TMI Blog1998 (6) TMI 68X X X X Extracts X X X X X X X X Extracts X X X X ..... tation, was attached on July 4, 1994. Objections were filed. Appeal under rule 86 of the Second Schedule to the Act was also filed which is stated to be pending. Directions were given in W. P. No. 29804 of 1994 to dispose of the said appeal. An order dated January 2, 1995, was passed under section 281 of the Income-tax Act and section 34B of the Wealth-tax Act, 1957. Writ Petitions Nos. 8467 and 8468 of 1995 against the sale proclamation in respect of properties Nos. 44 and 44/1 were filed in which it was observed that the petitioner could raise objection before the respondent. Objections under rule 11 of the Second Schedule, Part I of the Act were filed by the petitioner. The sale proclamation dated July 18, 1995, has been assailed in these petitions besides the orders which have been passed under section 281 of the Income-tax Act and section 34B of the Wealth-tax Act. According to the respondents, the arrears of Rs. 1,56,87,000 were for the assessment year 1977-78 and onwards and even notices have been served in ITCP-1 in 1983. The Tax Recovery Officer informed the petitioner-firm that the formation of the partnership in 1987 and retirement after taking a sum of Rs. 6 lakhs bei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r shall be void in respect of any tax or sum payable by the assessee as a result of the completion of the proceedings during the pendency of which the transfer was effected. The effect of the section is that if such transfer with intent to defraud the Revenue has been made and any claim for tax arises after the completion of the proceedings during the pendency of which the transfer took place, such tax or other sum can be recovered by proceeding against the property notwithstanding the said transfer. There is no question of adjudication of validity of the transfer prior to the stage of actual recovery of any amount that may become due consequent on the pending proceedings being completed. After the proceedings are completed and if payment is not made and proceedings are taken for recovery by proceedings against certain properties and such recovery is objected to by the assessee or the transferees and it is contended that the transfer was with intent to defraud the Revenue, then such dispute will have to be adjudicated. Rules, under Schedule II to the Income-tax Act, provide for adjudication of such claims. It is, therefore, clear that the declaration or order made by the Income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld be exercised before service of notice under rule 2 of the Second Schedule when the proceedings are pending under Income-tax Act or even after the completion thereof; (2) a charge is created or parting with the possession by way of sale, mortgage, gift, exchange or any other mode of transfer of asset in favour of any other person, the charge is deemed to be void against any claim in respect of any tax or other sum payable by the assessee as a result of completion of the said proceedings or otherwise. Section 281 as reproduced above was substituted by the Taxation Laws (Amendment) Act, 1975, with effect from October 1, 1975. The interpretation which learned counsel for the petitioner is taking of the judgment given by this court is not the correct interpretation of law. The case of B.A. Basith [1981] 128 ITR 434 (Kar) was interpreted in the case of K. Siddalingaiah [1982] Tax LR 550 (Kar), where it was considered that the order made by the Income-tax Officer under section 281 at the stage of assessment declaring the transfer made by the assessee void is without the authority of law. Section 281 does not require passing of the order and it is by fiction of law that any such tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction itself stands considered to be declaratory in nature, a declaration has to be made and that declaration gives only the jurisdiction to the income-tax authority to bring on record his intention to proceed for recovery in respect of arrears of tax against the said property. A certificate for recovery has to be sent by the Income-tax Officer under rule 2 of the Second Schedule. Under rule 11 of the said Schedule investigation with regard to the claim or objections could be filed by the parties which have already been filed. Any order passed by the Tax Recovery Officer is final, subject to filing of the civil suit as provided under rule 11(6) of the Rules. It is pointed out that a civil suit is pending before the civil court. In McDowell and Co. Ltd. v. CTO [1985] 154 ITR 148, the Supreme Court observed that : "The evil consequences of tax avoidance are manifold. First, there is substantial loss of much needed public revenue, particularly in a welfare State like ours. Next, there is the serious disturbance caused to the economy of the country by the piling up of mountains of black money, directly causing inflation. Then there is 'the large hidden loss' to the community by som ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh Court in Inayat Hussain v. Union of India [1980] 122 ITR 227, it was considered that the proceeding can be pending, viz., (i) for the finalisation of tax liability of the assessee; (2) for finalisation of default proceedings for failure on the part of the assessee, and (3) finally for recovery on his failure to pay the demanded tax by him and all these proceedings must be construed to be pending under section 281. The provisions of section 281 were held applicable to movable as well as immovable assets. Section 281 and rule 16 of the Second Schedule were considered to be operative in different fields. In Smt. Preeti Rungta v. ITO [1995] 214 ITR 954, the Calcutta High Court has also considered that the section is declaratory and not procedural in the sense that it does not provide for any mode for any enforcement of the rights created under this section. It was considered corresponding to section 53 of the Transfer of Property Act. The Bombay High Court in Gangadhar Vishwanath Ranade (No. 1) v. ITO [1989] 177 ITR 163 observed that the order passed under 281 was not an order in the proper sense of the term as it did not decide anything but merely demonstrated and recorded an inten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r by the assessee during the pendency of any proceedings under the Act or after completion thereof shall be void against any claim in respect of any tax or any other sum payable by the assessee as a result of the said proceeding or otherwise. Thus, it is clear that the transaction or the transfer is not void ab initio. Section 281 only declares that any transfer is void against the claims of the Revenue in respect of the tax finally determined in a proceeding which has been pending at the time of the transfer. Section 281 does not say that even after the transfer of the property the ownership continues to be with the assessee till all the claims of the Revenue are satisfied. Section 281 does not declare the transfer to be void ab initio so that the title of the transferee is lost. It only declares that the transfer is void to the extent of the tax liability that might finally be determined by the authorities on completion of the proceeding under the Income-tax Act. In fact, no separate orders under section 281 are also required to be passed to give effect to the provisions of section 281 as it is declaratory in nature and it does not require any adjudication on the nature of the tr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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