1996 (3) TMI 23 - HC - Income Tax

Summary

Issues Involved:
1. Whether the courts below were right in dismissing the suit when no notice as contemplated u/r 2 of the Second Schedule was served on the defaulter before sale.
2. Whether the courts below were right in holding that the alienations of the suit land would be void under the provisions of u/r 16(1) even though the sale under exhibit A-1 dated September 28, 1966, had taken place before the issue of notice u/r 2 of the Rules made under the Income-tax Act.
3. Whether the courts below erred in interpreting section 281 of the Act as it stood before the amendment under Act 41 of 1975 and whether the decision of the courts below is, therefore, liable to be set aside.

Summary:

Issue 1: Notice u/r 2 of the Second Schedule
The plaintiffs contended that no notice as required u/r 2 of the Second Schedule to the Income-tax Act was served on the vendor prior to the sale dated September 28, 1966. The defendants argued that the plaintiff's vendor was aware of the proceedings and that the sale was void under section 281 of the Income-tax Act. The court found that although the specific notice u/r 2 was served after the sale, the vendor had received other notices and was aware of the tax arrears and recovery proceedings. Therefore, the court held that the proceedings were not vitiated due to non-compliance with rule 2.

Issue 2: Alienation Void u/r 16(1)
The plaintiffs argued that the sale was valid as it occurred before the notice u/r 2 was issued. The defendants maintained that the sale was void as it was made after the initiation of recovery proceedings and issuance of certificates u/s 222(1). The court concluded that the sale was void under rules 16(1) and 16(2) of the Second Schedule, as the vendor was aware of the proceedings and the sale was intended to defraud the Revenue.

Issue 3: Interpretation of Section 281
The plaintiffs contended that the courts below misinterpreted section 281 of the Income-tax Act as it stood before the amendment under Act 41 of 1975. The court found that the transfer was void under section 281, as the vendor was aware of the proceedings and the sale was made to defraud the Revenue. The court upheld the concurrent findings of the lower courts.

Conclusion:
The court confirmed the judgment and decree of the lower courts, holding that the sale was void under the relevant provisions of the Income-tax Act and Rules. The second appeal was dismissed with no order as to costs.