BY TIOL News Service

CHENNAI, APR 23, 2018: THE issue was - Whether in case of purchase of a property as per the provisions of the Transfer of Property Act, the Revenue has the authority under the I-T Act to declare such transfer as null and void merely because it had a charge on the same. NO is the verdict.

Facts of the case

The assessee company, engaged in the real estate business, purchased some property during the relevant AY. Such purchase was made from the legal representatives of a deceased person. The assessee also obtained several encumbrance certificates pertaining to different periods, show as to ensure that the property had no encumbrances on it. However, some other individuals later staked a claim on the property, and claimed that the daughter of the deceased owner of the property, had executed a release deed in their favor. Thereupon, the assessee company was served an SCN proposing to declare the sale of property in its favor as being null & void.

The assessee later claimed that after over years since the date of sale of the disputed property, search proceedings were conducted against the assessee. It sent its replies stating that the encumbrance certificates did not show an encumbrances on the property and that the assessee was the bona fide purchaser. Thereupon, an assessment order was passed attaching the disputed property. The assessee contested such attachment on grounds that it was unaware of the prior encumbrances since the same were not mentioned in the encumbrance certificates. The Revenue later stated that assessee has been given an opportunity of personal hearing before passing the order. It also claimed that no sale of immovable property could be made after expiry of three years from the end of the FY in which an order raising duty demand with interest, fine, penalty for the recovery of a sum for which immovable property has been attached, becomes conclusive. The assessee filed an appeal, but was directed to approach the Tax Recovery Officer to adjudicate its claim over the property. Hence the present writ.

On hearing the matter, the High Court held that,

++ in the light of the ratio laid down by the Supreme Court of India in Tax Recovery Officer Vs. Gangadhar Viswanath Ranade (Decd.), it is not open to the Tax Recovery Officer to declare the said sale as null and void. The above said decision also held that "the Tax Recovery Officer is required to examine whether the possession of the third party is of a claimant in his own right or in trust for the assessee or on account of the assessee. If he comes to a conclusion that the transferee is in possession in his or her own right, he will have to raise the attachment. If the department desires to have the transaction of transfer declared void under Section 281, the Department being in the position of a creditor, will have to file a suit for a declaration that the transaction of transfer is void under Section 281.";

++ it is not open to the Tax Recovery Officer to declare the said transfer/alienation as null and void as per the provisions of the Income Tax Act. It is also brought to the knowledge of this Court by the Counsel appearing for the assessee that he also sought information under the Right to Information Act, from the Public Information Officer - the Joint Sub-Registrar, Tuticorin, as to the order of attachment by the Income Tax Officer in respect of the property concerned in registered document No. 2212/2008, dated 18.06.2008 and vide communication dated 24.05.2011 bearing No. 2099/mggp/2011,, the said official informed that no such document is available on file. Therefore, this Court is of the considered view that it is for the Income Tax Department, to file a suit to hold the transaction declared as null and void as per the ratio laid down by the Supreme Court of India reported in Tax Recovery Officer Vs. Gangadhar Viswanath Ranade (Decd.,). Hence W.A.(MD)No.1186 of 2017 is partly allowed and the order of the Judge in granting liberty to the assessee to move the Tax Recovery Officer under Rule 11 of the Second Schedule seeking adjudication of his claim is set aside and the Revenue is granted liberty to file a civil suit to declare the sale transaction/sale deed in favour of the assessee as null and void.

(See 2018-TIOL-763-HC-MAD-IT)