TMI Blog2019 (3) TMI 701X X X X Extracts X X X X X X X X Extracts X X X X ..... dings, but before an attachment is ordered. This compartmentalization is very important to be noted, in view of the fact that during the pendency of the proceedings for assessment, an assessee does not become an assessee in default. Section 281 (1) cannot be interpreted to mean that every assessee is likely to become an assessee in default and therefore, all transfers effected by him even before he becomes a defaulter are null and void. Keeping in mind the fundamental premise on which the scheme of Section 281 read with Section 222 and the Second Schedule to the Act operates, let us now come back to the facts of the case. The timeline of events Part-II, which we have furnished elsewhere, shows that the 3rd respondent herein filed a return of income on 31-07-2009. His case was selected for scrutiny through CASS. Notices under Section 143 (2) were issued in September 2010 and February 2011. A notice under Section 142 (1) was issued on 23- 02-2011. The order of assessment itself was passed only on 27-12- 2011 under Section 143 (3). Consequently, the demand notice under Section 156 was issued only on 27-12-2011, giving the Managing Partner of the 3rd respondent thirty days time. Eve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proceed to register the sale certificate issued by the Bank upon compliance with the necessary formalities. - Writ Petition No.33417 of 2018 - - - Dated:- 4-12-2018 - Sri Justice V. Ramasubramanian And Ms. Justice J. Uma Devi For the Petitioner : Mr. G. Kalyan Chakravarthy For the Respondents : Mr. K. Raji Reddy, counsel for Income Tax Department G.P. for Revenue (Telangana) Mr.C.P.Ramasamy, ORDER: PER V. RAMASUBRMANIAN, J. The ICICI Bank has come up with the above writ petition challenging an order of attachment dated 14-03-2018 issued by the Tax Recovery Officer-I of the Income Tax Department under Rule 48 of the Second Schedule to the Income Tax Act, 1961. 2. We have heard Mr. G. Kalyan Chakravarthy, learned counsel for the petitioner, Mr. K. Raji Reddy, learned senior standing counsel for the Income Tax Department, Mr. C.P. Ramaswamy, learned counsel appearing for the 3rd respondent and the learned Government Pleader for Revenue (Telangana) for the 2nd respondent. 3. The main ground on which the ICICI Bank has come up with the above writ petition is that a company by name M/s. Sojiram Ispat Private Limited availed financial assistance from th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 30-06-2011 The bank sanctions Cash Credit Facility 11-07-2011 The 3rd respondent-guarantor creates a mortgage of the properties in question in favour of the petitionerbank. 30-11-2012 The borrower s account becomes NPA 16-02-2013 Demand Notice under Section 13 (2) 19-06-2013 Possession Notice under Section 13 (4) 31-01-2017 Order of the District Magistrate under Section 14 for possession 12-06-2017 Possession taken, not through the Advocate Commissioner, but through Police 08-11-2017 Sale of the property in public auction 07-12-2017 Sale Certificate issued 14-12-2017 A writ petition in W.P.No.19442 of 2017 filed by the 3 rd respondent, challenging the action of the bank in taking physical possession through Police is allowed by this Court and the possession was directed to be restored to the owner. However, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 09-01-2014 A Tax Recovery Certificate is issued Sri Gopal Agrawal appears before the Income Tax Officer and offers the immovable properties in question, as available for attachment, in view of his success in W.P.No.19442 of 2017 challenging the proceedings under Section 14 of the Securitisation Act, 2002. 14-03-2018 The Tax Recovery Officer attaches the property 8. Keeping in mind the above timelines of events, let us now take a look at the relevant provisions of the Income Tax Act, on the basis of which the Income Tax Department asserts its right to have the property attached. 9. Sections 220 to 232 of the Income Tax Act, 1961 prescribes the modes of collection and recovery of tax. The moment any tax, interest, penalty, fine or any other sum becomes payable consequent upon an order passed under the Act, the Assessing Officer is obliged to serve a notice of demand upon the assessee, under Section 156 of the Act. The notice of demand is to be in the prescribed form. Under Section 220 (1), any amount specified in the notice of demand under Section 156, should be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, 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) with the previous permission of the Assessing 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 assets aforesaid does not form part of the stock-in-trade of the business of the assessee) 14. Though sub-section (1) of Section 281 declares that any charge created on the assets of the assessee or any transfer made by the assessee of his assets during the pendency of any proceedings under the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ms of Rule 48 of the Second Schedule. The manner in which Rule 48 is drafted, gives a clue as to whether the nullity and voidity stipulated in Section 281 is automatic or not. Rule 48 of the Second Schedule reads as follows: 48. Attachment of the immovable property of the defaulter shall be made by an order prohibiting the defaulter from transferring or charging the property in any way and prohibiting all persons from taking any benefit under such transfer or charge. 18. We have already extracted Section 281. If the declaration of nullity and voidity under Section 281 (1) is automatic, then there is no necessity for the Law Makers to empower the Income Tax Officer to pass an order of attachment under Rule 48 prohibiting all transfers and the creation of charge on the properties. The fact that Section 281 requires a catalyst to ignite it is made clear by Rule 48. 19. Apart from Rule 48, Rule 16 of the Second Schedule also throws light upon the interpretation to be given to Section 281. Rule 16 (1) declares that the moment a notice is served on a defaulter under Rule 2, he becomes incompetent to mortgage, charge, lease or otherwise deal with any property belonging to him ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rty of an assessee in default would be as follows: (1) First a notice of demand is to be served on the assessee by the Assessing Officer under Section 156. (2) The non-payment of the amount stipulated in the notice of demand would make the assessee a defaulter under Section 220 (4). (3) Once an assessee becomes a defaulter, a Tax Recovery Certificate is to be issued under Section 222 (1) by the Tax Recovery Officer. (4) After the drawing up of the Tax Recovery Certificate under Section 222 (1), the Tax Recovery Officer should serve a notice under Rule 2 of the Second Schedule, requiring the defaulter to pay an amount specified in the certificate within 15 days of service of the notice. (5) After the service of notice under Rule 2, the defaulter becomes incompetent under rule 16 (1) to mortgage, charge, lease or otherwise deal with any property belonging to him except with the permission of the Tax Recovery Officer. (6) If the amount mentioned in the notice issued under Rule 2 is not paid within the time specified in the notice, the Tax Recovery Officer may attach the property under Rule 48. (7) Once an order of attachment is passed, any private alienation of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the defaulter or that the property was in occupation of a tenant paying rent to the defaulter. If an order rejecting the claim or objection is passed by the Tax Recovery Officer under Rule 11 (6), the party against whom such an order is made, may move the Civil Court to establish his right, in terms of Rule 11 (6). 27. The procedure prescribed in Rule 11 for the investigation of claims and objections to the attachment or sale of a property, is relatable to the proviso to sub-section (1) of Section 281. It may be seen from the main part of sub-section (1) of Section 281 that the same declares all transfers and creation of charges to be void. But the proviso to sub-section (1) carves out an exception, in cases where the creation of the charge or the transfer was for adequate consideration and without notice of the pendency of any proceeding under the Act. What is important to note from the proviso (i) is that the exception carved out therein may be available only up to the stage of issue of an order of attachment. The proviso (i) to sub-section (1) of Section 281 uses the words without notice of the pendency of such proceeding . Therefore, an assessee or a transferee o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the 3rd respondent in favour of the petitioner-bank on 11-07-2011, much before the order of assessment was passed under Section 143 (3) on 27-12-2011. In other words, the assessee was nowhere near the point of being declared as an assessee in default on the date of creation of the mortgage. Hence, the creation of the mortgage cannot be said to have automatically become void in terms of Section 281 (1) merely because of the pendency of the proceedings under Sections 143 and 142. It required something more to be done, but the same was not done in this case. As a matter of fact even an investigation under Rule 11 was not carried out in this case. Therefore, the order of attachment is clearly illegal. On the date on which the order of attachment was passed, the property had already been sold by the petitioner-bank, in exercise of the power conferred upon the bank under the Securitisation Act, 2002. 32. It is important to note one more aspect. Section 281 (1), by its very nature operates only up to the stage of service of notice under Rule 2 of the Second Schedule. Therefore, Section 281 (1) obviously deals with a situation, which can be compared to fraudulent preferences dealt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Supreme Court in Dena Bank v. Bhikabhai Prabhudas Parekh Co. (2000 (5) SCC 694) , the Supreme Court came to the conclusion that the Income Tax Act does not provide for any paramountcy of dues by way of income tax and that the Government dues have priority only over unsecured debts. In its decision in Stock Exchange , the Supreme Court went to the extent of holding that the lien possessed by the Stock Exchange made it a secured creditor and that irrespective of whether the lien was a statutory lien or a lien arising out of an agreement, the same made the holder of the lien a secured creditor, who would have priority over Government dues. 37. Therefore, in the light of the fact that the mortgage was created by the assessee much before a demand was made under Rule 2 and even before an order of assessment was passed and in the light of the fact that before the stage of issue of a certificate of recovery, the voidity under Section 281 (1) is not automatic, the petitioner-bank deserves to succeed. 38. Accordingly, the writ petition is allowed and the impugned order of attachment is set aside. The Sub-Registrar may proceed to register the sale certificate issued by the Ba ..... X X X X Extracts X X X X X X X X Extracts X X X X
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