Income-tax attachment prevails over a later mortgage where priority turns on disputed facts and statutory tax remedy applies.

A mortgage or transfer created during pending income-tax proceedings may be void against the tax claim under Section 281 of the Income-tax Act, so the bank's asserted priority was not accepted and the Department's attachment was left undisturbed. Although the Court noted the priority provisions in Section 26E of the SARFAESI Act and Section 31B of the RDDB Act, it held those provisions would not assist if the mortgage itself arose during subsisting tax proceedings. Because the date and effect of the mortgage and the competing claims required factual inquiry, the writ petition was not entertained and the petitioner was relegated to the statutory remedy before the Tax Recovery Officer under Schedule II Rule 11.

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Issues: (i) Whether a bank's mortgage and possession of secured property could prevail over the Income Tax Department's attachment when tax proceedings were already pending before the mortgage was created; (ii) Whether the writ petition should be entertained despite the statutory remedy before the Tax Recovery Officer under Schedule II Rule 11 of the Income-tax Act, 1961.

Issue (i): Whether a bank's mortgage and possession of secured property could prevail over the Income Tax Department's attachment when tax proceedings were already pending before the mortgage was created.

Analysis: Section 281 of the Income-tax Act, 1961 renders a charge or transfer created by an assessee during the pendency of proceedings under the Act void as against the tax claim. The Court also examined the priority provisions under Section 26E of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and Section 31B of the Recovery of Debts and Bankruptcy Act, 1993, but held that those provisions would not assist the bank if the mortgage itself was created during subsisting income-tax proceedings. On the facts, the Department asserted that tax demands existed prior to the mortgage and the issue could not be conclusively resolved on the writ record alone.

Conclusion: The bank's claim of priority was not accepted and the attachment was not interfered with.

Issue (ii): Whether the writ petition should be entertained despite the statutory remedy before the Tax Recovery Officer under Schedule II Rule 11 of the Income-tax Act, 1961.

Analysis: Rule 11 of Schedule II provides an investigative mechanism where a third party objects to attachment or sale of property in execution of a tax certificate. The Court held that the dispute involved contested questions regarding the date and effect of mortgage, the pendency of tax proceedings, and the competing claims to the property, which required factual investigation on original documents. In such circumstances, the statutory remedy before the Tax Recovery Officer was the proper course.

Conclusion: The writ court declined to adjudicate the disputed facts and relegated the petitioner to the remedy under Schedule II Rule 11.

Final Conclusion: The challenge to the Income Tax Department's communication failed, and the petitioner was left to pursue the prescribed statutory remedy before the Tax Recovery Officer.

Ratio Decidendi: A mortgage or transfer made during the pendency of income-tax proceedings can be treated as void against the tax claim under Section 281, and where title and priority depend on disputed facts, the High Court should ordinarily leave the parties to the investigative remedy under Schedule II Rule 11 rather than decide the controversy in writ jurisdiction.

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