2022 (7) TMI 1565 - HC - Income Tax

Attachment order - transfer of ownership of the property purchased by the petitioner in execution proceedings - 1st respondent Panchayat has refused the transfer of ownership in respect of certain buildings in the records of the Panchayat on account of the fact that there is an attachment over the property - HELD THAT - There is merit in the contention taken by the learned counsel for the petitioner that the petitioner is entitled to the benefit of the first proviso to Section 281 of the Act. 5 cents of property (out of the total extent of 51 cents) together with a building was brought to sale and the petitioner himself purchased the said property in the execution proceedings with the permission of the court. Sale certificate has been issued, appeals filed against the execution proceedings have been dismissed and the property along with the building has been delivered to the petitioner. Mutation has been effected and the only remaining formality was change in the ownership details in the records maintained by the Panchayat. In the facts of the present case, it is evident that the first proviso to Section 281(1) clearly applies as the sale was obviously without notice of the proceedings initiated by the Income Tax department. The award of the Lok Adalat itself was about two years prior to the date on which the property had been attached by the Income Tax department. It cannot be said that the proceedings were with notice or with the knowledge of the proceedings initiated by the Income Tax department. Therefore, in respect of the five cents of property purchased by the petitioner in execution proceedings, the provisions of sub-section (1) of Section 281 of the Act do not apply and the transfer cannot be treated as void. Writ petition is allowed. The 1st respondent is directed to change the ownership details in the records maintained by the Panchayat, as applied for by the petitioner, without having any regard to the proceedings initiated by the 5th respondent. It is made clear that this will apply only to the five cents of property which has been sold in execution proceedings to the petitioner and will have no bearing on the rest of the properties of the 4 th respondent, against which it is open to the 5th respondent to proceed for recovery of amounts due to the department.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

• Whether the transfer of ownership of the property purchased by the petitioner in execution proceedings is void under Section 281 of the Income Tax Act due to pending recovery proceedings by the Income Tax department.
• Whether the petitioner is entitled to the protection provided under the first proviso to Section 281 of the Income Tax Act, which exempts certain transfers from being void.
• Whether the Panchayat's refusal to update the ownership records in favor of the petitioner is justified given the circumstances.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Applicability of Section 281 of the Income Tax Act

• Relevant legal framework and precedents: Section 281 of the Income Tax Act states that any transfer of assets by an assessee during the pendency of proceedings or after their completion, but before the service of notice, shall be void against any tax claim.
• Court's interpretation and reasoning: The court examined whether the transfer of property to the petitioner was void under Section 281. The focus was on the timing of the transfer and the petitioner's awareness of the pending tax proceedings.
• Key evidence and findings: The petitioner had obtained a decree from the Lok Adalat in 2007, and the property was sold to him in execution proceedings before the Income Tax department's attachment in 2009.
• Application of law to facts: The court found that the petitioner purchased the property without notice of the Income Tax proceedings, fulfilling the conditions of the first proviso to Section 281.
• Treatment of competing arguments: The respondent argued that the transfer was void due to the pending tax dues. However, the court noted that the petitioner had no notice of such dues at the time of purchase.
• Conclusions: The court concluded that the transfer of the property to the petitioner was not void under Section 281, as it met the conditions of the first proviso.

Issue 2: Panchayat's Refusal to Update Ownership Records

• Relevant legal framework and precedents: The Panchayat's refusal was based on the pending appeal against the execution order and the attachment by the Income Tax department.
• Court's interpretation and reasoning: The court reasoned that since the transfer was not void under Section 281, the Panchayat should update the records accordingly.
• Key evidence and findings: The petitioner had completed all formalities, including obtaining a sale certificate and possession of the property.
• Application of law to facts: The court applied the legal principles to conclude that the Panchayat's refusal was unjustified.
• Treatment of competing arguments: The Panchayat's reasons for refusal were dismissed as the court found no legal basis for them given the applicability of the first proviso to Section 281.
• Conclusions: The court directed the Panchayat to update the ownership records in favor of the petitioner.

3. SIGNIFICANT HOLDINGS

• Preserve verbatim quotes of crucial legal reasoning: "In the facts of the present case, it is evident that the first proviso to Section 281(1) of the Act clearly applies as the sale was obviously without notice of the proceedings initiated by the Income Tax department."
• Core principles established: The judgment establishes that a transfer of property is not void under Section 281 if it is made for adequate consideration and without notice of pending tax proceedings.
• Final determinations on each issue: The court determined that the transfer of the property to the petitioner was valid and directed the Panchayat to update the ownership records accordingly.

The judgment underscores the importance of the first proviso to Section 281 in protecting bona fide purchasers from the consequences of pending tax recovery proceedings, provided they had no notice of such proceedings at the time of the transfer. The decision also clarifies the responsibilities of local authorities, like the Panchayat, in updating records when legal conditions are satisfied.