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TMI Blog2024 (2) TMI 1115X X X X Extracts X X X X X X X X Extracts X X X X ..... the impugned communication, a mere notice, is precisely to such effect. Learned counsel for the petitioner would express apprehension that the TRO has pre-determined the issue, since at paragraph 2 he proceeds on the basis that the transfer had taken place for inadequate consideration, and when there was tax arrears. 9. The apprehension expressed by petitioner may be allayed by directing R2 to approach the matter with an open mind, hear the petitioner and R3* by issuance of prior notice, take their submissions into account and passing an order thereafter, in accordance with law and bearing in mind all relevant rules in this regard. 10. This Writ Petition is dismissed though with the directions as above. No costs. Connected Miscellaneous Petition is also dismissed. [*the fourth respondent in this writ petition] 3 Relevant portion of the impugned order dated 16.02.2023 reads as under:- "It is interesting to note that the facts of the case of the objector and the case law relied upon, are exactly similar. The aspects with regard to the principle of preponderance of probabilities, the explanation and counter arguments of the objector exhibiting lack of satisfaction and reason ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of recovery of tax dues from the Assessee in default. Schedule of the Asset confirmed for attachment. All that piece and parcel of land and building situate at Central theatre/Shree Astalakshmi theatre along with Plant and Machinery with 64 Cent land appurtenant to the building thereof at S.F.No.339/6, Annur Village, Avinashi Taluk, Coimbatore. Registered in the Annur Sub- Registrar Office in Document No.3609/2007 and 3608/2007". 4. There is a long history to the litigation between the petitioner and the fourth respondent and the Income Tax Department. The fourth respondent appears as a party in person . The fourth respondent's Return of Income Tax for the Assessment Year 2008-09 and Assessment Year 2009-10 resulted in a demand of tax arrears for a sum of Rs. 20,69,529/- along with interest under Section 220(2) of Rs. 41,390/- for the Assessment Year 2008-09 and a sum of Rs. 16,21,470/- along with interest under Section 220(2) of Rs. 32,428/- for the Assessment Year 2009-10. 5. As the 4th respondent had defaulted in payment of tax, the respondent Income Tax authorities issued a Demand Notice on 30.05.2011 under Rule 2 of the Second Schedule to the Income Tax Act, 1961. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this Court vide order dated 17.06.2015. Meanwhile, a final report was also filed by the Investigating Officer on 07.08.2017 whereby it was confirmed that the sale was irregular. It is submitted that the order of this Court passed in Crl.O.P.No.14617 of 2014 was however, set aside by the Hon'ble Supreme Court of India in SLP(Crl.) No.9087 of 2015, dated 25.10.2017. 11. The learned Senior Counsel for the petitioner has drawn attention to the following passage from the decision of the Hon'ble Supreme Court of India:- Heard. We are of the view that the allegations levelled in the criminal proceedings lodged by respondent no.2, are of civil nature and the criminal proceedings are not called for. The same are hereby quashed. It will be open to respondent no.2 to continue or take any civil proceedings in accordance with law. The special leave petition is accordingly disposed of. Pending applications, if any, shall also stand disposed of. 12. The learned Senior Counsel appearing for the petitioner further submits that the fourth respondent had an option to file a Civil suit. However, till date, the fourth respondent has not filed a suit against the petitioner. Thus, it i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 281 of the Income Tax Act on 08.05.2019. Though, the writ petition was dismissed by this Court on 14.10.2022, nevertheless, this Court had directed the Officer namely the second respondent to dispose the case by taking into account of all submissions before passing further orders. 16. Learned counsel appearing for the Income Tax Department submits that the sale was void by operation of law in terms of Rule 16(1) of the II Schedule of the Income Tax Act, 1961. It is therefore submitted that the sale which is said to have taken place on 24.02.2012, vide Document No.1981 pursuant to the sale agreement dated 19.02.2009 was void abinitio. It is further submitted that even if the second respondent was not required to declare the sale as void, by operation of Rule 16 of II Schedule of Income Tax Act, 1961, said sale was indeed void. 17. That apart, the learned counsel would further submit that the Sale Agreement on 19.02.2009 was canceled by the fourth respondent herein on 27.02.2012 vide registered Document No.1980/2012. Therefore, there is no merit in the present Writ Petition. That apart, it is submitted that in terms of Rule 11(6) of the second schedule of the Income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontrary to section 281 of the Income Tax Act,1961. 24. The sale of the subject property vide Document No1981 dated 24.2.2012 was followed by a order of attachment dated 25.05.2012. The decision of the Hon'ble Supreme Court in Tax Recovery Officer II versus Gangadhar Vishwanath Ranade (1998) 6 SCC 658 cannot be applied to the facts of the present case as it was rendered in the context of Section 281 of the Income Tax Act, 1961 when it read differently. 25. Section 281 of the Income Tax Act, 1961 as it stood during the period when the above decision was rendered and as it reads today is materially different. Section 281 of the Income Tax Act, 1961 reproduced below:- Section 281 of Income Tax Act, 1961 ( before amendment) Section 281 of Income Tax Act, 1961 (after amendment) 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, gift, 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 as against any claim in respect of any tax or any other sum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 961 with effect from 01.10.1975 vide Taxation Laws (Amendment) Act, 1975. Importantly the expression "with the intention to defraud the Revenue" in Section 281 of the Income Tax Act, 1961 has been deleted. 28. The scope of enquiry under Rule 11 of the 2nd Schedule to the Income Tax Act, 1961 when the above decision was rendered was in the context of sale by an assessee in default with an intention to defraud revenue. In that context, such a sale could be declared as void. There, the attachment was made on 21.10.1972. The assessee in the above case had stated he had mortgaged the property in favour of the Bank of Maharashtra for raising a loan of Rs. 75,000/-. He further stated that on 21.02.1967 he had executed a trust deed in respect of the said property in favour of his wife and his daughter. On 27.02.1969, the first respondent had registered deed and conveyed the said property to his wife and his daughter, original respondent. Objections were also filed by the Bank of Mahrashtra. The assessee as well as his wife and his daughter, therefore, contended that on the date when notice was issued under Rule 2 of the second Schedule to the Income Tax Act and also on the date when the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in possession of the property and in what capacity. He can only attach property in possession of the assessee in his own right, or in possession of a tenant or a third party on behalf of/for the benefit of the assessee. He cannot declare any transfer made by the assessee in favour of a third party as void. If the Department finds that a property of the assessee is transferred by him to a third party with the intention to defraud the Revenue, it will have to file a suit under Rule 11(6) to have the transfer declared void under Section 281 12. In the light of this discussion about the provisions of Order 21 Rules 58 to 63, if we examine Rule 11(4) of the Second Schedule to the Income Tax Act, it is clear 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 su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erved that under Rule 11 (1), where any claim is preferred or any objection is made on the ground that such property is not liable to such attachment of sale, the Tax Recovery Officer shall proceed to investigate the claim or objection. 33. After reproducing Sub Rule (4), (5) and (6) Rule 11 of the 2nd Schedule to the Income Tax Act, 1961, the Hon'ble Supreme Court Court held that the Tax Recovery Officer has to examine who is in possession of the property and in what capacity. Court further held that Tax Recovery Officer can attach property in possession of the assessee in his own right, or in possession of the tenant or 3rd party on behalf of/for the benefit of the assessee. 34. The Court however concluded that Tax Recovery Officer cannot declare sale made by the assessee in favour of a 3rd party as void, if he finds that the property of the assessee was transferred by the assessee to a 3rd party with " an intention to defraud the revenue. As mentioned above, the expression "intention" has been deleted in the amended Section. The Court further held that, the Income Tax Department will have to file a suit in terms of Rule 11 (6) of the 2nd Schedule of the Income Tax Act, 196 ..... 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