1998 (6) TMI 68 - HC - Income Tax

Summary

Issues Involved:
1. Validity of the order passed under Section 281 of the Income-tax Act.
2. Interpretation of Section 281 regarding its declaratory nature.
3. Jurisdiction of the Income-tax Officer to pass an order under Section 281.
4. Impact of pending civil suits on the determination of rights under Section 281.

Detailed Analysis:

1. Validity of the order passed under Section 281 of the Income-tax Act:
The petitioner challenged the order dated January 2, 1995, passed under Section 281 of the Income-tax Act and Section 34B of the Wealth-tax Act, 1957. The main contention was whether Section 281 contemplates the passing of an order by the Income-tax Officer. The petitioner argued that the order was without jurisdiction and should be quashed. The court examined precedents, including B. A. Basith v. ITO [1981] 128 ITR 434, which stated that Section 281 does not contemplate making any order by any authority and is declaratory in nature.

2. Interpretation of Section 281 regarding its declaratory nature:
Section 281 was interpreted as declaratory, meaning it does not require a formal order to declare a transfer void against tax claims. The court referred to previous judgments, including K. Siddalingaiah v. ITO [1982] TLR 550, which reiterated that Section 281 is declaratory and does not necessitate an order by the Income-tax Officer. The section automatically renders transfers void if they are intended to defraud the Revenue during pending proceedings.

3. Jurisdiction of the Income-tax Officer to pass an order under Section 281:
The court clarified that while Section 281 is declaratory, it does not preclude the Income-tax Officer from issuing an order to declare a transfer void. Such an order serves as a declaration of intent to proceed against the property for tax recovery. The court distinguished between the declaratory nature of Section 281 and the authority of the Income-tax Officer to issue orders under it, citing that the order merely records the Revenue's intention to recover taxes from the transferred property.

4. Impact of pending civil suits on the determination of rights under Section 281:
The court noted that a civil suit was pending, which would ultimately determine the rights of the parties involved. It emphasized that the Tax Recovery Officer's order under Rule 11 of Schedule II to the Income-tax Act is final, subject to the outcome of the civil suit. The court decided not to quash the Income-tax Officer's order at this stage, given the pending civil litigation.

Conclusion:
The court concluded that Section 281 is declaratory and does not inherently require an order to be passed by the Income-tax Officer. However, such an order can be issued to indicate the Revenue's intention to proceed against the property for tax recovery. The petitions were disposed of with the observation that the pending civil suit would ultimately resolve the rights of the parties.