2000 (5) TMI 26 - HC - Income Tax

Summary

Issues Involved:
1. Validity of prohibitory orders issued by the Tax Recovery Officer.
2. Applicability of Section 281 of the Income-tax Act.
3. Requirement for civil proceedings to declare a transfer void.
4. Nature and scope of garnishee proceedings under the Income-tax Act.

Issue-wise Detailed Analysis:

1. Validity of Prohibitory Orders Issued by the Tax Recovery Officer:
The petitioner challenged the prohibitory orders issued by the Tax Recovery Officer on February 13, 1996, August 3, 1999, and September 7, 1999, which restrained the petitioner from receiving payments and refunds. The court noted that these orders were part of the certificate cases against the original defaulter for the assessment years 1983-84 and 1984-85. The petitioner had filed objections and a revision application under Section 264 of the Income-tax Act, but the Commissioner of Income-tax rejected the application, stating there was no order of the Assessing Officer against which the revision could lie.

2. Applicability of Section 281 of the Income-tax Act:
The court emphasized the need to understand the scope of Section 281, which states that any transfer of assets during the pendency of proceedings or after completion but before service of notice under Rule 2 of the Second Schedule is void against any tax claim. The court concluded that since the proceedings were pending before the Tax Recovery Officer, the petitioner could not benefit from Section 281.

3. Requirement for Civil Proceedings to Declare a Transfer Void:
The petitioner argued that the income-tax authority must institute a suit to declare the transfer void. The court referenced several judgments, including Srimati Preeti Rungta v. ITO and TRO v. Gangadhar Viswanath Ranade, which supported the view that the authority should seek a civil court's declaration. However, the court disagreed, stating that Section 281's use of "void" implies that the authority can declare a transaction void without needing civil court proceedings.

4. Nature and Scope of Garnishee Proceedings under the Income-tax Act:
The court discussed the garnishee proceedings under the Second Schedule, likening them to Order 21 of the Code of Civil Procedure. It highlighted that these proceedings allow the Tax Recovery Officer to act against parties who obtained property during or after the proceedings but before notice under Rule 2. The court noted that the petitioner should have instituted a suit to nullify the revenue authority's claim instead of invoking writ jurisdiction.

Conclusion:
The court dismissed the writ petition, holding that the petitioner could not get relief under Section 281 and should have pursued appropriate civil proceedings to challenge the transfer's void status. The court also vacated any interim orders and directed that certified copies of the judgment be supplied within seven days upon requisition. No costs were awarded.