2017 (12) TMI 1132 - HC - Income Tax

Tax Recovery Officer jurisdiction to declare the transaction of transfer of property as null and void under section 281 in the proceedings under rule 16 of the Second Schedule to the Act - Held that - The Revenue has to institute a suit seeking such declaration from a civil court. The contention raised by learned advocate Mr.Bhatt that the Tax Recovery Officer was justified in declaring the transfer as null and void as the same was made between husband and wife to defraud the Bank does not merit acceptance in view of the law enunciated in the aforesaid judgments. As observed by this Court in the decision rendered in the case of Karsanbhai Gandabhai Patel (2014 (4) TMI 411 - GUJARAT HIGH COURT) section 281 does not create any machinery for the Revenue authorities to entertain dispute and declare the transaction to be void for which purpose, only civil suit would lie. We, therefore, unhesitatingly, set aside the impugned order dated 26.05.2017. However, the right of the respondent authorities to seek the declaration of the transfer as null and void under section 281 of the Income Tax Act, is not taken away and if they so desire, initiate appropriate proceedings in accordance with law seeking such declaration. The petition is allowed accordingly.

Summary

Issues:
1. Challenge to order declaring property acquisition as null and void under Income Tax Act.
2. Jurisdiction of Tax Recovery Officer to declare sale transaction void.
3. Interpretation of Section 281 and Rule 16 of the Second Schedule of the Act.

Analysis:

Issue 1:
The petitioner challenged the order declaring the property acquisition null and void under the Income Tax Act. The petitioner acquired the property through a registered sale deed in 2008. An attachment order was issued in 2005 for outstanding tax demand against the original owner. The petitioner was unaware of this order until 2009. The High Court previously quashed a similar order in 2015. However, a fresh order was issued in 2017 for a different tax demand, leading to the current challenge.

Issue 2:
The core issue was whether the Tax Recovery Officer had the jurisdiction to declare the transfer of property null and void under Section 281. The Tax Recovery Officer declared the transaction void based on the penalty order against the original owner. However, the Court held that the Tax Recovery Officer lacked the authority to make such a declaration. The Court referenced Section 281 and Rule 16 of the Second Schedule, emphasizing that the Revenue must approach a civil court for such declarations.

Issue 3:
Section 281 of the Act deems certain transfers void, subject to specific conditions. Rule 16 of the Second Schedule further regulates private alienation in cases of attachment. The Court highlighted that the Tax Recovery Officer's power to declare transfers void is limited, and the Revenue must resort to civil court proceedings for such declarations. The Court cited relevant case law to support its decision and set aside the impugned order while affirming the Revenue's right to seek appropriate remedies under Section 281 through lawful proceedings.

In conclusion, the High Court ruled in favor of the petitioner, setting aside the order declaring the sale transaction null and void. The judgment emphasized the limited authority of the Tax Recovery Officer in such matters and directed the Revenue to pursue appropriate legal avenues for declarations under Section 281.