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TMI Blog2021 (4) TMI 1260X X X X Extracts X X X X X X X X Extracts X X X X ..... HAT:- . Section 281 states that any transaction of transfer engaged in after the commencement of proceedings, with the intention of defrauding the revenue and circumventing proceedings for recovery, would be construed as void as against any claim of tax or other sum payable by that assessee. However, bona fide transactions that have been entered into for adequate consideration, with the parties being unaware of the pendency of proceedings before the Income Tax authorities/without being put to notice, shall stand excluded from the rigour of the provision. Transactions engaged in with the sanction of the Assessing Officer would also be excluded from the application of the provision. No merit in the submissions of the respondent to the effect that Section 281 constitutes a declaration of charge much less, one which is preferential to the revenue. The thrust of Section 281 is only a protection to a bona fide purchaser in cases where an errant assessee may seek to alienate property to circumvent anticipated recovery of outstanding arrears payable by him to the Income Tax Department. Nothing in Section 281 would support the submission that it, by itself creates a positive charge of pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Bank by the borrowers/loanees. 2. There were defaults by the loanees, as a result that the Banks had initiated action under Section 13 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (in short SARFAESI Act ) and taken possession of the property thereafter under Section 13(4) thereof. Public notice for auction of the properties was issued and in all the cases sales have been concluded to successful bidders and certificates have been issued. The sales have been registered and sale certificates issued in all cases. 3. The loanees are assesses under the provisions of the Income Tax Act, 1961 (in short Act ) and have defaulted in the payment of income tax arrears. It is the case of the Income tax department that, as result of the defaults, proceedings have been taken to attach the properties of the defaulters. It is the creation of conflicting charges upon the properties that has led to the lis in the present matters. 4. The above facts are common to all the Writ Petitioners except for specifics of the petitioner/financial institutions, the details of the loans extended, the dates of MOD and registration of same wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e on 25.10.2017 and issuance of sales certificate in favour of the successful bidder on the same day. 9. On 06.11.2017, R1, the Sub-Registrar communicated with the Bank informing it of the Tax recovery certificate issued by the Income Tax Department in regard to the same property. The requests of the Bank for lifting of the attachment and the objections for registering the sale certificate came to be refused by the TRO, who relied on Rule 12, Part I to the 2nd Schedule of the Act, stating that the attachment would continue till such time the arrears to the Department was remitted. 10. According to the Bank, the provisions of Section 26E of the SARFAESI Act would protect it in full, since, after introduction and notification of the aforesaid provision, security interest created in favour of a secured creditor was paramount and would have priority over charges of all other creditors, including crown debts. The petitioner relies on the following judgments in support of this proposition: i. The Assistant Commissioner (CT) v Indian Overseas Bank (2016 SCC Online Mad 10030) ii. Canara Bank v The Recovery Officer (Unreported Judgment dated 25.01.2018 in W.P. No.25867 of 2017) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of Section 281 of the Income Tax Act, vis-a-vis Section 26E of the SARFAESI Act. Both provisions are extracted below: Section 281 of the Income Tax Act: Certain Transfers to be void -281. (1) Where, during the pendency of any proceeding under this Act or after the completion thereof, but before the service of notice under rule 2 of the Second Schedule, any assessee creates a charge on, or parts with the possession (by way of sale, mortgage, gift, exchange or any other mode of transfer whatsoever) of, any of his assets in favour of any other person, such charge or transfer shall be void as against any claim in respect of any tax 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reafter to indicate commencement of proceedings. However, Mr.Srinivas states that he is in possession of the assessment files and produces a notice under Section 143(2) of the Act dated 08.08.2013 relating to AY 2012- 2013, that has been issued to the company in August 2013, prior to registration of mortgage. There is no reference to any notice issued as far as AY 2013-14 is concerned. 18. According to the revenue, the issuance of notice under Section 143(2) would create an automatic charge over the property by the petitioner and any subsequent alienation of the property by the petitioner would be liable to be set aside in light of the protection under Section 281. 19. The power to initiate coercive recovery in terms of the 2ndSchedule to the Act has been the subject matter of discussion in various decisions. In the case of Gangadhar Vishwanath Ranade (supra) the Supreme Court considered a challenge by the TRO to a decision of the Bombay High Court that had set aside an attachment under Rule 11 of the 2nd Schedule to the Act on the ground that under Rule 11, the TRO had no power to declare a transfer void and one that had been effected with the intention of defrauding the rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r to make such a declaration. 7. Before a transaction involving immovable property can be declared as void, all the requirements of law must necessarily be satisfied. The fact that a statute provides for such a declaration being made, if the conditions mentioned in the statute are satisfied, does not imply that an officer exercising powers under the provisions of the statute can assume to himself the power and jurisdiction to declare what is otherwise a legally valid transaction as void. Adjudication is the function of the courts. Any declaration of a transaction being void must be sought in the civil court. The Income-tax Officer moreover in this case is an interested party as it is in the interests of the Revenue to make such a declaration and proceed to recover the vendor-s arrears of tax from such person. 8. The Supreme Court of India in its recent decision rendered in the case of TRO v. Gangadhar Viswanath Ranade (Decd.) [1998] 234 ITR 188 has held that if the Department finds that the assessee has transferred a property to a third party with the intention to defraud the Revenue, the Revenue will have to file a suit under Rule 11(6) of Schedule II to the Income-tax Act t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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