2001 (12) TMI 19 - HC - Income Tax

Recovery Of Tax Transfer To Defraud Revenue Property Transfered To Trust By Assessee - It is claimed in the writ petition that the said Narayan Kishore Choudhury executed a deed of trust on May 18 1972 concerning his shares in the premises No. 2/2B Harington Street Calcutta and appointed the present writ petitioners as the trustees thereof. It is contended that the Revenue acted erroneously in treating the said deed of trust as a revocable trust. It is further alleged that the Revenue was not entitled to initiate proceedings against the trustees to recover the dues from Narayan Prasad Choudhury. - The appeal is dismissed

Summary

Issues:
Challenge to certificate proceedings, notices of demand, and notices under section 226(3) of the Income-tax Act. Validity of trust deed as revocable trust. Competency of Tax Recovery Officer to declare transfer void under section 281 of the Income-tax Act. Jurisdiction of Revenue to initiate proceedings for voiding transfer under section 281.

Analysis:
The case involved a challenge to certificate proceedings, notices of demand, and notices under section 226(3) of the Income-tax Act by the writ petitioners, who were the son and wife of the assessee. The petitioners claimed that a trust deed executed by the assessee was erroneously treated as revocable by the Revenue. The Revenue contended that the trust deed was created fraudulently to defraud creditors, including the Revenue. The single judge quashed the notices under section 226(3) and certificate proceedings but allowed the Revenue to take appropriate steps to set aside the trust deed.

Regarding the competency of the Tax Recovery Officer to declare the transfer void under section 281 of the Income-tax Act, the Supreme Court precedent in TRO v. Gangadhar Viswanath Ranade clarified that the Revenue could not unilaterally examine the transfer's validity under section 281. However, the Revenue retained the right to initiate legal proceedings to void the transfer under section 281. The court observed that the trust deed in question appeared to be created to avoid payments but upheld the single judge's decision to allow the Revenue to pursue legal action to void the transfer.

The appellant argued that the fraud in this case was evident, negating the need for the Revenue to resort to a separate suit. However, the court rejected this argument, emphasizing the need for proper legal proceedings. Ultimately, the court dismissed the appeal, affirming the single judge's decision and granting the Revenue three months to initiate proceedings to set aside the trust deed. The writ petitioners were barred from challenging the Revenue's claim on the grounds of limitation if proceedings were initiated within the specified timeframe.

In conclusion, the judgment upheld the single judge's decision, emphasizing the need for proper legal procedures in challenging the validity of the trust deed. The court clarified the jurisdictional limitations on the Revenue's authority to void transfers under section 281 of the Income-tax Act, highlighting the importance of following due process in such matters.