue the tax dues from the original dealer through legal means.

In conclusion, the court ruled in favor of the petitioner, emphasizing the protection granted to purchasers in such cases and setting aside the proceedings directing encumbrance on the properties. The judgment highlighted the importance of protecting the rights of bona fide purchasers and ensuring that tax recovery actions are lawful and just.

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