2007 (11) TMI 257 - HC - Income Tax

Attachment of property of wife for the default in payment of tax by her husband as per sec. 222, attachment power of dept. is limited to the properties of assessee dept. ought to have established that the said property is actually possessed or owned by the assessee in default by filing a civil suit dept. not established that order of attachment & order of proclamation of sale issued by Tax Recovery Officer were wholly without jurisdiction order were liable to be quashed

Summary

Issues Involved:
1. Jurisdiction of Tax Recovery Officer (TRO) to determine benami transactions.
2. Validity of attachment and sale proclamation by the TRO.
3. Alternative remedies available to the petitioner.
4. Interpretation of relevant sections and rules of the Income-tax Act, 1961.

Detailed Analysis:

1. Jurisdiction of Tax Recovery Officer (TRO) to Determine Benami Transactions:
The primary issue in this writ petition is whether the TRO, under rule 11 of the Second Schedule to the Income-tax Act, 1961, can determine if a sale transaction in favor of the petitioner is a benami transaction. The court examined the scope of the TRO's powers, particularly in light of section 222 and rule 11 of the Second Schedule of the Act.

2. Validity of Attachment and Sale Proclamation by the TRO:
The petitioner challenged the TRO's authority to attach and sell properties in her name for the tax liabilities of her husband. The properties in question were attached under rule 48 of the Second Schedule, and the petitioner was restrained from transferring them. The TRO issued notices under rule 53 and rule 83, demanding evidence from the petitioner to support her claim of ownership. The TRO concluded that the petitioner, being a housewife with no independent income, held the properties benami for her husband.

3. Alternative Remedies Available to the Petitioner:
The respondents argued that the writ petition was not maintainable as the petitioner had alternative remedies, including filing an appeal or a suit to establish her claim. They contended that the orders were passed in accordance with section 222 of the Act and that the TRO had the right to determine such questions under rule 11.

4. Interpretation of Relevant Sections and Rules of the Income-tax Act, 1961:
The court referred to section 222, which allows the TRO to recover tax dues by attaching and selling the assessee's property. The Explanation to section 222 includes properties transferred to relatives without adequate consideration. Rule 11 outlines the TRO's duty to investigate claims or objections regarding the attachment or sale of properties.

The court also examined section 281, which voids transfers made to defraud the Revenue, and rule 48, which pertains to the attachment of immovable property.

Court's Findings and Judgment:
1. Jurisdiction of the TRO: The court held that the TRO does not have the jurisdiction to declare a transaction as benami. The TRO's role is limited to determining possession and incidental questions of right to possession. The court cited the Supreme Court's decision in *Tax Recovery Officer v. Gangadhar Viswanath Ranade*, which established that the TRO cannot declare a transfer void under section 281 and must file a civil suit to establish such claims.

2. Validity of Attachment and Sale Proclamation: The court found that the TRO's orders of attachment and sale proclamation were without jurisdiction. The TRO acted beyond his powers by determining the benami nature of the properties. The court emphasized that the burden of proving a benami transaction lies with the Department, which must be established through a civil suit.

3. Alternative Remedies: The court rejected the argument that the writ petition should be dismissed due to the availability of alternative remedies. Since the TRO's orders were without jurisdiction, the petitioner was entitled to seek relief through the writ petition.

4. Interpretation of Sections and Rules: The court clarified that section 222 and rule 48 pertain to the properties of the assessee in default. Rule 11 applies to properties ostensibly owned by the assessee. If a property is in the name of a third party, the Department must establish its claim through a civil court.

Conclusion:
The court allowed the writ petition, quashing the TRO's orders of attachment and sale proclamation. It directed that the Department could file a civil suit to establish its claim that the petitioner holds the properties benami for her husband. The petitioner was restrained from alienating the properties for three months to allow the Department to seek interim relief from a civil court. The writ petition was disposed of with no order as to costs.