TaxTMI 
TaxTMI 
2006 (8) TMI 131
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....es Limited, Jaymac India assigned its right in favour of Jaymac Lasetron P. Limited (hereinafter referred to as "Jaymac Lasetron") by an agreement dated September 20, 1984, in consideration of the like amount being Rs. 9,49,680. Jaymac Lasetron paid the premium to Jaymac India and Jaymac Lasetron was put into possession by Jaymac India. Jaymac Lasetron was accordingly assessed taking into account such leasehold right acquired under the agreement. On March 29, 1990, reassessment proceedings for the assessment years 1983-84 and 1984-85 were completed and the tax was imposed on Jaymac India. Admittedly, Jaymac India did not pay the tax levied on it for those three assessment years being 1982-83, 1983-84 and 1984-85. On April 17, 1990, a formal deed of lease was executed by Orient Beverages in favour of Jaymac Lasetron by making Jaymac India a confirmed party. On August 25, 1994, the Income-tax Officer having jurisdiction to assess the tax of Jaymac Lasetron gave notice to furnish evidence of its ownership of the leasehold interest in the premises in question as according to the concerned officer it was a sham transaction and was made only to evade payment of tax outstanding on account....
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....ises in question. Sk. Barkatullah was a defaulter to the extent of Rs. 39,46,450 on account of income-tax. He was allowed by the said Commissioner to pay off the said sum by instalment. After payment of a few instalments Sk. Barkatullah approached the writ court by expressing his inability to pay further instalments, offered his properties (not Circus Avenue, Kolkata), for sale so that the balance tax liabilities could be paid off. During this period the respective wives were assessed under the Income-tax Act as well as under the Wealth-tax Act wherein the Circus Avenue property was shown as their property. On June 3, 1988, Sk. Barkatullah died leaving three wives and fifteen children including Md. Tariq. After the death of Barkatullah, Khaleda Begam, the first wife made on oral hiba in favour of Md. Tariq in respect of her share in the property in question. On June 6,1994, the Tax Recovery Officer passed an order of attachment of the Circus Avenue property for payment of the outstanding tax dues in respect of the estate of Sk. Barkatullah and issued a notice of demand. On March 16, 1994, by a deed of conveyance executed by Tariq the ownership in the property in questio....
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....2 of the Second Schedule, any assessee creates a charge on, or parts with the possession (by way of sale, mortgage, gift, exchange or any other mode of transfer whatsoever) of, any of his assets in favour of any other person, such charge or transfer shall be void as against any claim in respect of any tax or any other sum payable by the assessee as a result of the completion of the said proceeding or otherwise: Provided that such charge or transfer shall not be void if it is made- (i) for adequate consideration and without notice of the pendency of such proceeding or, as the case may be, without notice of such tax or other sum payable by the assessee; or (ii) with the previous permission of the Assessing Officer. (2) This section applies to cases where the amount of tax or other sum payable or likely to be payable exceeds five thousand rupees and the assets charged or transferred exceeds ten thousand rupees in value. Explanation.-In this section, 'assets' means land, building, machinery, plant, shares, securities and fixed deposits in banks, to the extent to which any of the assets aforesaid does not form part of the stock-in-trade of the business of the assessee. ....
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....to the result of such suit (if any), the order of the Tax Recovery Officer shall be conclusive." Analysis of the subject provisions on a plain reading (i) When a tax proceeding is pending or before a notice under rule 2 of the Second Schedule is served under this Act the assessee is not entitled to create any encumbrance in respect of his assets. (ii) If such encumbrance is created that would be void as against the claim of the Revenue on account of recovery of tax payable by the assessee. (iii) However, such transfer would not be void if it is made for adequate consideration and without notice of any such tax proceedings. (iv) Assets include land and building. Law on the subject Jaymac: The parties cited the following decisions: (i) Nawal Kishore Chowdhury v. ITO [1980] 122 ITR 576 (Cal); (ii) Gangadhar Vishwanath Ranade (No. 1) v. ITO [1989] 177 ITR 163 (Bom); (iii) George Thomas v. TRO (IV) [1995] 214 ITR 168 (Mad); (iv) Smt. Preeti Rungta v. ITO [1995] 214 ITR 594 (Cal); (v) CTT v. Podar Cement P. Ltd. [1997] 226 ITR 625 (SC); (vi) TRO v. Gangadhar Viswanath Ranade (Deed.) [1998] 234 ITR 188 (SC); (vii) Mysore Minerals Ltd. v. CIT [1....
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....1) v. ITO [1989] 177 ITR 163 (Bom): Section 281 of the said Act of 1961 and section 53 of the Transfer of Property Act, 1882, are pari materia and the section is declaratory in nature. The provision was a mere prelude to the transfer for recovery of tax and the rights of the parties were not in any way affected. It was also observed that by introduction of section 281 no power or jurisdiction was conferred conclusive upon the income-tax authorities. (v) George Thomas v. TRO (IV) [1995] 214 ITR 168 (Mad): The Division Bench decision of the Madras High Court held a notice issued under rule 11, inter alia, asking the objector to produce relevant documents pertaining to ownership of the subject property valid. (vi) Smt. Preeti Rungta v. ITO [1995] 214 ITR 594 (Cal): The learned single judge of this court while deciding an identical issue observed that section 281 did not contemplate any order to be passed thereunder without a properly instituted proceeding. (vii) CIT v. Podar Cement P. Ltd. [1997] 226 ITR 625 (SC): While interpreting the definition of "owner" in common law the apex court observed that it means a person who has got valid title legally conveyed to him after comp....
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....dian of Branches of BANCO National Ultramarino v. Nalini Bai Naique, AIR 1989 SC 1589 : In this decision of the apex court defined the phrase "legal representative" under the Code of Civil Procedure. While giving such interpretation the apex court held that legal representative means a person who in law represents the estate of a deceased person and includes heirs of the said deceased person competent to inherit the property of the deceased. (xv) Sri Mohan Wahi v. CIT [2001] 248 ITR 799 (SC) : A notice of demand on the assessee under section 156 of the Act is mandatory before taking any step for recovery under the Second Schedule. Non-service of a notice goes to the root of the validity of the subsequent proceeding for recovery. Our interpretation On a combined reading of the aforesaid decisions and on a close study of sections 159, 281 and rule 11 our understanding of law is as follows: (i) Section 281 is declaratory in nature and it does not give any power or authority to the Revenue to declare a transaction void. (ii) Rule 11 empowers the Recovery Officer to investigate into the rights and privileges of the parties in the property under attachment as also to dispo....
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....find that although the same law is applicable in both these cases because of the peculiar facts and circumstances involved in the respective cases the result of application of the law would be different. Jaymac India In the instant case Jaymac India entered into the agreement of lease with Orient Beverage on January 31,1983. Before the original lease could be executed by Orient Beverage in favour of Jaymac India, Jaymac India assigned their right in favour of Jaymac Lasetron. In common law the usual procedure should have been a lease by Orient in favour of Jaymac India and then Jaymac India in turn would execute proper documents in favour of Jaymac Lasetron. This procedure was not followed and Jaymac India by-passed one stair and caused the deed of lease executed directly by Orient in favour of Jaymac Lasetron through a document where Jaymac India became a confirming party and this document was executed admittedly within the mischief period. It was sought to be contended before us that when this agreement was entered into the assessments for the years 1983-84 and 1984-85 were incomplete and as such the order of attachment was not valid for payment of tax by Jaymac India in re....
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....s bound to dispose of the objection raised before him. He did not do so. The assessee approached the writ court. The learned single judge dismissed the writ petition. Appeal was preferred. The Division Bench as and by way of an interim order directed the Tax Recovery Officer to dispose of the objection pending before him. Hence, such hearing and the order passed therein were under rule 11 and the contention of the Revenue on that score is rejected. On a perusal of the argument of the Revenue in the case of Munir Ahmed and on a perusal of the sequence of events an order of rejection impugned herein it appears to us that according to the Revenue the owners of the premises in question at the relevant period were heirs and legal representatives of Barkatullah. Hence, under section 159 they were bound to discharge the liability on behalf of the deceased assessee. From the order impugned in the writ petition appearing at pages 339-344 of the paper book it appears to us that Md. Tariq being the owner of two-thirds portion of the property in question filed objection questioning the validity of the attachment on June 2,1994, whereas Md. Tariq sold his portion to Ahmeds on March 16, 1994.....
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....d in such circumstances the Revenue would have to approach the civil court for nullifying such transfer by filing a declaratory suit. Rule 11(6) would have no application in such case. We do not find any attempt on the part of the Recovery Officer to discuss in detail and to come to a finding as to how the attachment could be continued and the objection filed by Md. Tariq as well as Ahmeds could be rejected. Mere reference to section 159, in our view, was not enough. A reasoned decision on that score binding Md. Tariq as a legal heir under section 159 is conspicuously absent in the order of the Tax Recovery Officer impugned in the writ petition. We, however, feel that the learned single judge in the case of Ahmeds should not have dismissed the writ petition on the ground of alternative remedy at the final hearing of the writ petition inasmuch as the writ petition was entertained at the initial stage and interim order was passed therein. Conclusion Although we find in both the cases the orders of the Tax Recovery Officer and the Commissioner, as the case may be, impugned in the writ petitions are liable to be set aside the consequences of such would be different in these....