TMI Blog1981 (1) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... e-tax on a sum of Rs. 50,570 for the year 1962-63, Rs. 42,599 for the year 1963-64 and Rs. 75,000 for the year 1964-65. This assessment for the aforesaid years became final on August 7, 1967, there having been no appeal filed against that assessment order. The transactions which the petitioner, Gangadhar, entered into and the fact that he entered into these transactions is an admitted position are as follows. The first of these transactions is a mortgage for a sum of Rs. 75,000 to the Bank of Maharashtra, which mortgage was executed on December 2, 1967. On February 21, 1969, the petitioner, Gangadhar, declared a trust in respect of the said property in favour of his wife and other persons as beneficiaries of the trust. The trust property was subsequently transferred to the beneficiaries on February 27, 1969. In April and May 1969, the petitioner, Gangadhar, transferred shares which he held in certain companies in favour of petitioners Nos. 4 and 5 who are his nephews. He also transferred another batch of shares on August 2, 1969, in favour of these nephews. On January 27, 1972, some of the properties belonging to or standing in the name of the petitioner, Gangadhar, were attached ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the Income-tax Act of 1961, and was not there in the Indian Income-tax Act of 1922. Since the section has subsequently undergone a change in the year 1975 and inasmuch as it is the amended section which was applicable at the time when these proceedings were started, we may set out that section which reads thus : "281. Where, during the pendency of any proceeding under this Act, any assessee creates a charge on or parts with the possession by way of sale, mortgage, exchange or any other mode of transfer whatsoever, of any of his assets in favour of any other person with the intention to defraud the Revenue, such charge or transfer shall be void . . . " There cannot be any dispute that it is this section which was applicable when the Income-tax Officer, in the year 1974, issued notice and also passed his order on May 9, 1974. Three submissions were placed before us by Shri Natu. Shri Natu firstly contended that the Income-tax Officer had no jurisdiction or authority to pass an order of this kind under section 281. It was Shri Natu's contention that the section, in terms, does not confer any such power or jurisdiction upon the Income-tax Officer. Shri Natu emphasised that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore, no remedy at all once the Income-tax Officer chooses to pass an order under section 281. On the other hand, if a civil suit had been filed, the assessee would have been able to challenge the decree or the decision of the civil court by an appeal and a second appeal too. That right or remedy is deprived of, where the Income-tax Officer decides to proceed under section 281. It was Shri Natu's further submission, and in furtherance of the aforesaid, that where there are two remedies provided, of which one is more onerous, then, under article 14 of the Constitution, the more onerous remedy shall be struck down where it does not provide for any corresponding machinery for vindication of the grievances of the persons concerned. If there are no guidelines for an officer, if there are circumstances indicating in which of the cases the more onerous remedy can be availed of, the concerned officer being free at his discretion to choose between one of the two remedies, the onerous remedy cannot stand. This would amount to discrimination and, therefore, would offend article 14. An argument based upon limitation and the provisions of the Limitation Act was also pressed into service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ced before the Income-tax Officer was that the assessee was indebted to the transferees. Those debts of the transferees incurred by the transferor were satisfied by the transfers. Therefore, it can, at the most, be preference of one creditor leaving other creditors without any asset to realise. A transfer to satisfy debts, it was his submission, cannot be said to be to defraud the Revenue. It is only in cases arising under section 54 of the Provincial Insolvency Act, 1920, where there is a fraudulent preference, that transfers in favour of some of the creditors can be assailed. The Income-tax Officer, however, did not consider whether the transferees were the creditors of the assessee or otherwise. Such transfer in favour of creditors is not a fraudulent transfer at all. Even if it ultimately results in some of the creditors being left without any property from which they could recover their debts, the transfer itself does not become bad. Shri Natu relied upon a number of decisions in support of his contention. It appears that this petition was heard at some length before another Bench of this court. An order was passed on November 10, 1980, adjourning the petition to enable the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law and also under the provisions of the Second Schedule to the Income-tax Act. An order passed under section 281 cannot be, in the proper sense of the term, called an order as it does not decide anything. It seems to be his submission that it is not an order in the sense that it adjudicates the rights of the parties. It merely says, demonstrates and records an intention on the part of the Revenue to proceed against the property which, in its opinion, was transferred during the pendency of proceedings to defraud the Revenue. It is nothing but a declaration or expression of an opinion on the part of the Revenue to take action and to treat the properties as available to the Revenue under section 281. This would mean, according to learned counsel for the respondent, that the Department may choose any of the remedies which are available to it either under the Income-tax Act or otherwise. The parties may also choose such remedies as they have under the Act or otherwise de hors the Act. All that the declaration serves, though described as an order, is to be the starting point or a preliminary stage for further action. It was urged that it was nothing but an expression of an intention or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the property in dispute ; but, subject to the result of such suit (if any), the order of the Tax Recovery Officer shall be conclusive. " Sub-rule (4) of rule 11 lays down: "Where, upon the said investigation, the Tax Recovery Officer is satisfied that, for the reason stated in the claim or objection, such property was not, at the said date, in the possession of the defaulter or of some person in trust for him or in the occupancy of a tenant or other person paying rent to him, or that, being in the possession of the defaulter at the said date, it was so in his possession, not on his own account or as his own property, but on account of or in trust for some other person, or partly on his own account and partly on account of some other person, the Tax Recovery Officer shall make an order releasing the property, wholly or to such extent as he thinks fit, from attachment or sale." We may mention that the provisions of sub-rules (1) to (6) of rule 11 of the Second Schedule are analogous to the provisions of Order 21 and rules 58 to 63 of the Civil Procedure Code. It will thus be seen that where property is attached by the Tax Recovery Officer, the procedure contemplated by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcise functions and discharge of functions under the Act can be said to be entrusted also with the duty of performing his obligation under section 281, still, it does not lay down guidelines to the Income-tax Officer or any of the authorities under the Act. As to in what circumstances he will proceed under section 281 and in what circumstances he will proceed by way of ordinary suit is left to him. He has an unlimited discretion in the matter. Shri Natu's contention was that section 281 by itself does not bar suit like the provision under section 293. Under section 293, an assessment order is barred from the cognizance of the civil court. His submission, therefore, was that a finding as to whether the transfer is made during the pendency of proceedings under the Income-tax Act and effected with the intention to defraud the Revenue is not a matter which is barred under the Income-tax Act from the jurisdiction of the civil court. The Income-tax Officer, therefore, could arbitrarily and according to his discretion or whim, choose in a given case to go to the civil court to obtain a declaration as contemplated in section 281 and in another case proceed himself and make a declaration as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as fraudulent, whether of movable or immovable property. We are unable to think that section 281, in the form in which it was, or in the form in which it is after its amendment in the year 1975, does anything further, except saying as to what the law is in respect of transfers effected during the pendency of any proceedings under the Income-tax Act, which come within the mischief and circumstances laid down in section 281. It does not thereby say that any conclusion or declaration by an authority entrusted with the functions to be performed under the Income-tax Act will operate as conclusive or adjudicatory. It merely has the character of an expression of an intention or opinion on the part of such authority, that it intends to treat the transfers as affected by section 281 and, therefore, not standing in the way of recovery proceedings to be taken by the Tax Recovery Officers. We think that the jurisdiction of the Tax Recovery Officer as contemplated by rule 11 is not taken away by the expression of any opinion or intention by the Income-tax Officer expressed under or purporting to act under section 281. That adjudicatory process still survives and can be availed of by the claiman ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, though a declaration in that behalf to that effect can be made by a court. That jurisdiction of the court and the authority to do so is indicated in section 53, but the action or the intention to do so is clearly of the receiver. The intention may be manifested in any way permissible to the receiver, either by making an application to the court which is hearing the insolvency proceedings, or with the permission of the court, by filing a suit. In the view which we have taken, it is unnecessary to refer in detail to the authorities which have been relied upon and cited before us. Shri Natu relied up-on the decision in S. C. Prashar v. Vasantsen Dwarkadas [1963] 49 ITR 1 (SC), and a number of decisions in the same volume which follow that decision. We may only refer to some of the observations made by Justice Hidayatullah, as he then was, in the majority judgment. It was pointed out firstly (at p. 55), "that the liability to the State is independent of any consideration of time and, in the absence of any provision restricting action by a time-limit, it can be enforced at any time." There the question was as to whether the limitation to reopen an assessment after the limitation p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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