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M/s Sree Foundation Versus The Tax Recovery Officer-I, The Sub-Registrar, M/s Cosmo Foundation Limited

2015 (10) TMI 2061 - MADRAS HIGH COURT

Attachment of immovable property - Recovery proceedings against the buyer of the property from the defaulter assessee - whether the action of the respondent in initiating the recovery proceedings by issue of notice under Section 226(3) and initiation of provisional attachment proceeding is without jurisdiction and void ab-initio since the required preconditions for initiating the proceedings under section 281B are not satisfied? - Held that:- It is relevant to refer to the decision of the Honour .....

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become the owner of the property in question, to put it differently the 3rd Respondent ceased to be the owner on and from 08.02.2010, when everything for transfer of the property excepting the execution and registration of conveyance was completed. Admittedly, alleged dues are recoverable from the 3rd Respondent. Under the Income-tax Act, the dues of the Revenue do not form charge on the property and this can only be recovered under the method and mode as provided under the Income-tax Act and th .....

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3rd Respondent was not the owner of the property and when on the date of passing the order of attachment, the property in question did not belong to the assessee, namely, the 3rd Respondent, the attachment of the property in question, which has been in absolute possession and enjoyment of the Petitioner by virtue of the completion of the entire sale transaction, made by the 1st Respondent for the dues payable by the 3rd Respondent, is not binding on the Petitioner and hence, unsustainable and ac .....

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in question and release the sale deed, if it is otherwise in order. However, it is open to the 1st Respondent Department to proceed against the other property of the 3rd Respondent for the tax dues if any payable by the 3rd Respondent, in accordance with law, by keeping the attachment of the other property, pending disposal of the appeal preferred by the 3rd Respondent as well as the 1st Respondent. - WP. No. 12540 of 2013 - Dated:- 13-10-2015 - R Mahadevan, J. For the Petitioner : Mr. R Gopina .....

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s:- a. The Petitioner firm had entered into an agreement of sale dated 20.01.2010 registered as Document No. 101/2010 in the Sub Registrar's Office of Sowcarpet for purchase of immovable property situated at old No. 510, New No., 6, Mint Street Sowcarpet, Chennai-79 and comprised in old survey No. 6072,6073 and 6075 and re-survey No. 602 measuring an extent of 8 grounds and 1290 sq.ft with the third respondent herein, namely M/s Cosmo Foundations Ltd. At the time of entering into agreements .....

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pt dated 30.01.2010 registered as Document No.109/2010 and Receipt dated 30.01.2010 registered as Document No. 110/2010 were also executed and registered in the Sowcarpet registration office. At the request of the 3rd Respondent, the entire sale consideration for purchase of the aforesaid property was paid by them in the following manner:- a. ₹ 19,00,000/- (Rupees Nineteen Lakhs only ) paid by Cheque No.589552 dated 20.01.2010 drawn on Bank of Baroda, Sowcarpet Branch, Chennai at the time .....

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nch, Chennai to discharge the loan availed by the Vendor under Memorandum of Deposit of Title Deeds dated 01.02.2007 registered as Document No.109 of 2007 in Sub-Registration Office of Sowcarpet; d. ₹ 1,08,872/- paid by Cheque No.589558 dated 10.02.2010 drawn on Bank of Baroda, Sowcarpet branch, Chennai; b. As the entire sale consideration was paid to the 3rd respondent, the 3rd respondent handed over vacant possession and all the original documents pertaining to the said property and also .....

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lf as per Section 2(47) of the Income Tax Act, 1961. After completion of entire transaction with the 3rd respondent on 18.02.2010 and after he became owner of the aforesaid property, the 1st respondent after a span of over one year had attached the aforesaid property on 08.04.2011. In the mean while, based on the power of attorney dated 11.02.2011, a sale deed dated 21.12.2011 was executed and registered as Document No.P87/2011 before the Sub-Registrar's Office at Sowcarpet. The 2nd responde .....

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1961 from the first respondent. Thereafter, the petitioner firm made enquires from the third respondent and ascertained that the Income Tax Department had initiated action against the 3rd respondent M/s.Cosmo Foundations Ltd under Section 147 of the Income Tax Act, 1961 and Assistant Commissioner of Income Tax, Company Circle I(32), Chennai-600 034 has passed an order dated 31.12.2009 alleging that the assessee has concealed taxable income and raised a demand calling upon the 3rd Respondent to p .....

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ad done all the scrutiny and verification of title of the aforesaid property before purchasing the property. It will also be pertinent to note that the petitioner had also conducted a search with respect to any encumbrance on the aforesaid property with the registrar of companies before purchasing the property and no encumbrance was reflected on the aforesaid property. c. The petitioner also ascertained that M/s.Cosmo Foundation, 3rd respondent herein was issued with a notice of demand as early .....

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ay the dues to the department on time and hence, the property is being attached. The first respondent do not have any right to create charge on the aforesaid property because the petitioner firm had completed the entire sale transaction as contemplated under Income Tax Act, 1961 as early as on 18.02.2010 itself and the property belonged to the petitioner and the 3rd respondent was no longer the owner of the aforesaid property. In such circumstances, the first respondent ought not to have attache .....

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tter dated 7.12.2011 were issued by the first respondent to the petitioner company asking certain particulars with regard to the sale transaction and to furnish all the documents connected therewith. The petitioner furnished all the documents and particulars as required by the first respondent along with their letter dated 16.12.2011. d. The third respondent had also requested the first respondent vide letter dated 27.03.2012 to remove the charge and lift the attachment on the immovable property .....

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e the tax arrears, if any, of the 3rd respondent. In spite of the fact that the first respondent had no charge over the property at Old No.510, New No.6, Mint Street, Sowcarpet, Chennai, till the entire sale transaction was completed, he had without any right and authority created a charge over the said property with the second respondent and deny the petitioner firm's enjoyment of the property that rightfully and legally belonging to them. The petitioner firm had meticulously checked the do .....

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tion of ₹ 11 crores, only a sum of ₹ 20,08,872/- was paid to the 3rd respondent and the balance sale consideration of ₹ 10,79,91,128/- was paid only to clear the encumbrance and charge created over the aforesaid property in 2007 itself and this clearly proved that the entire transaction is bona fide and proper. In such circumstances, this Writ Petition has been filed. 3. The 1st Respondent has filed a counter affidavit, wherein it is averred as follows:- a. The property at old .....

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Form No. 57/ITCP-I dated 31/07/2010 was issued to the 3rd Respondent. When a certificate has been drawn up by the Tax Recovery Officer, for the recovery of arrears under the Second Schedule to the Income-tax Act 1961, the Tax Recovery Officer shall cause to be served upon the defaulter a notice requiring the defaulter to pay the amount specified in the certificate within fifteen days from the date of service of notice and intimating that in default steps would be taken to realise the amount unde .....

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me, the above property was attached vide ITCP-16 dated 05-08-10 on 08-04-2011.Though the 3rd respondent was well aware of its tax arrears payable to the department it has entered into a sale transaction without the previous permission of the Assessing Officer. Hence, the action of the 1st respondent is proper under the provisions of the Income Tax Act. b. The 1st respondent issued notice u/s 226(3) of the Income Tax Act dated 22.11.2011 and another letter dated 7.12.2011 to the petitioner reques .....

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the attachment made in respect of the property at Old No.510, New No.6, Mint Street, Sowcarpet, Chennai, cannot be lifted. Though the 3rd respondent was well aware of its tax liability, he had entered into a sale transaction without the previous permission of the assessing Officer. Therefore, the action of the 1st respondent is legal and as per law. In such circumstances, this Writ Petition is liable to be dismissed as devoid of merits. 4. The 3rd Respondent has filed a counter affidavit, where .....

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oresaid property and a resolution dated 21.12.2009 was passed to sell the schedule mentioned property to M/s.Sree Foundation, the petitioner herein. Accordingly, the property was sold to M/s.Sree Foundations for a total sale consideration of ₹ 11,00,00,000/- and entered into an agreement of sale dated 20.01.2010 registered as Document No.101 of 2010 in the Sub-Registrar's Office of Sowcarpet and an advance sale consideration of ₹ 19,00,000/- was paid by Cheque No.589552 dated 20. .....

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ntire sale consideration, the 3rd respondent had also executed a general power of attorney dated 11.02.2010 registered as Doc.No.41 of 2010 in the Sub-Registrar's Office of Sowcarpet with respect to the aforesaid property in favour of Mrs.Manu Jain and Mrs.Anjana to enable them to execute and register sale deed in favour of petitioner and or their nominee/s and handed over possession of the aforesaid property to the petitioner. Based on the aforesaid power of attorney, sale deed dated 21.12. .....

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for recovery of the aforesaid amount. It will not be out of place to mention here that the 3rd respondent's adjacent property comprised in Municipal Old Door No.512/1, New No.2/1, Mint Street, Chennai, comprised in O.S.No.600, R.S.No.600/2 of VOC Nagar Division, measuring an extent of 8992 sq.ft has also been attached by the 1st respondent. The 3rd respondent already sold the aforesaid property bearing Old No.510, New No.6, Mint Street, Sowcarpet, Chennai, to the petitioner and the entire t .....

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l instituted on 04.02.2010 against the order passed by ACIT Company Circle 1(3) Chennai (AO) before CIT (A) 1 Chennai. The CIT (A) after hearing the appellant and also the AO by way of remand report and after considering the subsequent submission by the appellant on the remand report, gave substantial relief to the appellant. c. Giving effect order to the above said order of CIT (A) has been passed by the DCIT Company Circle 1(3) Chennai dated 11.06.2014 with a final demand of ₹ 10,59,259/ .....

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rom the Revenue as the demand emanating from the giving effect order is already remitted. In view of the payment of entire amounts due and payable to the first respondent being paid by the 3rd respondent, the 1st respondent may be directed to remove the charge and lift the attachment created in respect of property bearing old No.510, New No.6, Mint Street, Sowcarpet, Chennai and comprised in Old Survey No.6072, 6073 and 6075 and Resurvey No.602, measuring an extent of 8 grounds and 1290 sq.ft. F .....

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settled principles of law and the action of the respondent in initiating the recovery proceedings by issue of notice under Section 226(3) and initiation of provisional attachment proceeding is without jurisdiction and void ab-initio since the required preconditions for initiating the proceedings under section 281B are not satisfied. There has been a compete transfer of the impugned property as per the definition of the word 'transfer' as provided in Section 2(47) of the Income Tax Act. .....

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he counter affidavit filed by them and supported the impugned attachment. 7. The learned counsel for the 3rd Respondent has supported the case of the Petitioner for removing the charge over the property in question and lifting the attachment created thereon. 8. This court heard and considered the submissions made by the learned counsel on either side and also perused the materials placed on record. 9. The Petitioner had entered into an agreement of sale dated 20.01.2010 for purchase of the prope .....

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alance sale consideration of ₹ 1,08,872/- on 10.02.2010 by way of a cheque. Thus, the Petitioner paid the entire sale consideration. Further, a supplement agreement of sale dated 18.02.2010 was also executed evidencing all the aforesaid facts. Therefore, the entire sale transaction was completed as early as on 18.02.2010. Thereafter, a sale deed dated 21.12.2011 came to be executed and registered. 10. After completion of entire transaction on 18.02.1010, the 1st respondent attached the pro .....

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nst the 3rd Respondent for recovery of arrears of tax as early as on 31.12.2009. The notice of demand was sent to the 3rd Respondent on 31.07.2010 i.e. after the date of completion of the entire sale transaction on 18.02.2010. Without disclosing the aforesaid facts, the 3rd respondent had sold the aforesaid property to the petitioner. 11. At this juncture, it is relevant to refer to the decision of the Honourable Supreme Court rendered in the case of Mysore Minerals Ltd. v. CIT (JUDGMENT 1999 (1 .....

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5 278 ITR 187 Cal) has held that on the date of passing the order of attachment, the property in question did not belong to the assessee and on that date, there was no interest because such interest has already been passed on to the petitioner therein and accordingly, held that the order of attachment of the property claimed and held by the petitioner was not sustainable under the law. 13. In the case on hand, the Petitioner has become the owner of the property in question, to put it differently .....

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