Recovery of taxes by ignoring private transfers of property. - Income Tax - 1506/CBDT

INSTRUCTION NO. 1506/CBDT Dated: December 4, 1983 Section(s) Referred: 281 Statute: Income - Tax Act, 1961 Section 281 of the Income-tax Act and Rule 16 of the Second Schedule to the Act enable the recovery of the taxes etc. by ignoring private transfers of property made during the pendency of any income-tax to proceedings including the recovery proceedings. The question as to the exact manner in which the rights conferred by these provisions can be invoked and enforced has been examined by the Central Board of Direct Taxes. One view was that such claims can be enforced only through civil courts and the Department may have to file a civil suit seeking a declaration by appropriate court that the transfer was void and that the revenue was entitled to proceed against the property. The other view was that no such civil suit was necessary and it will be open to the Tax Recovery Officer to proceed against the properties and deal with the Claims of any objector in accordance with the provisions of Rule II of the Second Schedule. 2. The Board has been advised that the Tax Recovery Officer can proceed against the alienated properties wherever such alienations are void or incompetent under the provisions of Section 281 and or Rule 16 of the Second Schedule without having recourse to a declaratory suit. The provisions of the Second Schedule are detailed and self-contained in regard to the procedure for recovery of tax. Under Rule-II(6) it will be open to a person, who prefers a claim or an objection, to institute a suit in a civil court against the order passed by the Tax Recovery Officer so as to establish his right to the property in question. 3. It is therefore, clarified that :- (i) It is not incumbent on the Department to move a civil court to establish its claim either under section 281 of the Income-tax Act or under Rule 16 of the Second Schedule. (ii) It will also not be necessary to pass any separate declaratory order u/s 281 of the Income-tax Act or under Rule 16 of the Second Schedule before initiating attachment proceedings against any transferred property. However, as per the proviso to Section 281 of the Income-tax Act, such change or transfer shall not be void if made for adequate consideration and without notice of either the pendency of such proceedings or about such demands. Likewise, Rule 16(i) comes into operation only after a notice under Rule (2) of the Second Schedule has been served and Rule 16(2) of the Second Schedule applies only to transfers contrary to the attachments made. To ensure that there is no miscarriage of justic, it will be desirable to be aggrieved by the attachment. This will also give the Income-tax Officer/Tax Recovery officer an opportunity for reaching an objective satisfaction about the applicablity of these provisions to the impugned transfer. (iii) It will be noticed that the power of attachment of only movable properties is available to the Income-tax Officers u/s 226(5) of the Income-tax Act, will the Tax Recovery Officer has the power to attach all properties. The opportunity for hearing referred to in (ii) above may be given by the officer who proposes to make the attachment. Where the TRO proposes to make the attachment on the suggestion of an Income-tax Officer, it will be desirable to intimate the Income-tax Officer also about the proposed hearing so that he can arrange for representation of the materials available with him at the same hearing. (iv) After the hearing, if the ITO/TRO is satisfied about the applicability of section 281/Rule 16 to the impugned transfer, without passing any speaking order, the ITO/TRO may decide to attach the property and accordingly issue warrants for the attachment of the property in accordance with the procedure laid down in the Second Schedule/ITCP Rules. (v) Once the Tax Recovery Officer attaches the property, all other provisions of Second Schedule, including the provisions of Rule-II dealing with the objections to the attachment become operative and at this stage, it will be open to consider all claims and adjudicate on all objections through a speaking order. (vi) It will be open to the aggrieved party to have recourse to a civil suit under Rule-II(6) of the Second Schedule against the TRO's order. 4. These instructions may be brought to the notice of all Income-tax authorities/Tax Recovery Officers in your charge for their guidance and compliance.