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2018 (4) TMI 1135 - HC - Income TaxPower of the tax Recovery Officer declaring sale null and void - attachment orders - Held that - Tax Recovery Officer is required to examine whether the possession of the third party is of a claimant in his own right or in trust for the assessee or on account of the assessee. If he comes to a conclusion that the transferee is in possession in his or her own right, he will have to raise the attachment. If the department desires to have the transaction of transfer declared void under Section 281, the Department being in the position of a creditor, will have to file a suit for a declaration that the transaction of transfer is void under Section 281. It is not open to the Tax Recovery Officer to declare the said transfer/alienation as null and void as per the provisions of the Income Tax Act. As brought to the knowledge of this Court by the learned Counsel appearing for the appellant/writ petitioner that he also sought information under the Right to Information Act, from the Public Information Officer - the Joint Sub-Registrar, Tuticorin, as to the order of attachment by the Income Tax Officer in respect of the property concerned in registered document No.2212/2008, dated 18.06.2008 and vide communication dated 24.05.2011 bearing No.2099/mggp/2011, the said official informed that no such document is available on file. Therefore, this Court is of the considered view that it is for the Income Tax Department, to file a suit to hold the transaction declared as null and void as per the ratio laid down by the Honourable Supreme Court of India reported in Tax Recovery Officer Vs. Gangadhar Viswanath Ranade 1998 (9) TMI 1 - SUPREME COURT
Issues Involved:
1. Legitimacy of the Tax Recovery Officer's declaration of property transfer as null and void. 2. Bona fide purchaser status of the appellant. 3. Adjudication of claims under Rule 11 of the Second Schedule of the Income Tax Act. 4. Legal procedures for declaring property transfers void under Section 281 of the Income Tax Act. Issue-wise Detailed Analysis: 1. Legitimacy of the Tax Recovery Officer's declaration of property transfer as null and void: The appellant challenged the Tax Recovery Officer's decision to declare the property transfer as void under Rule 16(2) of the Second Schedule of the Income Tax Act. The court observed that the Tax Recovery Officer has no authority to declare a property transfer as null and void; such a declaration can only be made by a civil court. The court referenced the Supreme Court's decision in Tax Recovery Officer Vs. Gangadhar Viswanath Ranade, which clarified that the Tax Recovery Officer could not declare transfers void under Section 281 of the Income Tax Act. The proper recourse for the Tax Department is to file a suit in a civil court to have the transfer declared void. 2. Bona fide purchaser status of the appellant: The appellant claimed to be a bona fide purchaser, having conducted due diligence by obtaining encumbrance certificates, which did not reflect any attachment on the property. The court noted that the encumbrance certificates did not show any encumbrance, and the appellant was a bona fide purchaser for value without notice of any prior encumbrance. The court also highlighted that the attachment order was not properly communicated to the Sub-Registrar's office until 2007, long after the attachment was made in 1987. 3. Adjudication of claims under Rule 11 of the Second Schedule of the Income Tax Act: The court addressed the appellant's right to move the Tax Recovery Officer under Rule 11 of the Second Schedule to seek adjudication of their claim. The initial judgment allowed this, but upon review, the court set aside this liberty, emphasizing that the Tax Recovery Officer does not have the jurisdiction to declare property transfers as null and void. Instead, the Tax Department must pursue a civil suit to resolve such disputes. 4. Legal procedures for declaring property transfers void under Section 281 of the Income Tax Act: The court reiterated the legal procedure for declaring property transfers void under Section 281 of the Income Tax Act, which requires the Tax Department to file a suit in a civil court. The court cited the Supreme Court's decision in Tax Recovery Officer Vs. Gangadhar Viswanath Ranade, which established that the Tax Recovery Officer must examine the possession of the property and cannot declare transfers void. If the Department believes a transfer was made to defraud the Revenue, it must file a suit for a declaration under Section 281. Judgment Summary: The court concluded that the Tax Recovery Officer acted beyond his jurisdiction by declaring the property transfer as null and void. The court granted liberty to the Revenue to file a civil suit to declare the sale transaction void. Consequently, the appeal by the appellant was partly allowed, and the appeal by the Revenue was dismissed. The court emphasized that the proper legal procedure must be followed, and the Tax Department must seek a declaration through a civil suit.
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