1978 (8) TMI 24 - HC - Income Tax

Summary

Issues Involved:
1. Application of Section 281 of the Income Tax Act.
2. Applicability of Rules 2, 16, 48, and 51 of the Second Schedule to the Income Tax Act.
3. Prima facie case for granting an interim injunction.
4. Conflict between Section 281 and Rule 16.

Issue-wise Detailed Analysis:

1. Application of Section 281 of the Income Tax Act:
The appellants argued that Section 281 has a general application and should be considered in the context of recovery proceedings. They contended that the revenue must prove that the transfer by the assessee was with an intention to defraud the department. The court examined whether Section 281 applies to all proceedings under the Act, including recovery proceedings. It was concluded that Section 281 is of general application and covers all proceedings under the Act, including recovery, and should not be limited to assessment proceedings alone. The court emphasized that the section applies during the pendency of any proceeding under the Act or after the completion thereof but before the service of notice under Rule 2 of the Second Schedule.

2. Applicability of Rules 2, 16, 48, and 51 of the Second Schedule to the Income Tax Act:
The court analyzed the specific application of these rules in the context of recovery proceedings. Rule 2 mandates the issuance of a notice to the defaulter, while Rule 16(1) restricts the defaulter from dealing with the property after such notice. Rule 16(2) renders any private transfer of the attached property void against claims enforceable under the attachment. Rule 48 prohibits the transfer of attached immovable property, and Rule 51 states that the attachment relates back to the date of the notice. The court concluded that these rules specifically apply to immovable property and operate independently of Section 281, which deals with both movable and immovable property.

3. Prima facie case for granting an interim injunction:
The appellants sought an interim injunction to restrain the sale of the attached properties. The court considered whether the appellants had established a prima facie case that warranted further investigation. It was noted that a prima facie case does not necessarily mean a case that will succeed but one that is not apparently barred by any provisions of law. The court found some substance in the appellants' argument that there was a triable issue regarding the interpretation of Section 281 and Rule 16. Consequently, the court granted an interim injunction on the condition that the appellants deposit a sum of Rs. 10,000 each within three weeks.

4. Conflict between Section 281 and Rule 16:
The court addressed the potential conflict between Section 281 and Rule 16. It was argued that Section 281 should prevail over Rule 16 in cases of recovery proceedings. However, the court held that Section 281 and Rule 16 do not operate on the same field. While Section 281 deals with all types of property and requires an intention to defraud, Rule 16 specifically addresses immovable property in the context of recovery proceedings and operates independently of the intention to defraud. The court concluded that the specific provisions of Rule 16, along with Rules 2, 48, and 51, govern recovery proceedings involving immovable property, and therefore, Rule 16 prevails in such cases.

Conclusion:
The appeals were dismissed, but an interim injunction was granted on the condition of depositing Rs. 10,000 each by the appellants. The court emphasized that Section 281 has a general application, while Rule 16 specifically governs recovery proceedings involving immovable property. The court also granted leave to file a Letters Patent Appeal and made no order as to costs.