2008 (1) TMI 266 - HC - Income Tax

Proceedings u/s 281(1) & issuance of attachment certificate of land - petitioners are bona fide purchasers of land in dispute Dept. not proved that the sale/transfer of land was not for adequate consideration - Income Tax Clearance Certificate clears that no tax liability was pending against the seller moreover sale deed was executed with the permission of AO - enquiry about the clear title of the vendor was also made impugned transaction is not void so attachment of land is not proper

Issues Involved:
1. Quashing of proceedings under Section 281(1) of the Income Tax Act, 1961.
2. Legality of the attachment order dated 7.6.2004 under Rule 48 of the Second Schedule to the Income Tax Act, 1961.
3. Validity of the sale and transfer of property in question.
4. Bona fide purchase and due diligence by the petitioners.
5. Estoppel against the Income Tax Department.
6. Pending civil suit for declaration of sale deed as null and void.

Detailed Analysis:

1. Quashing of Proceedings under Section 281(1) of the Income Tax Act, 1961:
The petitioners sought the quashing of proceedings under Section 281(1) of the Income Tax Act, 1961, and the consequential attachment order dated 7.6.2004. They argued that the transfer of land was made with adequate consideration and without notice of any pending proceedings or tax liabilities. The court found that the Income Tax Officer is not vested with the powers to declare any transaction of sale as void under Section 281 of the Act, supporting this with the judgment of the Madras High Court in Sancheti Leasing Company Ltd. and another vs. Income Tax Officer.

2. Legality of the Attachment Order Dated 7.6.2004:
The attachment order dated 7.6.2004 was issued by the Tax Recovery Officer, Income Tax Department, Hisar, under Rule 48 of the Second Schedule to the Income Tax Act, 1961. The petitioners argued that the order was illegal and arbitrary. The court found that the attachment order was issued without proper authority, as the Department had already issued an Income Tax Clearance Certificate indicating no outstanding liability against the seller at the time of the transfer.

3. Validity of the Sale and Transfer of Property in Question:
The petitioners purchased the property after verifying the antecedents and obtaining an Income Tax Clearance Certificate. The court noted that the sale deed was executed with the permission of the Income Tax Department, and the mutation was sanctioned by the Revenue Department. The court held that the transfer of land was valid and could not be declared void by the Income Tax Officer.

4. Bona Fide Purchase and Due Diligence by the Petitioners:
The petitioners argued that they were bona fide purchasers for adequate consideration and without notice of any pending proceedings. They had verified the title and obtained necessary clearances before purchasing the property. The court found that the petitioners had acted in good faith, and the Department could not produce any material to show that the sale was not for adequate consideration.

5. Estoppel Against the Income Tax Department:
The petitioners contended that the Department was estopped by its own act of issuing the Income Tax Clearance Certificate, which indicated no pending tax liability against the seller. The court agreed, stating that the Department could not now claim that the transfer was void when it had previously permitted the sale.

6. Pending Civil Suit for Declaration of Sale Deed as Null and Void:
The Department had filed a civil suit seeking a declaration that the sale deed dated 22.7.1999 was null and void. The court noted that the validity of the sale deed could only be decided by a competent civil court. The court held that the initiation of proceedings under Section 281(1) and the attachment order were premature and invalid, pending the outcome of the civil suit.

Conclusion:
The court quashed the proceedings under Section 281(1) of the Income Tax Act and the attachment order dated 7.6.2004. The court allowed the writ petition, stating that the Department could pursue its remedy in the pending civil suit for declaring the sale deed as null and void.

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