2022 (9) TMI 88 - HC - Income Tax

Recovery proceedings - attachment of properties from the buyers of the assets - allegation of collusion - Period of limitation to recover tax in case of defaulting assessee - scope of provisions of Section 281B - creation of charge/alienation of property, pending proceedings for assessment and prior to the service of notice under Rule 2 of the Second Schedule - HELD THAT - Admittedly, the attachments have been made after the date of purchase of the properties in question, the petitioner are unrelated to the defaulting assessee and there is no allegation whatsoever in regard to collusion between the parties. The purchase is bonafide and made for valuable consideration The proviso of section 281B protects the interests of bonafide purchasers and states that the alienation of the property by an assessee shall not be void, if it has been made by such assessee for adequate consideration and without having received any notice from the Assessing Officer of the pendency of the assessment proceedings or without notice of any tax or other sums payable by such assessee. Such charge/transfer shall also not be void had it been made with the previous permission of the assessing officer. Upon a combined reading of the certificate and attachment in terms of Forms ITCP-1 and ITCP-16 respectively, the attachment in the present case is only of the rooms of the properties and there has been no attachment of any other property of the defaulting assessee. The question then that arises is as to what is the impact of a Rule 2 notice, such as the notice in the present case, which is an omnibus notice of demand. In light of the statutory embargo under Rule 68B, the attachment of the properties in question, 25 years from the elapse of the assessment years in question, is wholly impermissible in law. The question of competence or otherwise of the assessee to have made the transfers in 2008 and 2009 becomes irrelevant as on date today, seeing as the time frame set out under Rule 68B has long expired and the respondents have, admittedly not taken any action within the time provided. It must be noted that the scheme of recovery under the Second Schedule is time bound, sacrosanct and must be enforced strictly, both qua the assessee as well as the Department. Thus the impugned attachments made after purchase of the properties by the petitioners for valuable consideration cannot be sustained by the Department. Bearing in mind the elapse of time and the sequence of events that I have noticed aforesaid, the reference to incompetence under Rule 16 is entirely misconceived.

Summary

Issues Involved:
1. Validity of property attachment by the Income Tax Department.
2. Justification for the attachment under Section 281B of the Income Tax Act.
3. Impact of the time frame set out under Rule 68B of the Second Schedule.

Issue-wise Detailed Analysis:

1. Validity of Property Attachment by the Income Tax Department:
The primary issue for resolution is the validity of the attachment made concerning the properties in question. The petitioners, who purchased the properties in 2008 and 2009, have been in undisturbed possession and enjoyment since the purchase. The attachment notices were received on 13.07.2009, attaching several properties, including those purchased by the petitioners. The petitioners argue that the attachment is contrary to law, as they are unrelated to the defaulting assessee and have made bonafide purchases for valuable consideration.

2. Justification for the Attachment under Section 281B of the Income Tax Act:
The Income Tax Department relies on Section 281B of the Income Tax Act, which allows the Department to attach the property of a defaulting assessee. The Department argues that income tax is a crown debt, giving it the first charge upon the property of a defaulting assessee. Therefore, any alienation of property by a defaulting assessee in the face of pending arrears is void, justifying the coercive recovery through attachment.

3. Impact of the Time Frame Set Out Under Rule 68B of the Second Schedule:
Section 281B protects the interests of bonafide purchasers if the alienation is made for adequate consideration and without notice of pending assessment proceedings or tax dues. The Department's argument under Rule 16 of the Second Schedule, which freezes the right of the assessee to alienate properties upon issuance of a Rule 2 notice, fails in light of Rule 68B. Rule 68B stipulates a time limit for the sale of attached immovable property, which is seven years from the end of the financial year in which the tax demand becomes conclusive. The demands in this case have become final, and no action was taken within the stipulated time frame, rendering the attachment after 25 years impermissible.

Conclusion:
The Court concludes that the impugned attachments made after the purchase of the properties by the petitioners for valuable consideration cannot be sustained. The statutory embargo under Rule 68B has long expired, and the Department has not taken any action within the time provided. Therefore, the attachments are quashed, and the Department is directed to lift the attachments forthwith within one week. The writ petitions are allowed, and connected miscellaneous petitions are closed without costs.