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2018 (6) TMI 1190 - HC - Income TaxRecovery proceedings - attachment of property - order u/s 281 of the Income Tax Act - investigation by Tax Recovery Officer - void transfer of property - adequate consideration - Held that - Under the unamended provision which was considered in Gangadhar Vishwanath Ranade 1981 (1) TMI 1 - BOMBAY HIGH COURT the revenue should go to the Civil Court and first establish that there was an intention to defraud the revenue. Once this is established the burden will get shifted to the transferee to show as per the proviso that the transfer was for valuable consideration and without notice of the pendency of the proceeding. But under the amended provision the question of mens rea or intention to defraud does not arise. Hence the entire burden to show that the transfer falls within the two clauses of the proviso to sub-section (1) of Section 281 is now upon the assessee under the amended provision. Hence it is up to the assessee under the amended provision to go to the Civil Court and establish that his case falls under the proviso. Thus the petitioner cannot take shelter under the decision of the Supreme Court in Gangadhar Vishwanath Ranade. Having come to know of the fact that the assessee is due to pay arrears of tax and having got the application for a Certificate under Section 230A rejected the petitioner clearly took a chance by going ahead with the purchase. Therefore we do not think that the petitioner is entitled to have the order of attachment and the order declaring the sale to be void set aside by this Court. As we have pointed out in the first part of the order the order declaring the sale to be void was passed in the year 2005. The petitioner did not come to Court immediately. She came to Court only after the issue of an order of attachment. - Writ petition lacks merits.
Issues Involved:
1. Validity of the order passed by the Assistant Commissioner of Income Tax under Section 281 of the Income Tax Act, 1961. 2. Validity of the order of attachment passed by the Tax Recovery Officer under Rule 48 of the Second Schedule to the Income Tax Act, 1961. 3. Jurisdiction and power of the Tax Recovery Officer to declare a transfer void under Section 281. 4. Requirement of the Revenue to file a suit under Rule 11(6) to have a transfer declared void under Section 281. 5. Applicability of the proviso to Section 281(1) regarding transfers made for adequate consideration and without notice of tax arrears. Detailed Analysis: 1. Validity of the Order under Section 281: The petitioner challenged the order of the Assistant Commissioner of Income Tax declaring the sale of property void under Section 281 of the Income Tax Act. The court examined the statutory declaration in Section 281, which states that any transfer of assets made during the pendency of tax proceedings or after, but before the service of notice under Rule 2 of the Second Schedule, is void against any tax claims. The court emphasized that the statutory declaration under Section 281 does not require a judicial declaration to be effective. The court noted that the petitioner was aware of the tax arrears due to the refusal of a certificate under Section 230A, thus invalidating the transfer under Section 281. 2. Validity of the Order of Attachment: The petitioner also challenged the order of attachment issued by the Tax Recovery Officer under Rule 48 of the Second Schedule. The court upheld the attachment, stating that once a transfer is declared void under Section 281, the defaulter continues to be the owner of the property, allowing the Tax Recovery Officer to proceed with attachment under Rule 4 and subsequent investigation under Rule 11. 3. Jurisdiction and Power of the Tax Recovery Officer: The court addressed the contention that the Tax Recovery Officer cannot declare a transfer void and must file a suit under Rule 11(6). The court clarified that the Tax Recovery Officer has the authority to investigate claims or objections to attachments under Rule 11 and make orders accordingly. The court distinguished between statutory provisions that declare transfers void and those that require judicial annulment, concluding that Section 281 falls in the former category. 4. Requirement to File a Suit under Rule 11(6): The court examined the decision in Gangadhar Vishwanath Ranade, which required the Revenue to file a suit to declare a transfer void under Section 281. The court noted that this decision was based on the unamended Section 281, which included the requirement of proving an intention to defraud the Revenue. The court highlighted that the amended Section 281 no longer includes this requirement, shifting the burden to the transferee to prove that the transfer falls within the exceptions in the proviso. 5. Applicability of the Proviso to Section 281(1): The court considered the petitioner's argument that the transfer was for adequate consideration and without notice of tax arrears, as stated in the proviso to Section 281(1). However, the court found that the petitioner was aware of the tax arrears due to the refusal of the certificate under Section 230A, disqualifying the transfer from the exceptions in the proviso. Conclusion: The court dismissed the writ petition, upholding the orders of the Assistant Commissioner of Income Tax and the Tax Recovery Officer. The court concluded that the statutory declaration under Section 281 does not require a judicial declaration and that the petitioner, being aware of the tax arrears, cannot claim protection under the proviso to Section 281(1). The court emphasized that the burden of proof now lies with the transferee to establish that the transfer falls within the exceptions, and the Revenue is not required to file a suit to declare the transfer void.
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