1994 (1) TMI 15 - HC - Income Tax

Summary

Issues Involved:
1. Nature of power of the income-tax authorities under section 281 of the Income-tax Act, 1961.
2. Validity of the impugned order under section 281 passed against a deceased person.
3. Procedural requirements and jurisdiction under section 281.
4. Validity of the attachment notice under section 226(3) of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Nature of Power of Income-Tax Authorities Under Section 281:
The primary issue in this writ proceeding is the nature of the power of the income-tax authorities under section 281 of the Income-tax Act, 1961. Section 281 states that any transfer of assets by an assessee during the pendency of any proceeding under the Act, or after the completion thereof but before the service of notice under rule 2 of the Second Schedule, shall be void against any claim in respect of any tax or other sum payable by the assessee. The petitioner contended that section 281 merely states the consequences of the transfer made during the pendency of assessment proceedings and does not contemplate any adjudication or passing of any order by the income-tax authorities. The court held that section 281 is declaratory and not procedural, and it does not provide for any mode of enforcement of the rights created under the section. The language of section 281 was compared to section 53 of the Transfer of Property Act, 1882, and it was concluded that it can only give rise to a cause of action which must be enforced by recourse to the general remedy of a suit.

2. Validity of the Impugned Order Under Section 281 Passed Against a Deceased Person:
The court found that the impugned order was passed against Vishwanath More when he was already dead, rendering the order invalid. The impugned order, having been passed against a non-existent person, cannot survive on that ground alone.

3. Procedural Requirements and Jurisdiction Under Section 281:
The petitioner argued that section 281 does not provide any procedure for adjudication of disputes nor does it specify any authority for such adjudication, making it violative of articles 14 and 19 of the Constitution. The court agreed, stating that section 281 does not contemplate any order to be passed thereunder without a properly constituted proceeding. The court emphasized that the Income-tax Officer is a creature of statute whose jurisdiction is limited by statute, and there is no scope for jurisdiction being conferred by implication or consent. The court also noted that the procedure under the Second Schedule of the Act for enforcement of the rights of the Revenue does not apply at the stage when section 281 operates.

4. Validity of the Attachment Notice Under Section 226(3):
The attachment notice under section 226(3) was issued to the Reserve Bank of India to restrain it from paying the maturity amount and interest to the petitioner. The court held that the attachment order under section 226(3) could only issue if the Reserve Bank of India was liable to pay or was holding the money for or on account of Vishwanath More. Since the court found that the Income-tax Officer could not declare the transfer void in the manner purported, the Reserve Bank of India could not be directed not to make payment to the petitioner until the transfer is declared void in properly constituted proceedings. The court also noted that the respondents must elect whether the money was Vishwanath More's or the petitioner's, and they cannot contend it is Vishwanath More's for the purpose of section 226(3) and the petitioner's for the purpose of section 147/148 at the same time.

Conclusion:
The writ application was allowed, and the impugned order under section 281 and the attachment notice under section 226(3) were quashed. The court emphasized that section 281 is declaratory and not procedural, and any dispute regarding the validity of a transfer under section 281 must be adjudicated in a properly constituted proceeding. The court also held that the impugned order, having been passed against a deceased person, was invalid. There will be no order as to costs.