2014 (5) TMI 896 - HC - Income Tax

Jurisdiction of the ITO u/s 281 of the Act Sale deed declare as void Held that - Following Tax Recovery Officer Versus Gangadhar Vishwanath Ranade (deceased) 1998 (9) TMI 1 - SUPREME COURT - Section 281 is only a declaratory provision and is not an adjudicatory provision entitling the authority to declare a document as a void document - section 281 merely declared what the law was as to that during the pendency of any proceeding under Income Tax Act in the event any assessee creates a charge or parts with the possession by way of sale, mortgage, exchange or by any other mode of transfer, such transfer would be void as against any claim in respect of any tax payable by the assessee - section 281 did not prescribe any adjudicatory machinery for deciding any question which may arise u/s 281 and that in order to declare a transfer as fraudulent u/s 281, an appropriate proceeding in accordance with law was required to be taken u/s 53 of the Transfer of Property Act - the ITO had exceeded its jurisdiction in adjudicating the matter u/s 281 of the Act thus, the ITO had no jurisdiction to declare the sale deed as void decided in favour of Assessee.

Summary

Issues:
1. Validity of sale deed under Section 281 of the Income Tax Act.

Analysis:
The petitioner, a medical doctor, purchased a property from a seller in 2007. Subsequently, an assessment order was passed against the seller in 2007, and a notice was issued to the petitioner under Section 281 of the Income Tax Act in 2008 regarding the validity of the sale deed. The petitioner contended that he was a bona fide purchaser for adequate consideration and was unaware of any pending proceedings against the seller. The petitioner also cited a Supreme Court decision stating that Section 281 is declaratory and not adjudicatory, requiring appropriate legal proceedings under the Transfer of Property Act to declare a transfer void under Section 281. The Income Tax Officer declared the sale deed void without a hearing, leading to a writ petition by the petitioner challenging the decision.

The High Court analyzed the Supreme Court decision in Gangadhar Vishwanath Ranade and concluded that Section 281 of the Income Tax Act does not grant the Income Tax Authority the power to unilaterally declare a transfer void. The Court held that Section 281 merely declares the law regarding transfers during pending tax proceedings and does not provide an adjudicatory mechanism. It was emphasized that to declare a transfer void under Section 281, appropriate legal proceedings under the Transfer of Property Act, specifically Section 53, are required. Therefore, the Income Tax Officer exceeded its jurisdiction by declaring the sale deed void under Section 281 without following the necessary legal procedures. As a result, the Court quashed the impugned order and allowed the writ petition filed by the petitioner.