2021 (6) TMI 997 - HC - Income Tax

Recovery proceedings - Attachment of property - ownership over the property in respect of which the petitioner is now seeking to exercise an exclusive right as an owner - case of the petitioner is that the property in question which has been attached by the impugned notice dated 22.03.2007 was transferred in his favour under a Family Settlement Deed - as submitted that the petitioner is not only in possession of the property but is also receiving rents from the tenants and therefore the question of attaching the property under the provisions of Section 226(3) of the Income Tax Act, 1961 does not arise - HELD THAT - As per section 281 of the Income Tax Act, 1961 where, during the pendency of any proceeding under the Act, or after completion thereof, before service of notice under Rule 2 of the Second Schedule, any assessee creates any charge of his assets in favour of any other person or part of the possession by way of sale, mortgage, gift, exchange or any other mode of transfer whatsoever, such charge or transfer is void as against any claim in respect of any tax or any other sum payable by an assessee as a result of completion of the said proceedings or otherwise. Since Section 158 BD of the Income Tax Act, 1961, proceedings were pending for the Block Assessment Period from 01.04.1988 to 15.12.1998, all transfers are void under Section 281 of the Income Tax Act, 1961. In the facts of the case what is evident is that, the so-called transfer of undivided share in the land by the two brothers namely the paternal uncles of the petitioner in favour of the petitioner s father has not been proved. Such transfer would been contrary to Section 281 inasmuch as notice under Section 158BD had been initiated against Late Milapchand Dadha and Sons (HUF) as early as 09.07.2001. The so-called family arrangement pursuant to which transfers were allegedly affected are to be declared as void. As far as, the arrears of tax from M/s.Dadha Estates (P) Ltd is concerned, it is not clear on what basis the Income Tax Department had issued the impugned notice inasmuch as the said company is not the owner of the property. Encumbrance Certificate dated 20.02.2009 filed along with the typed set of papers seems to indicate that the same property is under a charge in favour of Andhra Bank. M/s.Dadha Brothers Ltd and the petitioner s father are shown to be party to the transactions and defaulted and proceedings were initiated before the Debt Recovery Tribunal, Hyderabad in O.A.No.146 of 1996 by the lending bank and they were default of ₹ 82,58,660/- and that a Recovery Certificate dated 10.04.2002 had been issued. These factors raises serious doubt as to the ownership over the property in respect of which the petitioner is now seeking to exercise an exclusive right as an owner. There are several disputed questions of facts which remain unanswered and there it cannot be unravelled in the course of a summary proceedings under Article 226 of the Constitution of India. The petitioner has to therefore necessarily approach a civil court in accordance with law to establish his rights, if any, over the property. Petitioner is fighting a proxy battle for and on behalf of the Coparcenors Milapchand Dadha and Sons (HUF) of which his father and his paternal uncles were Coparcenors and by virtue of his birth in the family, the petitioner alone became a Coparcenor. No reasons to interfere with the proceedings initiated by the respondent/Income Tax Department inasmuch as not only the late Milapchand Dadha and Sons (HUF) is in arrears of tax to the Income Tax Department but also the said company which had put the construction of the Dadha Complex, at New No.365, Mint Street, Sowcarpet, Chennai-600 079 was in arrears of tax. That apart, there is Recovery Certificate issued for the same property in favour of Andhra Bank in O.A.No.146 of 1996.

Issues Involved:
1. Validity of the impugned attachment notice dated 22.03.2007 under Section 226(3) of the Income Tax Act, 1961.
2. Petitioner's claim of ownership over the attached property.
3. Applicability of Section 281 of the Income Tax Act, 1961 regarding fraudulent transfers.
4. Procedural propriety and jurisdiction of the Tax Recovery Officer.
5. Timeliness and delay in challenging the attachment notice.
6. Disputed factual issues requiring civil court adjudication.

Detailed Analysis:

1. Validity of the Impugned Attachment Notice:
The petitioner challenged the attachment notice dated 22.03.2007 issued under Section 226(3) of the Income Tax Act, 1961, arguing that the property was transferred to him under a Family Settlement Deed dated 11.10.2002 and a Registered Settlement Deed dated 11.06.2007. The court noted that the attachment was towards recovery of outstanding tax amounts pertaining to block assessment years 1997-98, 1998-99, and 2003-04.

2. Petitioner's Claim of Ownership:
The petitioner claimed absolute ownership of the property since 2002, supported by various unregistered family settlement deeds and a registered settlement deed. The court observed that there were no records to show that the other two brothers of the petitioner's father transferred their respective shares in the property to the petitioner's father. The court also noted that the property was subject to recovery proceedings under the Recovery of Debts and Bankruptcy Act, 1993, and that the petitioner failed to establish ownership over the property.

3. Applicability of Section 281 of the Income Tax Act, 1961:
The court highlighted that under Section 281, any transfer of property during the pendency of proceedings or after completion thereof, but before service of notice under Rule 2 of the Second Schedule, is void against any claim in respect of tax payable by the assessee. The court found that the transfers claimed by the petitioner were contrary to Section 281, as proceedings under Section 158BD were initiated against the HUF as early as 09.07.2001.

4. Procedural Propriety and Jurisdiction of the Tax Recovery Officer:
The court referred to the Supreme Court's decision in Tax Recovery Officer II Vs. Gangadhar Vishwanath Ranade, emphasizing that the Tax Recovery Officer cannot declare a transfer void under Section 281 but must examine possession and the right to possession. The court concluded that the Tax Recovery Officer's actions were within jurisdiction as per the amended provisions of Section 281.

5. Timeliness and Delay in Challenging the Attachment Notice:
The court noted that the petitioner challenged the attachment notice belatedly in 2014, despite ongoing communications with the Income Tax Department since 2007. The delay in filing the writ petition was a ground for dismissal due to laches.

6. Disputed Factual Issues Requiring Civil Court Adjudication:
The court observed that several disputed questions of fact regarding the ownership and transfer of the property remained unresolved. These issues could not be addressed in a summary proceeding under Article 226 of the Constitution of India. The court suggested that the petitioner approach a civil court to establish his rights over the property.

Conclusion:
The court dismissed the writ petition, finding no reason to interfere with the proceedings initiated by the Income Tax Department. The court emphasized that the petitioner appeared to be fighting a proxy battle on behalf of the HUF and that the property was also subject to a recovery certificate issued in favor of Andhra Bank. Consequently, the connected miscellaneous petitions were also closed.

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