TaxTMI 
TaxTMI 
2020 (4) TMI 337
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....a valid consideration and without notice of the statutory charge created, either under Section 24 of the 'Tamil Nadu General Sales Tax Act, 1959' [hereinafter referred to as 'TNGST Act' for the sake of brevity] or under Section 42 of the 'Tamil Nadu Value Added Tax Act, 2006' [hereinafter referred to as 'TNVAT Act' for the sake of brevity] and since they are entitled for the protection under Section 100 of the 'Transfer of Property Act, 1882' [hereinafter referred to as 'TP Act' for the sake of brevity], the charge cannot be enforced against their properties. 2. The aforesaid Sections are extracted for a ready reference:- 'Section 24 of the TNGST Act: Section 24.-Payment and recovery of tax.- (1) Save as otherwise provided for in sub-section (2) of Section 13, the tax assessed or has become payable under this Act from a dealer or person and any other amount due from him under this Act shall be paid in such manner and in such instalments, if any and within such time as may be specified in the notice of assessment, not being less than twenty one days from the date of service of the notice. The tax under sub-section (2) of Section 13 shall be paid without any notice of demand. In....
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....ty mortgaged to it under sub-section (2) of Section 28 of the Tamil Nadu Co-operative Societies Act, 1983 (Tamil Nadu Act 30 of 1983), have priority over all other claims against the property of the said dealer or person and the same may, without prejudice to any other mode of collection be recovered, (a) as land revenue, or (b) on application to any Magistrate, by such Magistrate as if it were a fine imposed by him: Provided that no proceedings for such recovery shall be taken or continued as long as he has, in regard to the payment of such tax, other amount or fee, as the case may be, complied with an order by any of the authorities to whom the dealer or person has appealed or applied for revision, under Sections 51, 52, 54, 57, 58, 59 or 60. (3) On any amount remaining unpaid after the date specified for its payment as referred to in subsection (1) or in the order permitting payment in instalments, the dealer or person shall pay, in addition to the amount due, [interest at the rate of two percent] per month of such amount for the entire period of default: Provided that if the amount remaining unpaid is less than one hundred rupees and the period of default is not more ....
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....so far as may be, apply to such charge.] Nothing in this section applies to the charge of a trustee on the trust property for expenses properly incurred in the execution of his trust, [and, save as otherwise expressly provided by any law for the time being in force, no charge shall be enforced against any property in the hands of a person to whom such property has been transferred for consideration and without notice of the charge.]' 3. Much reliance was placed on the decision of The Ahmedabad Municipal Corporation of the city of Ahmedabad versus Haji Abdulgafur Haji Hussenbhai reported in 1971 (1) Supreme Court Cases 757 by the learned counsel for the petitioners, for the proposition that, since the property has been transferred to them for adequate consideration and without there being a notice of the charge, they are protected under the proviso to Section 100 of the TP Act. 4. The learned Special Government Pleader on the other hand would submit that, as Section 24 of the TNGST Act or Section 42 of the TNVAT Act provides that, the arrears amount shall become immediately due on default of the outstanding taxes and consequently, a charge would be created on the properties of t....
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....dency of any proceedings under this Act or after the completion thereof, any dealer 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, 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 dealer 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,- (a) for adequate consideration and without notice of the pendency of such proceeding under this Act or, as the case may be, without notice of such tax or other sum payable by the dealer; or (b) with the previous permission of the assessing authority. Section 3 of the Transfer of Property Act: Section 3.-Interpretation Clause.- In this Act, unless there is something repugnant in the subject or context,- "a person is said to have notice" of a fact when he actually knows that fact, or when, but for wilful abstention from an enquiry or search which he ought to have made, or gross negligence, he would have known i....
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....ice of such statutory charge and thereby be deprived of the saving clause under Section 100 of the TP Act? 9. Since the aforesaid issue has been predominantly dealt with in Ahmedabad Municipal Corporation's Case by the Hon'ble Apex Court, it would be appropriate to consider this decision first, before referring to the other judgments relied upon by the counsels. 10. The facts of Ahmedabad Municipal Corporation's Case before the Hon'ble Supreme Court was that the plaintiff was in arrears of property tax dues under the 'Bombay Provincial Municipal Corporation Act' (hereinafter referred to as the 'Bombay Act'). Section 141 of the Bombay Act creates a statutory charge over the property of the Assessee, who had defaulted in paying the municipal taxes. The defaulter had sold the property to the plaintiff while the charge was in force. Like the TNGST/TNVAT Acts, the Bombay Act also imposes a charge over the property held by defaulter. When the Municipality proposed to exercise their charge over the property, the plaintiff had filed a suit for declaration that he was the owner of the property and consequently to declare that the arrears of municipality taxes due by the transferor, were n....
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....y in a municipal area, where municipal taxes are a charge on the property, are deemed to have constructive knowledge of the existence of such municipal taxes and possible arrears, and hence there is a duty cast on such intending purchasers to make enquiries in this regard, failure of which would amount to willful abstention or gross negligence within the meaning of Section 3 of the TP Act and therefore, notice must be imputed to them. 14. Incidentally, the reference to the Full Bench in Nawal Kishore's case (supra) had necessitated, in view of the conflicting opinions of the two Division Benches of the Allahabad High Court in the cases of The Municipal Board, Cawnpore vs. Roop Chand Jain (ILR 1940 ALL 669) and the Oudh Chief Court in the case of the Municipal Board, Lucknow vs. Ramji Lal (AIR 1941 Oudh 305). The Full Bench had overruled Roop Chand Jain's case (supra) and approved Ramji Lal's case. While considering such a decision taken by the Full Bench in Nawal Kishore's case (supra), the Hon'ble Apex Court was inclined to agree with the reasoning adopted by the Division Bench of the Allahabad High Court in Roop Chand Jain's case, in preference to the reasoning of the Full Bench....
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....ice is a question of fact which falls to be determined on the evidence and circumstances of each case. But that Court felt that there was a principle on which question of constructive notice could rest, that principle being that all intending purchasers of the property in municipal areas where the property is subject to a municipal tax which has been made a charge on the property by statute have a constructive knowledge of the tax and of the possibility of some arrears being due with the result that it becomes their duty before acquiring the property to make enquiries as to the amount of tax which is due or which may be due and if they fail to make this enquiry such failure amounts to a wilful abstention or gross negligence within the meaning of Section 3 of the Transfer of Property Act and notice must be imputed to them. The reference to the Full Bench in the reported case was necessitated because of conflict of judicial opinion between that Court and Oudh Chief Court. The earlier decision of a Division Bench in Municipal Board, Cawnpore v. Roop Chand Jain I.L.R. [1940] All. 669 was overruled and the Bench decision of Oudh High Court in Municipal Board, Lucknow v. Ramjilal I.L.R. ....
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....ue state of affairs. On this reasoning he was held to have constructive notice and the purchasers from him could not claim greater protection. These circumstances clearly disclose that the reported case is not similar to the one before us and is of little assistance. 7. Chandu Ram v. Municipal Commissioner of Kurseong Municipality AIR 1951 Cal 398 was the next decision cited. The Bench in that case followed the Full Bench decision of the Allahabad High Court in Nawal Kishore's case (supra). A Division Bench of the Oudh Chief Court in Municipal Board, Lucknow v. Lala Ramji Lal A.I.R. 1941 Oudh 305 disagreeing with the Bench decision of the Allahabad High Court in Roop Chand Jain's case (supra) observed that it must be presumed that a person who buys house property situate in a municipality is acquainted with the law by which a charge is imposed on that property for the payment of taxes. The charge having been expressly imposed by the Municipal Act upon the property for payment of municipal taxes the municipality was entitled to follow the property in the hands of a transferee who had not cared to make any enquiry as to whether the payment of taxes was in arrears. The Court approv....
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....lating to Immovable property is required by law to be and has been affected by a registered instrument, any person acquiring such property or any part of, or share of such instrument as from the date of registration or, where the property is not all situated in one sub-district, or where the registered instrument has been registered under Subsection (2) of Section 30 of the Indian Registration Act, 1908, from the earliest date on which any memorandum of such registered instrument has been filed by any Sub-registrar within whose sub-district any part of the property which is being acquired, or of the property wherein a share or interest is being acquired, is situated: Provided that- (1) the instrument has been registered and its registration completed in the manner prescribed by the Indian Registration Act, 1908, and the rules made thereunder. (2) the instrument or memorandum has been duly entered or filed, as the case may be, in books kept under Section 51 of that Act and (3) the particulars regarding the transaction to which the instrument relates have been correctly entered in the indexes kept under Section 55 of that Act. Explanation II.-Any person acquiring any Immov....
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....oning of the Full Bench of that Court in Nawal Kishore's case (supra) or of the Division Bench of Oudh Chief Court in Ramji Lal's case (supra). We do not think there is any principle or firm rule of law as suggested in Nawal Kishore's case (supra) imputing to all intending purchasers of property in municipal area where municipal taxes are a charge on the property, constructive knowledge of the existence of such municipal taxes and of the reasonable possibility of those taxes being in arrears. The question of constructive knowledge or notice has to be determined on the facts and circumstances of each case. According to the Full Bench decision in Nawal Kishore's case (supra) also the question of constructive notice is a question of fact and we do not find that the material on the present record justifies that the plaintiff should be fixed with any constructive notice of the arrears of municipal taxes. 13. We may add before concluding that as the question of constructive notice has to be approached from equitable considerations we feel that the municipal corporation in the present case was far more negligent and blameworthy than the plaintiff. We have, therefore, no hesitation in ho....
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....o do something which a reasonable man guided by consideration which normally regulate the conduct of human affairs would do or doing something which a normally prudent and reasonable man would not do. The question of wilful abstention or gross negligence and, therefore, of constructive notice considered from this point of view is generally a question of fact or at best mixed question of fact and law depending primarily on the facts and circumstances of each case and except for cases directly falling within the three explanations, no inflexible rule can be laid down to serve as a straight-jacket covering all possible contingencies. The question one has to answer in circumstances like the present is not whether the purchaser had the means of obtaining and might with prudent caution have obtained knowledge of the charge but whether in not doing so he acted with wilful abstention or gross negligence. Being a question depending on the behavior of a reasonably prudent man, the Courts have to consider it in the background of Indian conditions. Courts in India should, therefore, be careful and cautious in seeking assistance from English precedents which should not be blindly or too readi....
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....ition is applied to the issue involved in the present case, the objections raised by the respondents that the intending purchasers had constructive notice of the charge on the property would be contrary to this decided ratio. 23. While that being so, when the prospective purchasers are not expected to have constructive knowledge of the charge and when the property is purchased for a valid consideration and without notice of the charge, they would be entitled to the saving clause provided under Section 100 of the TP Act. 24. This leads to the question that when the Hon'ble Supreme Court had held that there is no constructive knowledge on the arrears of taxes, how could the Tax Department expect the purchasers to make enquiries with them? While dealing with the facts, in the Ahmedabad Municipal Corporation's case, the Hon'ble Apex Court held that there is a duty cast on the purchasers to make enquiries with their "vendors" regarding sales tax arrears and failure to do so would amount to negligence and willful abstention. It was also held that the plaintiff therein, as a prudent and reasonable man, was not bound to enquire from the Municipal Corporation about the existence of any ar....
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....dicative of a higher degree of a neglect or omission to do something which a reasonable or prudent man would not do; (c) Constructive notice on account of willful abstention or gross negligence construed from the aforesaid point of view, are mixed questions of facts and law. (d) The mixed question of law is not where the purchaser had means of obtaining knowledge of the charge or with prudent caution could have obtained, but whether in not doing so, he acted with willful abstention or gross negligence, which question the Courts should consider in the background of Indian conditions; (e) Failure to enquire with tax authorities will not amount to willful abstention; (f) Cases which fall under the three explanations to Section 3 of the Transfer of Property Act and cases where enquiries made with vendors but failure to make enquires with the tax authorities, cannot impute the purchasers with constructive notice of tax arrears; 27. The learned Special Government Pleader placed reliance on a Full Bench decision of this Court in the case of B.Suresh chandh vs. State of Tamil Nadu and another reported in 2006 (4) L.W. 409 and submitted that the ratio laid down by Ahmedabad Municip....
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....ct properties, the same would neither amount to willful abstention nor of gross negligence and therefore, they cannot be termed to be 'persons said to have notice', as interpreted under Section 3 of the TP Act and it would suffice if the purchasers had made enquiries with their vendors with regard to the tax arrears. Accordingly, it can only be held that these purchasers, neither had 'constructive notice' under Section 3 of the TP Act, nor did they have 'notice of the charge' as referred to under Section 100 of the TP Act and therefore, they could be entitled to the benefit of the saving clause therein. Consequently, the statutory charge created on the property in view of Section 24 of the TNGST Act or under Section 42 of the TNVAT Act, cannot be enforced against the properties in the hands of these writ petitioners. 31. The learned Special Government Pleader had also placed reliance on the decision in the case of Showtech Stone International Pvt. Ltd., vs. Commercial Tax reported in 2015 (77) VST 226 for the proposition that when the transferee has constructive notice of the charge, he would not be entitled for the protection under Section 100 of the TP Act, as it cannot be said ....
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....rrears on the properties. This is not a case of approbation or reprobation, where the purchase is deemed to be free of encumbrance, in the absence of any notice, either actual or constructive and as such, it can only be deemed that there is no encumbrance at all on the properties, in the hands of the transferee, in view of the discussions made above. Hence, the principle of approbation and reprobation will not apply to the cases on hand. 36. A learned Single Judge of this Court in the case of M/s.Sri Bakgyam Engineering Corporation vs. The Deputy Commissioner Tax Officer in W.P.No.37309 of 2002 dated 16.12.2015 had relied upon a Division Bench decision of this Court and held that, unless the charge is duly registered in the Registration Department, it would not be possible for any prospective buyer to know about the prevailing charge and had questioned the impugned charge on the ground that the charge has not been reflected in the encumbrance certificate issued by the Registration Department. Relevant portion of the order reads as follows: 10. Also, this Court in Rukmani v. The Deputy Commercial Tax Officer - I, Pattukottai - I, Assessment Circle, Pattukottai, Thanjavur District....
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....f the respondent that the demand notices have been issued to the dealer has not been substantiated. At this juncture, this Court deems it fit to extract a decision of the Apex Court, which has distinguished the pleadings and proof required in a writ proceeding and a civil suit. In Bharat Singh and Others Vs. State of Haryana and Others, reported in 1988 (4) SCC 534, at paragraph 13, the Supreme Court held as follows: ".... In our opinion, when a point which is ostensibly a point of law is required to be substantiated by facts, the party raising the point, if he is the writ petitioner, must plead and prove such facts by evident which must appear from the writ petition and if he is the respondent, from the counter-affidavit. If the facts are not pleaded or the evidence in support of such facts is not annexed to the writ petition or to the counter-affidavit, as the case may be, the court will not entertain the point. In this context, it will not be out of place to point out that in this regard there is a distinction between a pleading under the Code of Civil Procedure and a writ petition or a counter-affidavit. While in a pleading, that is, a plaint or a written statement, the facts....
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....he defaulter or against the immediate subsequent purchaser on the facts of this case, this Court is of the view that even collusion cannot be presumed. In the absence of any rebuttal to the bona fides of the purchase, absentism or negligence, in making due enquiry with the Registration Department, prior to purchase, the conduct of the subsequent purchaser cannot be doubted by making any allegation of fraud, being played on the revenue. 29. Though the respondent has contended that the petitioner ought to have obtained a 'No Objection' from the revenue before purchasing the property, no provisions have been quoted by the respondent in the counter affidavit. Needless to say that a purchaser in normal course would only verify from the Registration Department as to whether the property to be purchased has any encumbrance. Unless the charge is duly registered in the Registration Department, it would not be possible for any prospecting buyer to know whether there is any charge over the property, for any arrears of tax or any statutory dues to be paid to the Government or statutory body. As stated supra, no materials have been produced before this Court to prove that notice demanding arr....
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.... to be substantial material to establish that the transfer was made fraudulently to evade payment of tax arrears or to wriggle out of the charge created. In none of the cases before this Court, have the Department come out that such materials to show that the transfer was not bona-fide but has been made in order to defraud revenue. In the absence of such material, the appropriate remedy open to the Department is to substantiate the aspect of "fraudulent transfer" before the appropriate civil forum, by letting in evidence. 38. In the order passed in W.P.No.36469 of 2006 dated 26.03.2019 in the case of R. Dakshinamoorthy vs. The Deputy Commercial Tax Officer, a learned Single Judge of this Court was of the view that in the absence of any evidence that there was a collusion between the petitioner and the erstwhile owner, the petitioner could be treated as bonafide purchaser without notice, either actual or constructive of the charges created and therefore, precluded the respondents from taking action by enforcing the charges. 39. As found earlier, mere enquiries with the vendors of the properties would be sufficient to construe that the purchaser was deligent enough while conducting....
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....rence could be made on the situation giving rise to all these confusions. Had the Sales Tax authorities intimated to the registering officers about the statutory charge being created on the property of the tax defaulter in time, this situation could have been thwarted. The Department seeks to take protection from such inaction on the ground that there is no law or rules or regulations mandating conveyance of such information to the registering officers. 42. Incidentally, it can also be said that had the Tax Department enforced the charge in time, the present situation would not have arisen. It is not in dispute that in the instant cases, the Department had not enforced the charge on the properties, within a reasonable time. In Ahmedabad Municipal Corporation's case, the Municipal Corporation therein had also failed to enforce the charge in time, which led to the situation where a bonafide purchaser had purchased the property and after such purchase, the Corporation had sought to enforce the charges. In this situation, the Hon'ble Apex Court held as follows: 'It is however difficult to appreciate why after having secured the necessary order from the Court municipal taxes were not....
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....ur Welfare Fund Act, 1972, Section 74 (a) of the Chennai Metropolitian and Water Supply and Sewerage Act, 1978, Section 59 of the Tamil Nadu Agricultural Produce Marketing (Regulation) Act, 1987, Section 7 (b) of the Tamil Nadu Tax on Consumption and Sale of Electricity Act, 2003, Section 45 (6) of the TNVAT Act and Section 37 (1) of the Tamil Nadu Stamp Act, 2013 are some of the Acts, which empower the authorities to recover the arrears of revenue under the Tamil Nadu Revenue Recovery Act. 45. In order to rule out that there are no arrears of taxes under the aforesaid various laws, it would be imperative on the prospective purchasers of these properties, to make enquiries with all the departments under these several Acts, to rule out the possible charges on the properties, by the concerned authorities. 46. Though the TNGST Act and the TNVAT Act alone create a statutory charge by operation of law, the charges under the other Acts, are subject to issuance of notices, which procedure is enumerated in the respective law itself. However, the fact remains that in order to rule out the possible encumbrance under all these Acts, the prospective purchasers may have to conduct due diligen....
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....ation provides safety and security to transactions relating to immovable property, even if the document is lost or destroyed. It gives publicity and public exposure to documents thereby preventing forgeries and frauds in regard to transactions and execution of documents. Registration provides information to people who may deal with a property, as to the nature and extent of the rights which persons may have, affecting that property. In other words, it enables people to find out whether any particular property with which they are concerned, has been subjected t any legal obligation or liability and who is or are the person(s) presently having right, title, and interest in the property. It gives solemnity of form and perpetuate documents which are of legal importance or relevance by recording them, where people may see the record and enquire and ascertain what the particulars are and as far as land is concerned what obligations exist with regard to them. It ensures that every person dealing with immovable property can rely with confidence upon the statements contained in the registers (maintained under the said Act) as a full and complete account of all transactions by which the titl....
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....ge, since there was no duty cast on these purchasers to verify with them on the pending charges. Thus, such a duty, is not one of a choice or an option, but an inherent duty cast on the Tax Department to inform the registering officers about the existence of the statutory charge. 55. The learned Special Government Pleader would state that since the statutory charge created under Section 24 of the TNGST Act or Section 42 of the TNVAT Act is by operation of law, and not through a document which could fall under the purview of the Section 17 of the Registration Act, the same is not registerable. 56. After the pronouncement of the decision in the Ahmedabad Municipal Corporation's Case, this Court is of the view that the inherent duty referred above, had embedded on the authorities to inform the registering officers through a document about the statutory charge created. Such an information could be treated as a document which would mandate filing of such information in the register books, as provided under Section 51 of the Registration Act. 57. Section 51 (1) of the Registration Act reads as follows: 'Section 51 - Register-books to be kept in the several offices.- (1) The followin....
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....sence of such information being made, purchases effected pursuant to the statutory charge created under the tax laws, will not be enforceable against the properties in the hands of the subsequent purchasers. Above all, this Court has also substantiated that there is no constructive notice of the charge created either under Section 24 of the TNGST Act or under Section 42 of the TNVAT Act and therefore, all the petitioners herein, who had purchased the properties for consideration and without notice of the charge, would be entitled to the benefit of the saving clause under Section 100 of the TP Act. Accordingly, all the writ petitions deserve to be allowed in the light of the above discussions. 62. For the foregoing reasons, all the Writ Petitions stand allowed and Form No.7A-Auction sale notice dated 05.08.2005 issued by the respondent in W.P.No.39939 of 2005, notice of auction issued by the 1st respondent in Na.Ka.2003/01/a3 dated 07.06.2007 in W.P.No.25145 of 2007, records in Roc.No.A3/2597/1997 (Form No.1), dated 03.10.2008 in W.P.No.25830 of 2008, impugned auction notice published in the Dinakaran Newspaper dated 13.12.2008 and the Serial No.11 of the said notice passed by the ....