2004 (11) TMI 39 - HC - Income Tax

Recovery proceedings - Kerala Agricultural Income Tax Act, 1991 - The petitioner challenges revenue recovery proceedings initiated against the property said to be owned and possessed by the petitioner herein for the alleged agricultural income-tax due from one Thomas Karkappilly. - No proceedings were pending at a time when the petitioner purchased the property. Hence the transfer is not hit by section 62(3) further, there is no case that after any proceeding was commenced, there was a transfer in favour of the petitioner which transfer was intended to evade payment of tax. - I hold that the proceedings initiated against the property of the petitioner are clearly illegal. - I declare that the property purchased by the petitioner of an extent of 4.15 acres of land covered by exhibits P1 and P2 which was subsequently sold and repurchased from the transferee cannot be proceeded with for any alleged sale for agricultural income-tax due from the third respondent. - writ petition is thus allowed

Issues:
1. Validity of revenue recovery proceedings against property for agricultural income-tax arrears.
2. Legal rights of a bona fide purchaser without notice in relation to tax arrears on property.
3. Interpretation of statutory provisions regarding assessment, notice of demand, and creation of charge for tax liabilities.

Detailed Analysis:
1. The petitioner challenged the revenue recovery proceedings (exhibits P11 and P12) initiated against a property owned by him for alleged agricultural income-tax arrears due from a third party. The notices were issued based on assessment orders passed for various years. The petitioner contended that he purchased the property in 1996 and repurchased it in 2000, and was not served with the assessment order. The first respondent argued that a statutory charge existed on the property for tax arrears. The court analyzed the timeline of events and found that no demand was served on the assessee, rendering the proceedings illegal. The court quashed exhibits P11 and P12, declaring the property cannot be proceeded against for tax due from the third party.

2. The petitioner claimed to be a bona fide purchaser without notice of the tax arrears when he acquired and repurchased the property. The first respondent argued that the property was still liable due to the statutory charge created for tax purposes. The court examined the legal provisions related to creating a charge on the property and concluded that since no demand was served on the assessee, the charge did not arise. The court rejected the respondent's contention that the petitioner's repurchase in 2000 was irrelevant, as the property was no longer owned by the defaulter in 1999 when the petitioner initially purchased it. Therefore, the court held that the proceedings against the petitioner's property were illegal.

3. The judgment delves into the statutory provisions of the Kerala Agricultural Income-tax Act, 1991, particularly sections 35, 41, and 45, which govern the assessment, notice of demand, and creation of a charge for tax liabilities. The court emphasized that any tax or sum becomes payable only after an order is passed or a return is filed, and a notice of demand must be served on the assessee for a charge to arise on the property. The court interpreted the provisions to determine the legality of the revenue recovery proceedings and the applicability of charges on the property. Ultimately, the court found the proceedings against the petitioner's property to be illegal and quashed the notices.

In conclusion, the High Court of Kerala, in the judgment delivered by Justice P. R. Raman, upheld the petitioner's challenge against the revenue recovery proceedings, emphasizing the importance of serving a notice of demand for creating a charge on the property for tax liabilities. The court ruled in favor of the petitioner, declaring the proceedings against the property as illegal and quashing the notices.

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