2018 (8) TMI 756 - HC - Income Tax

Recovery of tax dues - property purchased by the appellant was under attachment - sale deed dated 11.12.2008 - petitioner had no knowledge of such attachment - the petitioner gained knowledge of such attachment subsequently on 29.09.2011 - ultimately, the petitioner received order dated 26.05.2015 declaring the sale of the property as null and void. Held that - This sale deed is for a consideration and index copy is also issued in connection with this transaction. From the documents it appears that the public notice for executing the sale deed was issued in vernacular news paper on 26.10.2007 and thereafter, search was carried out. The search report dated 01.10.2008 is also on record along with the title clearance certificate of the advocate. All these documents go on to suggest that the property in question was free from all encumbrance having title clear and was available for transaction. The petitioner therefore, being bonafide purchaser for consideration after due diligence can not be made to suffer on account of the tax dues running in the name of the original owner. Section 281 of the Income Tax Act provides for declaring certain transfers to be void. - However, proviso to Section 281 provides that such transfer or charge may not be declared void if such transfer or charge is made for adequate consideration and without notice of pendecny or completion of such proceeding or without the notice of any tax liability or other sum payable by the assessee. Failure to follow procedure under the 2nd Schedule - Held that - From the affidavit as well as from the additional affidavit the department has not been able to bring on record service of notice under Rule 2 of Schedule 2, only documents on record along with the additional affidavit are the order of attachment of immovable property whereas no notice as contemplated under Rule 2 is found on record. Moreover considering the affidavit filed on behalf of the SubRegistrar, Memnagar3, Ahmedabad City, it is clear that for the first time the order of attachment was given effect to by the SubRegistrar, Memnagar only on 26.06.2015, when the charge was registered in Index II. This obviously is almost six and a half years after sale deed in favour of petitioner. Impugned order is set aside - Decided in favor of petitioner and against the revenue.

Summary

Issues:
Challenge to order declaring sale deed null and void under Income Tax Rules.

Detailed Analysis:

Issue 1: Jurisdiction of Tax Recovery Officer (TRO)
The petitioner challenged the order of TRO declaring the sale deed as null and void, arguing that it was arbitrary, illegal, and lacked jurisdiction. The petitioner contended that subsequent auctioning of the property was also illegal. The petitioner emphasized that the TRO had no authority to declare the sale transaction void, citing relevant legal precedents and judgments.

Issue 2: Due Diligence and Bonafide Purchase
The petitioner asserted that they acquired the property in good faith through due diligence, including public advertisement and obtaining a clear title certificate. The petitioner claimed that they were unaware of the property's attachment for outstanding tax dues until later. The petitioner argued that as a bonafide purchaser for consideration, their rights over the property should not be affected by the tax liabilities of the original owner.

Issue 3: Legal Provisions and Precedents
The respondent revenue highlighted the tax liabilities of the original owner and the subsequent attachment of the property. They cited relevant sections of the Income Tax Act, such as Section 281, which allows certain transfers to be declared void in the context of tax liabilities. The respondent presented documents supporting the attachment of the property due to tax default by the original owner.

Issue 4: Court's Analysis and Decision
After considering the arguments and documents presented by both parties, the Court examined the sale deed transaction, due diligence efforts, and legal provisions. The Court noted that the petitioner acted in good faith and followed proper procedures in acquiring the property. The Court referred to a previous judgment in a similar case to support the petitioner's position. Ultimately, the Court set aside the impugned order declaring the sale deed null and void, along with the subsequent communication for auctioning the property.

In conclusion, the Court ruled in favor of the petitioner, emphasizing the importance of due diligence and protecting the rights of bonafide purchasers. The judgment highlighted the legal provisions regarding the voidability of transfers in the context of tax liabilities and upheld the petitioner's rights over the property acquired in good faith.