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TMI Blog2024 (12) TMI 939X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 281 of the I.T. Act referred to above provide that certain transfers during the pendency of proceedings be void. Here, no such transfer has taken place, and instead, a charge is created on the properties of the deceased, with respect to the arrears/tax payable under the KGST Act. It is for the realization of such tax payable that the properties of the deceased are proceeded against after attaching them. Such properties are placed for public auction, and the properties are purchased by various individuals who, in turn, later sold those properties in favour of the petitioners herein. The Income Tax Department may not be justified in contending that they can proceed against the properties in possession of the petitioners herein for realizing the arrears payable by the deceased Madhavan Pillai. The judgment of the Apex Court in Connectwell Industries Private Limited [ 2020 (3) TMI 362 - SUPREME COURT ] relied on by the learned counsel for the petitioners, wherein the Apex Court considering the claim made by the Income Tax Department over a property which was sold for recovery of arrears payable to the Bank by the Debt Recovery Tribunal held ' The High Court held that Rule 16(2) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the original owner (assessee) under the provisions of the Kerala General Sales Tax Act, 1963 (for short, the KGST Act ) and the Cashew Workers Welfare Fund dues. 2. One late P.N.Madhavan Pillai was the proprietor of M/s.Mohandas Cashew Factory, Arakkal, Kollam District. He was an assessee under the provisions of the KGST Act and had arrears in excess of Rs.58 lakhs for the period from 1995 onwards. He was also in arrears with respect to Cashew Workers Welfare Fund dues for the period from 1997 to 2000. For the realization of the afore amounts, revenue recovery proceedings were initiated under the provisions of the Revenue Recovery Act, 1968 (for short, RR Act ), and an extent of 78.30 Ares of his property was attached. Out of the afore property, an extent of 28.32 Ares of land were auctioned on 30.08.2006 in favour of one Smt.Sushamakumari and the sale was confirmed on 09.02.2007. The afore Smt.Sushamakumari assigned the said property to one Sri.Kishore, as per a sale deed dated 04.11.2009. The afore extent of the property and the factory building therein were purchased by the petitioner in W.P(C) No.50 of 2017 from Sri.Kishore, as per the sale deed dated 13.10.2011. He is stated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respondent, in turn, issued Ext.P14 informing the petitioner that the Income Tax Department is entitled to proceed against the properties concerned by virtue of Ext.P11 judgment and decree and the provisions of Section 281 of the I.T. Act. 4. It is challenging the proceedings at Exts.P12 and P14 issued by the 2nd respondent as also for a declaration with respect to the property in possession of the petitioner as not liable to be proceeded against for realization of the income tax arrears of the original assessee (late Madhavan Pillai) that the captioned writ petition is filed by the petitioner. The facts and circumstances in the connected writ petitions are also the same except as regards the extent of the property involved in possession of the respective petitioners. 5. I have heard Sri. Anchal C. Vijayan, the learned counsel for the petitioners in W.P(C) Nos.50 and 2357 of 2017 and Smt.G.Vidya, the learned counsel for the petitioner in W.P(C) Nos.8769 and 9143 of 2017, Sri.Ajith Kumar the learned Standing Counsel for the Income Tax Deprtment and Sri.Sayed M. Thangal, the learned Government Pleader for the State of Kerala. 6. Sri.Anchal C. Vijayan, the learned counsel for the peti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds as under : 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) (ii) with the previous permission of the Assessing Officer. A reading of the afore provision would show that it is only in a situation where an assessee creates charge or parts with the possession of the property during the pendency of any proceedings under the I.T. Act or after the completion thereof , the question of the transfer becoming void arises. 10. The afore p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by virtue of the non-obstante clause, excludes the operation of any other law in force and creates a first charge on the property of the dealer. Therefore, with respect to the year 1995 onwards, there was a first charge with reference to the tax payable under the KGST Act. It is to be noticed that there is no corresponding provision creating the first charge under the I.T. Act. At the maximum, the provisions of Section 281 of the I.T. Act referred to above provide that certain transfers during the pendency of proceedings be void. Here, no such transfer has taken place, and instead, a charge is created on the properties of the deceased, with respect to the arrears/tax payable under the KGST Act. It is for the realization of such tax payable that the properties of the deceased are proceeded against after attaching them. Such properties are placed for public auction, and the properties are purchased by various individuals who, in turn, later sold those properties in favour of the petitioners herein. 12. Therefore, in my opinion, the Income Tax Department may not be justified in contending that they can proceed against the properties in possession of the petitioners herein for realizi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver the property was created much prior to the notice issued by Respondent 4 on 16-11-2003. The High Court held that Rule 16(2) is applicable to this case on the ground that the actual sale took place after the order of attachment was passed by Respondent 4. The High Court failed to take into account the fact that the sale of the property was pursuant to the order passed by DRT with regard to the property over which a charge was already created prior to the issuance of notice on 11-2-2003. As the charge over the property was created much prior to the issuance of notice under Rule 2 of Schedule II to the Act by Respondent 4, we find force in the submissions made on behalf of the appellant. Thus, the Apex Court has noticed that there is no preference given to the tax payable under the I.T. Act, and hence, the charge created over the property earlier to the service of notice under the Second Schedule of the I.T. Act would dis-entitle the Income Tax Department from proceeding against the property in question. 14. In this connection, it is also to be noticed that the respondent Income Tax Department relies on Ext.P11 judgment of the civil court. However, Ext.P11 judgment of the civil co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of law over any property, that charge will have precedence over an existing mortgage and the decree obtained by the bank against the mortgagor will not affect the state since State was not a party to the suit. Decree has only conclusively determined the rights between the mortgagor and mortgagee which would not affect the statutory rights of the State. The expression rights of parties used in S.2(2) means rights of parties to the suit. State which has got a statutory first charge under Section 26B of the K.G.S.T. Act would prevail over the rights created in favour of the Bank by an unexecuted decree. We therefore hold that the decree obtained by the Bank will not have any precedence over the first charge created in favour of the State under S.26B of the K.G.S.T. Act. 10. Counsel appearing for the Bank submitted that S.26B has employed a nonobstante clause, which does not exclude a decree or order of the court and therefore decree obtained by the bank is still enforceable dehors S.26B of the K.G.S.T. Act. Since State is not a party to any decree the contention has no force. Even otherwise in our view by virtue of operation of law State will have prior charge over the properties ..... X X X X Extracts X X X X X X X X Extracts X X X X
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