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TMI Blog2018 (6) TMI 1190X X X X Extracts X X X X X X X X Extracts X X X X ..... ansfer 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. X X X X Extracts X X X X X X X X Extracts X X X X ..... s father gave a reply to the show cause notice on 20-01-2005 claiming that the market value of the property was found to be ₹ 3,000/- per square yard and that since some transactions had taken place even at ₹ 2,700/- per square yard, the petitioner purchased the property by offering ₹ 2,750/- per square yard. 9. Not satisfied with the reply, the Assistant Commissioner of Income Tax passed an order dated 12-4-2005, declaring the sale to be void in terms of Section 281 of the Income Tax Act, by pointing out that the certified value of the land as per the Sub Registrar was ₹ 53,32,500/- and that the property had been sold for a sum of ₹ 36,71,250/-, with a view to defraud the Revenue, when the Company was in liquidation. 10. Immediately upon the said order being passed, the petitioner did not come to Court challenging the same. However, when the Tax Recovery Officer issued an order of attachment on 10- 05-2007 under Rule 48 of the Second Schedule to the Income Tax Act, 1961, the petitioner has come to Court challenging not only the order of attachment but also the order under Section 281. In other words, the petitioner did not take steps, for a full per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the provisions of Section 281 of Income Tax Act, are declaratory by statute itself. (2) That for the purpose of proceedings against a property which has been transferred or on which a charge is created, for an intention of the Income Tax Officer to proceed against the said property could be by passing an order under Section 281. Even if the order is not passed the transfer contrary to Section 281 would be void against the Revenue. If the order is passed it will be considered to be only a declaration of the intention of the Revenue authorities to proceed against the said property. (3) The dispute could be agitated by the Tax Recovery Officer under Rule 11 of Schedule II to the Income Tax Act and the finality is given to the order passed by the civil court under Rule 11(6)." 14. After the Supreme Court upheld the decision of the Bombay High Court in Gangadhar Vishwanath Ranade, the Madras High Court held in Sancheti Leasing Co. Ltd., as follows: "7. The Supreme Court of India in its recent decision rendered in the case of TRO v. Gangadhar Vishwanath Ranade (Dead) MANU/SC/0600/1998 : [1998] 234 ITR 188 (SC) has held that if the Department finds that the assessee has transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the above contentions of the learned Senior Standing Counsel for the Department, it was argued by Mr. S.Ravi, learned Senior Counsel for the petitioner, that attachment and sale of properties are prescribed as modes of recovery under Rule 4 of the Second Schedule and that in order to invoke Rule 4, the properties sought to be attached and sold should be that of the defaulter and that only in cases where Rule 4 is satisfied, the procedure prescribed in Rule 11 for investigation can be followed. In other words, it is his contention that unless a declaration is secured from a Civil Court under Section 281 that a transfer is void, the property cannot be treated as that of the defaulter to enable the Tax Recovery Officer to order attachment under Rule 4 and thereafter to proceed with the investigation under Rule 11. 18. We have carefully considered the rival submissions. Since the sheet anchor of the case of the petitioner is the decision of the Supreme Court in Gangadhar Vishwanath Ranade, we may first look at it in greater detail. 19. It is seen from paragraph-2 of the decision of the Supreme Court in Gangadhar Vishwanath Ranade that notices under Rule 2 of the Second Schedule we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that Section 281 merely declared what the law was, but did not prescribe any adjudicatory machinery for deciding a question which may arise under Section 281 and that in order to declare a transfer as fraudulent under Section 281, appropriate proceedings would have to be taken in accordance with law, in the same manner as are required to be taken under Section 53 of the Transfer of Property Act, 1882. 22. The decision of the Supreme Court in Gangadhar Vishwanath Ranade [1998] 234 ITR 188 (SC) arose out of the decision of the Bombay High Court in the second round of litigation, challenging the proceedings under Rule 11. Therefore, the Supreme Court indicated in paragraph-7 of its decision that the question required to be answered by the Supreme Court was whether in a proceeding under Rule 11, the Tax Recovery Officer can declare a transfer as void under Section 281. After pointing out in paragraph-8 of its decision, that there is a difference between the prescription contained in Section 281 and the power of the Tax Recovery Officer contained in Rule 11 of the Second Schedule, the Supreme Court held in paragraph-9 of its decision that the Tax Recovery Officer cannot declare an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decision in Gangadhar Vishwanath Ranade. The first is that it is a fundamental principle that once a statute declares a transfer to be void, the Court cannot impose a burden upon the Revenue to go to the Civil Court and seek a declaration. Over and above a statutory declaration, there cannot be a judicial declaration. The declaration by a taxing statute of certain transactions to be void, cannot be equated to the declaration contained in the Indian Contract Act about the nullity and voidity of certain contracts. Transactions and transfers between two private parties are in the realm of a contract. Therefore, there cannot be an statutory declaration of the nullity and voidity of such transactions or transfers. It is in those cases that the mere declaration by statute of certain transactions between private parties to be null and void would not be sufficient and the party asserting the void nature of the transaction may have to go to a Civil Court to get a judicial declaration. 26. But in respect of the prescriptions contained in the Taxation Statutes where the transactions created or transfers made with a view to defraud the Revenue are declared as void, the same logic as appli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or payment made or obligation incurred, as is referred to therein, will be deemed fraudulent. 29. But there are certain distinguishing features between (i) Section 55 of the Presidency Towns Insolvency Act, 1909 and Section 53 of the Provincial Insolvency Act, 1920 and (ii) Section 56 of the Presidency Towns Insolvency Act, 1909 and Section 54 of the Provincial Insolvency Act, 1920. These features are: (i) Section 55 of the Presidency Towns Insolvency Act declares every transfer of property (except those exempted) as void as against the official assignee. In contrast, Section 53 of the Provincial Insolvency Act declares every transfer of property merely voidable as against Receiver and stipulates that it may be annulled by Court, if the transferor is adjudged insolvent within two years of the transfer; (ii) Section 56(1) of the Presidency Towns Insolvency Act declares every transfer of property, every payment made, every obligation incurred and every judicial proceeding suffered, deemed to be fraudulent and void as against the official assignee. Though Section 54(1) of the Provincial Insolvency Act also declares every transfer of property, every payment made, every obligation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he order of adjudication is not evidence of the fact stated therein as is the case in the Presidency Towns Insolvency act; (2) the order of adjudication under the Provincial Insolvency Act relates back only to the date of the petition asking for the adjudication, whereas in the Presidency Towns Insolvency Act, it relates back to the very act of insolvency itself; and (3) the Provincial Insolvency Act requires a fraudulent transfer to be annulled by a direct order of the Court which is not the case under the Presidency Towns Insolvency Act." 32. Therefore, Courts have made a distinction between a statutory provision that declares a transfer void and a statutory prescription that makes a transfer merely voidable. Courts have also made a distinction between statutory prescriptions which, in addition to declaring a transaction to be void, also require the annulment by a Court and statutory prescriptions which declare transactions to be void without the requirement of annulment by Court. 33. Keeping this distinction in mind, we can take a look at the decision of a 3-member Bench of the Supreme Court in RM. NL. Ramaswami Chettiar v. The Official Receiver AIR 1960 SC 70. Though the mai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt to get such a declaration set at naught. 36. In fact, the Bombay High Court in the second round of litigation in Gangadhar Vishwanath Ranade (which came to be upheld by the Supreme Court in the reported decision cited earlier), with great respect, fell into an error in comparing Section 281 of the Income Tax Act, 1961 with Section 53 of the Transfer of Property Act, 1882. Section 53 of the Transfer of Property Act deals with fraudulent transfers made by a party with intent to delay or defraud the creditors. But Section 53 does not make such proceedings void. It only makes the transfer voidable at the option of any creditor so defeated. 37. Therefore, there were two distinguishing features between Section 53 of the Transfer of Property Act, 1882 and Section 281 of the Income Tax Act, 1961: (i) Section 53(1) of the Transfer of Property Act makes the transfer of immoveable property created with intent to defeat or delay the creditors as voidable, while Section 281 of the Income Tax Act makes such transfers void and (ii) The Revenue cannot be equated to a mere creditor whose interest is sought to be protected by Section 53(1). The tax due to the State is a crown debt and the stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te, on the ground that such property is not liable to such attachment or sale, the Tax Recovery Officer shall proceed to investigate the claim or objection: Provided that no such investigation shall be made where the Tax Recovery Officer considers that the claim or objection was designedly or unnecessarily delayed. (2) Where the property to which the claim or objection applies has been advertised for sale, the Tax Recovery Officer ordering the sale may postpone it pending the investigation of the claim or objection, upon such terms as to security or other wise as the Tax Recovery Officer shall deem fit. (3) The claimant or objector must adduce evidence to show that - (a) (in the case of immovable property) at the date of the service of the notice issued under this Schedule to pay the arrears, or (b) (in the case of movable property) at the date of the attachment, he had some interest in, or was possessed of, the property in question. (4) Where, upon the said investigation, the Tax Recovery Officer is satisfied that, for the reason stated in the claim or objection, such property was not, at the said date, in the possession of the defaulter or of some person in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mbiguous. Subrule (6) of Rule 11 expressly states that the party against whom an order is made by the Tax Recovery Officer may institute a suit in a Civil Court. But in paragraph-9 of its decision in Gangadhar Vishwanath Ranade, the Supreme Court held as though the Tax Recovery Officer will have to file a suit under Rule 11(6). This, in our considered opinion and with great respect to the Supreme Court, is clearly contrary to the scheme of Rule 11. The contention of Mr. S.Ravi, learned Senior Counsel for the petitioner, that Rule 4 can be invoked only if the property was that of the defaulter and that unless Rule 4 is satisfied, Rule 11 cannot be invoked, does not appear to be correct. It is no doubt true that Rule 4 enables the Tax Recovery Officer to proceed to realise the amount by attachment and sale of the defaulter's property. But if a transfer made by the defaulter is statutorily declared as void, the defaulter automatically continues to be the owner of the property. If the ownership of the property continues to be with the defaulter, by virtue of the declaration under Section 281, Rule 4 can certainly be invoked. If Rule 4 can be invoked, Rule 11 will automatically follow. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evious permission of the Assessing Officer. 48. Therefore, it is possible for the petitioner to contend that the questions of fact that would make a case fall within the proviso to sub-section (1) of Section 281 may have to be adjudicated only by a Civil Court and not by the Tax Recovery Officer and that therefore, the ratio in Gangadhar Vishwanath Ranade would still be applicable. 49. But in the case on hand, the said contention is incapable of being raised by the petitioner. This is for the reason that in May, 2000, an application was made for the issue of a Certificate under Section 230A. The assessee as well as the petitioner herein were parties. But the Assessing Officer issued a letter dated 18-09-2000 refusing to issue the certificate on the ground that the assessee was due to pay arrears of tax to the tune of ₹ 36,73,050/-. Thereafter, Section 230A was omitted by Finance Act, 2001 with effect from 01- 06-2001. Therefore, the petitioner went ahead with the purchase and got the sale deed registered on 20-06-2001 and 22-06-2001. Therefore, the petitioner can hardly take umbrage under clauses (i) or (ii) of the proviso to sub-section (1) of Section 281. 50. To fall und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x or any other sum payable by the assessee as a result of the completion of the said proceeding or otherwise: Provided that such charge or transfer shall not be void if it is made- (i) for adequate consideration and without notice of the pendency of such proceeding or, as the case may be, without notice of such tax or other sum payable by the assessee; or, (ii) with the previous permission of the Assessing Officer. (2) This section applies to cases where the amount of tax or other sum payable or likely to be payable exceeds five thousand rupees and the assets charged or transferred exceed ten thousand rupees in value. Explanation- In this section, "assets" means land, building, machinery, plant, shares, securities and fixed deposits in banks, to the extent to which any of the assets aforesaid does not form part of the stock-in-trade of the businesses of the assessee. 53. Due to the incorporation of the words "with the intention to defraud the revenue", in Section 281 as it stood at that time, the burden of proof was on the department. Intention to defraud correlates to mens rea. Therefore, the same was not capable of being adjudicated by the Tax Recovery Officer. This is why th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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