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TMI Blog1978 (8) TMI 24X X X X Extracts X X X X X X X X Extracts X X X X ..... cted with costs. It is against this order of the trial court that the present appeals are filed. In order to understand the controversy, which is raised before me, the facts giving rise to these applications may be stated. Fakruddin was an assesee liable to pay income-tax on account of income from his dealings. Fakruddin was admittedly an assessee who was liable to pay income-tax dues to the Union of India, which came to the tune of about Rs. 3,00,000. Recovery proceedings, therefore, were commenced against Fakruddin and a notice under r. 2 of Sch. II of the I.T. Act was issued to him on 17th December, 1971. Fakruddin was possessed of certain immovable properties situated within the City of Nagpur, namely, House Nos. 8 and 47 and godown No. 36 in Gandhibaug and another property, House No. 481 in Circle No. 13/19, Boharipura. On 1st March, 1973, Fakruddin sold his house Nos. 8 and 47 and a godown in Gandhibaug to Inayat Hussain. This Inayat Hussain happens to be a nephew of Fakruddin. On 27th October, 1972, similarly, he sold his property, House No. 481, situated in Boharipura, to Smt. Sugarabi, who was his mother-in-law. In the recovery proceedings which were started against Fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e matter, the learned trial judge rejected the application. Mr. Potey, who appeared for the appellants before me, in support of the appeals placed considerable reliance upon a decision from the Kerala High Court in V. Radhakrishna Eradi v. TRO [1976] 105 ITR 30. Mr. Potey contended, firstly, that s. 281 is a section of general application. That the principle enacted in that section being of general application, the Rules which are to be found in the Schedule must be deemed to be subordinate to that principle. If the section has application to all kinds of proceedings contemplated under the I.T. Act and Mr. Potey urged that recovery proceeding is equally a proceeding under the Act, then the provisions and principles of s. 281 must be read into the Rules. If that is done, according to Mr. Potey, then rr. 16 and 48 upon which reliance has been placed in the court below must be read subject to s. 281. In other words, it was Mr. Potey's contention that it was for the revenue to establish in every case where a property is transferred as contemplated by s. 281 that it was so transferred or parted with possession with an intention to defraud, and unless the revenue or the department esta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Income-tax 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 assests aforesaid does not form part of the stock-in-trade of the business of the assessee." Now, upon a plain construction of that section and considering the first clause which lays down that ; that section applies " during the pendency of any proceeding " it is clear that it, will apply to any proceeding which is contemplated under the Act. The limited construction which was sought to be placed upon s. 281 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the words in the clause upon which Mr. Shelat placed reliance. It seems to me that they are equally capable of covering the case of recovery. A case may arise where recovery proceeding against an assessee may be partly completed and as a result of the partial completion of the proceeding the remaining amount would still be payable by the assessee. Where the assessee is still liable to pay and his property which can be still proceeded against, then the proceeding for recovery of that remaining sum payable by the assessee is still a proceeding for recovery " of any other sum " pending under the Act. I do not see why such a contingency can be and ought to be excluded which it would be necessary to do so if the interpretation of Mr. Shelat were to be accepted. Mr. Shelat contended that in cases where recovery proceedings are commenced the liability of the assessee is determined. The word " payable ", however, in my opinion, not merely relates to fixation of the liability but also the liability to pay that amount, and a transfer has been made void in that section as against any claim in respect of the sum payable by the assessee. As I pointed out, where part of the recovery proceeding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which applies to recovery proceedings. Summarising the argument urged on behalf of both the petitioner and the respondent, it was pointed out that " the controversy is only as regards the respective fields in which section 281 and rule 16 operate. In other words, does section 281 apply to recovery proceedings also, is the sole question urged before me ". His Lordship then held that s. 281 applies to recovery proceedings as well and observed that " the section has wider application as it covers the entire area in which the Act operates while the rule is limited in its application to the recovery stage ". His Lordship further observed that " the question, therefore, is whether the immunity provided under section 281 can be read into rule 16 as to protect an innocent transferee in recovery proceedings, against the assessee ". His Lordship then addressed himself to the crucial question in that case and that was, to put in his words, is as under : " Bearing these principles in mind, one has to look at the provisions to find out whether there is in fact a conflict between section 281 and rule 16. If the language of section 281 and that of rule 16 suggest that they deal with the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also deals with cases where the assessee does not part with possession, but creates charges or encumbrances on the property. As I shall point out presently, rr. 2, 16, 48 and 51 if read together, it will be clear that they only apply to immovable property and do not apply to cases where the property is not specific movable or intangible and there is no question of transfer of possession or otherwise. It will be seen that if there is no transfer of possession or there is no creation of a charge, s. 281 would not be attracted. Even that is not enough for the operation of s. 281. The more essential part of s. 281, and if I may say so, the heart of s. 281, is that the transfer or creation of a charge by the assessee, must be of a particular nature and that is " with the intention to defraud the revenue ". Therefore, if the assessee creates a charge or parts with possession of any property, movable or immovable, tangible or intangible, but without any intention to defraud, which is a fact and has to be proved like any other fact, then also s. 281 has no application. As I pointed out, the heart of s. 281 is the intention to defraud and if the intention to defraud the revenue is absent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of immovable property, whether or not in the possession of the assessee, the attachment by virtue of r. 51 relates back to the date of the service of the notice. In the present case, the notice admittedly was served on 17th December, 1971. Though the attachment in this case is subsequent to the purchases, which are challenged, namely, of 27th October, 1972, and 1st March, 1973, and prior to November 23, 1973, when the attachment in fact took place, by reason of r. 51, the attachment would be deemed to be effective from 17th December, 1971, itself. It is now necessary to look to r.6. The relevant rule which really has application is not sub-r. (1) of r. 16 but sub-r. (2) of r. 16, That sub-rule really enacts a principle which is to be found in s. 64 of the Code of Civil Procedure, which makes all transfers of immovable properties void against claims enforceable under the attachment. As we have seen the continued operation of rr. 2 and 48 and rr. 16 and 51 relates to immovable property. Therefore, where immovable property is attached, and the attachment as in this case must be deemed to be effected from 17th December, 1971, a transfer subsequently by Fakruddin in favour of the app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... what he says that in view of the possibility of an interpretation of sub-r. 2 as to the fact of attachment and the different interpretation, from the one which has been placed by the Kerala High Court, placed by me on s. 281, a triable issue between the parties arises. It is true that when a court has to consider whether an injunction should be granted or otherwise it has to consider only a prima facie case. A prima facie case, it is well laid down, does not mean a case which will succeed, but a case which is not such as is apparently barred by any provisions of law, and in respect of which something can be said in favour of the plaintiff. In view of what I have said so far, there seems to be some substance in Mr. Potey's contention that the minimum to which he is entitled is to show that he has some sort of a prima facie case, which requires further investigation. It is not without some reluctance that I am inclined to think in the manner in which Mr. Potey wants me to do. But that can only be on terms. A litigation of this kind should not be used for purposes of, defeating the provisions of tax laws. They have an impact on the public and involve rights and interests of other per ..... X X X X Extracts X X X X X X X X Extracts X X X X
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