TaxTMI 
TaxTMI 
2018 (6) TMI 1190
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....tax to the tune of Rs. 1,92,27,635/-, for the period from 1995-96 to 2002-03. The 3rd respondent-Company was ordered to be wound up, by the Company Court in C.P.No.119 of 2002 by order dated 08-01-2003. 4. The 3rd respondent-Company admittedly owned two immoveable properties, one in Jubilee Hills, Hyderabad and another in Chakkarpur, Gurgaon District. By two registered sale deeds dated 20-6-2001 and 22-6-2001 bearing Document Nos.2038/2001 and 2057/2001, the 3rd respondent-Company sold the property at Jubilee Hills, Hyderabad to the petitioner herein. 5. It appears that before the sale, the 3rd respondent-Company made an application for the issue of a certificate under Section 230A of the Act, in May, 2000. But the Assessing Officer refused to issue a Certificate under Section 230A on the ground that there was a demand for income tax arrears of Rs. 36,73,050/-, due from the Company. 6. But subsequently, Section 230A itself was repealed with effect from 01-6-2001. Therefore, the 3rd respondent-Company sold the Jubilee Hills property to the petitioner herein under two registered sale deeds dated 20-6-2001 and 22-6-2001, as stated above. 7. Upon coming to know of the sale, the Ass....
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....see in favour of a third party as void and that if the Department finds that a property of the assessee has been transferred with the intention to defraud the Revenue, it will have to file a suit under Rule 11(6), to have the transfer declared void under Section 281. Paragraph-9 of the decision of the Supreme Court in Gangadhar Vishwanath Ranade reads as follows: "9. The Tax Recovery Officer, therefore, has to examine who is in possession of the property and in what capacity. He can only attach property in possession of the assessee in his own right, or in possession of a tenant or a third party on behalf of/for the benefit of the assessee. He cannot declare any transfer made by the assessee in favour of a third party as void. If the Department finds that a property of the assessee is transferred by him to a third party with the intention to defraud the Revenue, it will have to file a suit under Rule 11(6) to have the transfer declared void under Section 281." 12. As a matter of fact, even before the Supreme Court settled the law as above in Gangadhar Vishwanath Ranade, the Calcutta High Court held in Srimati Preeti Rungta v. Income Tax Officer [1995] 214 ITR 594 that the....
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....Therefore, it is the contention of Mr. S.Ravi, learned Senior Counsel for the petitioner, that the impugned orders are contrary to law and liable to be set aside. 16. However, Mr. J.V. Prasad, learned Senior Standing Counsel for the Revenue, contended that irrespective of whether the Income Tax Officer had the power to declare a transfer to be void or not, the right of the Tax Recovery Officer to investigate into the objection of anyone to the attachment of a property is guaranteed by Rule 11 and that even before the stage prescribed by sub-rule (6) of Rule 11 could be reached, the petitioner had rushed to Court. In other words, the contention of the learned Senior Standing Counsel for the Department is that Rule 11 of the Second Schedule to the Income Tax Act contains a scheme that provides for an investigation to be made by the Tax Recovery Officer into any claim or objection made by a party. On the culmination of such an investigation, the Tax Recovery Officer is entitled under sub-rule (5) of Rule 11 to disallow the claim. It is only after the disallowance of such a claim that the party against whom an order is made, may institute a suit in a Civil Court. Therefore, the learne....
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....nder Section 281. Pursuant to the show cause notice, an enquiry was held, evidence was recorded and an order was passed on 09-5-1974 declaring that the transfer in favour of the wife and daughter was void. This order, when challenged before the High Court of Bombay, the High Court held that the proceedings taken pursuant to the declaration or expression of an opinion by the Income Tax Officer under Section 281 were a mere prelude to the procedure for the recovery of tax and that the declaration made by the Income Tax Officer on 09-5-1974 did not affect the rights of the parties that could be considered in the proceedings under Rule 11. 20. The decision of the High Court of Bombay was rendered on 09-01-1981. Thereafter, the Tax Recovery Officer proceeded with the investigation under Rule 11 of the Second Schedule and passed an order overruling the objections filed by the objectors and declaring that the mortgage in favour of the Bank and the conveyance in favour of the wife and daughter of the assessee were illegal and void and holding that the property was liable to attachment and sale. This order of the Tax Recovery Officer was challenged by the assessee by filing a fresh writ pe....
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....the language employed in Rule 11(6). Thereafter, the Supreme Court indicated in paragraph-12 as to what should be done in such cases. It reads as follows: "12. In the light of this discussion about the provisions of Order XXI, Rules 58 to 63, if we examine Rule 11(4) of the Second Schedule to the Income-tax Act, it is clear that the Tax Recovery Officer is required to examine whether the possession of the third party is of a claimant in his own right or in trust for the assessee or on account of the assessee. If he comes to a conclusion that the transferee is in possession in his or her own right, he will have to raise the attachment. If the Department desires to have the transaction of transfer declared void under Section 281, the Department being in the position of a creditor, will have to file a suit for a declaration that the transaction of transfer is void under Section 281 of the Income-tax Act." 24. From a careful consideration of what had transpired in Gangadhar Vishwanath Ranade's case, it can be concluded that in the first round of litigation, the Bombay High Court held the order passed under Section 281 as a mere declaration of an opinion and as a mere prelude to the....
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....Section 55 of the Presidency Towns Insolvency Act, 1909 declares any transfer of property (except one made before or in consideration of marriage and except one made in favour of a purchaser in good faith and for a valuable consideration) to be void as against the official assignee, if the transferor is adjudged insolvent within two years after the date of transfer. Section 56 of the same statute goes a step further and declares every transfer of property, every payment made, every obligation incurred and every judicial proceeding taken or suffered by any person unable to pay his debts, void, if such a person is adjudged insolvent on a petition presented within three months and if such a transfer or payment made or obligation incurred was with a view to give that creditor a preference over other creditors. Though Section 56(2) saves the rights of a person making title in good faith and for valuable consideration through or under a creditor of the insolvent, sub-section (1) of Section 56 creates a deeming fiction that every transfer made or obligation incurred is fraudulent. 28. Similarly, Section 53 of the Provincial Insolvency Act, 1920 declares every transfer of property (except....
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....idency Town Insolvency Act. 31. The reason as to why we have taken a detour from the Income Tax Act to the Insolvency Act is that the difference between these two enactments came up for consideration before a Full Bench of the Madras High Court and later before the Supreme Court. In The Official Receiver, Guntur v. Narra Gopalakrishniah AIR 1945 Madras 66, the question that was referred to the Full Bench was as to whether the decision of the Privy Council in Mahomed Siddique Yousuf v. Official Receiver, Calcutta would apply to the orders of adjudication under the Provincial Insolvency Act as well as to the orders of adjudication under the Presidency Towns Insolvency Act. The English Courts were then following the leading judgment in ex parte Learoyd, which arose under Sections 10 and 12 of the Bankruptcy Act, 1869. While answering the said question, the Full Bench of the Madras High Court held as follows: "Section 54 of the Provincial Insolvency Act says that every transfer of property, every payment made, every obligation incurred and every judicial proceeding taken or suffered by any person unable to pay his debts as they became from his own money in favour of any creditor wit....
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....Court. After pointing out the distinction between the two, Subba Rao, J. referred with approval, to the decision of the Full Bench of the Madras High Court in Narra Gopalakrishniah. 34. If we keep in mind the distinguishing features between the Presidency Towns Insolvency Act and the Provincial Insolvency Act and the way they were interpreted by the Full Bench of the Madras High Court and the Supreme Court, it will be clear that Section 281(1) of the Income Tax Act, 1961, which does not prescribe the requirement of annulment by Court, cannot be interpreted differently. Section 281(1) of the Income Tax Act does not use the expression "voidable" as used in Section 53 of the Provincial Insolvency Act. Section 281 of the Income Tax Act does not also impose the rider "shall be annulled by Court" as used in Sections 53 and 54(1) of the Provincial Insolvency Act. Therefore, it is not possible to hold that the Tax Recovery Officer should go to the Civil Court, file a suit and get a declaration that the transfer was void. In our considered view, the statutory declaration contained in Section 281(1) does not require to be baptised by a judicial declaration. 35. In fact, any interpretation ....
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.... 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 exceed 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." 39. Mr. S.Ravi, learned Senior Counsel for the petitioner, may be right to ....
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....not on account of any other person, or was in the possession of some other person in trust for him, or in the occupancy of a tenant or other person paying rent to him, the Tax Recovery Officer shall disallow the claim. (6) Where a claim or an objection is preferred, the party against whom an order is made may institute a suit in a civil court to establish the right which he claims to the property in dispute; but, subject to the result of such suit (if any), the order of the Tax Recovery Officer shall be conclusive." 41. It is seen from Rule 11 that the scheme envisaged therein is as follows: (i) Whenever a claim or objection is made to the attachment or sale of a property, the Tax Recovery Officer may initiate investigation into the claim. (ii) The claimant or objector should adduce evidence, in the course of such investigation to show that on the date of service of notice under Rule 2, asking the assessee to pay the arrears, the objector or claimant had an interest in or was possessed of the property in question. (iii) If after investigation, the Tax Recovery Officer is satisfied about the genuineness of the claim or objection he shall make an order releasing the proper....
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....Rule 16(1), it is automatically void and the question of asking the Revenue to go to the Civil Court to have the transfer declared as void would not arise. 45. In fact, a similar question arose before the Division Bench of Punjab & Haryana High Court in Karnail Singh v. Union of India (2011) 245 CTR 437 (P&H). That was also a case where an order attaching the property and the order declaring a sale to be void in terms of Section 281 was under challenge. Reliance was placed upon the decision of the Supreme Court in The Tax Recovery Officer II v. Gangadhar Vishwanath Ranade. But after pointing out that the language of Section 281 underwent a change under Taxation Laws (Amendment) Act, 1975 and that Gangadhar Vishwanath Ranade arose under the unamended provision, the Division Bench of Punjab & Haryana High Court held that it is no more necessary to drive the revenue to file a civil suit. 46. At the time when the Supreme Court considered the import of Section 281, the provision contained the words "with the intention to defraud the revenue". But by the amendment introduced in 1975, these words deleted. Therefore, irrespective of whether the transfer was with a view to defraud the rev....
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....e was not made with the previous permission of the Assessing Officer. On the contrary, it was made after the rejection of permission by the Assessing Officer. 52. Therefore, to say that the revenue should go to the Civil Court to get a declaration in terms of Section 281 (1) is not borne out of the scheme. In fact, as rightly pointed out by the Punjab & Haryana High Court in Karnail Singh, the scheme of Section 281 has now undergone a change. The changes made to Section 281 can be well appreciated, if the unamended and amended provisions are presented in a tabulation. Unamended Section 281 considered in Gangadhar Vishwanath Ranade Amended Section 281 Section 281: Where, during the pendency of any proceeding under this Act, any assessee creates a charge on or parts with the possession by way of sale, mortgage, exchange or any other mode of transfer whatsoever, of any of his assets in favour of any other person with the intention to defraud the revenue, 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; Provided that such charge or transfer shall not be voi....