Case: Sri Sivalaya Advances and Ors Vs. Tax Recovery Officer - 2, Income Tax Offices, Madurai

the petitioners is formidable, on a closer scrutiny, the legal position is totally otherwise. As per Rule 11(3) of the second schedule, the objector or claimant must adduce evidence to show that in the case of immovable property on the date of the service of the notice issued under this schedule to pay arrears, he had some interest in or was possessed of the property in question. The notice referred to in Rule 11(3)(a) is obviously the notice under Rule 2. It cannot be disputed that on the said date the present writ petitioners did not have any interest in the property in question and they were also not in possession of it. 15. Rule 11 (3) of the Second Schedule to the Income Tax Act deals with two categories. One is immovable property and the other is movable property. Rule 11(3)(a) pertains to immovable property while Rule 11(3)(b) relates to movable property. In the case of movable property, the claimant or objector must adduce evidence to show that on the date of attachment, he had some interest in or was possessed of the property in question. On the other hand, in the case of immovable property, the claimant or objector must adduce evidence to show that at the date of service of the notice issued under this schedule to pay the arrears, he had some interest in or was possessed of the property in question. Thus, there is a significant distinction between the language used in the case of immovable property on the one hand and movable property on the other. In the case of movable property, the relevant date is the date of attachment. But, in the case of immovable property, the material date is the date of service of Rule 2 Notice. This Court is of the view that failure to note this difference in the language has led to conceptual confusion vitiating the entire process of reasoning. 16. More than anything else, as rightly pointed out by the learned standing counsel for the respondent Department, any attachment of an immovable property made under the second schedule would relate back to and take effect from the date on which the notice to pay the arrears issued under II schedule was served on the defaulter. This legal effect of Rule 51 of second schedule cannot be overcome. In this case, this Court, therefore, comes to the conclusion that the attachment made subsequent to the purchase by the writ petitioners would relate back to and take effect from 05.01.2013 onwards. 17. It is true that as strongly contended by the learned counsel for the petitioners, if two interpretations are possible, the one that is beneficial to the assessee must be preferred. But, in this case, this Court has absolutely no doubt that on a plain reading of the relevant provisions, only one interpretation is possible and that one is in favour of the Revenue. 18. The learned counsel for the petitioners would submit that Rule 11(3)(a) of the second schedule cannot have an over-riding effect over the proviso to Section 281 of the Income Tax Act. But, as held by the learned single Judge of this Court in 1998-2-L.W.288 (cited supra), the Section 281 and Rule 11 of the second schedule operate distinctly and independent of each other. 19. The learned counsel appearing for the petitioners would further contend that Rule 16(2) of second schedule clearly states that where the attachment was made under the schedule, any alienation that takes place thereafter alone shall be void. But then Rule 16(2) cannot be read in isolation. It is not a standalone provision. It must be read together and in conjunction with Rule 51. Hence, the submission of the learned counsel appearing for the petitioners cannot be accepted. 20. The learned counsel appearing for the petitioners also emphasised that this Court should defer to the decision rendered by the Division Bench of the Gujarat High Court. But this Court is unable to agree with the said submission. It is true that the Division Bench of this Court in the decision reported in [1986] 159 ITR 646 (Mad) observed that it is an acceptable principle in the matter of construction of an Indian statute as far as possible that there must be uniformity of construction and if the provision of law which falls for consideration before the Court has already been construed by another High Court, normally that construction should be accepted. But then the Honourable Division Bench also added a caveat that if there are compelling reasons to depart from the view taken by the other High Court, the said construction need not be accepted. This Court is of the considered opinion that there are compelling reasons to depart from the view taken by the Division Bench of the Gujarat High Court. Again as already pointed out, this Court is treading the path taken by the Honble Division Bench of the Punjab and Haryana High Court. 21. Yet the orders impugned in these writ petitions cannot sustained as such. The Honble Supreme Court in (1998) 6 SCC 658 has held that it is the function of the civil Court to declare a transaction to be null and void and that the Tax Recovery Officer cannot exercise the said function. Therefore, the respondent clearly erred in declaring the transactions to which the petitioners are parties as null and void. Therefore, the orders impugned in these writ petitions stand quashed to that extent. It would certainly be open to the petitioners herein to avail the remedy set out in Rule 11(6) of the second schedule of the Income Tax Act. If the respondent authority wants to have the transactions nullified, it is the respondent who must go to the civil Court to seek declaration to that effect. If the writ petitioners want the attachment to be lifted, it is for them to move the civil Court and obtain relief as provided in Rule 11(6) of the second schedule of the Income Tax Act.

Court's decision (1 = petition accepted / positive for appellant, 0 = rejected / negative): 1

Reasoning from the judgment:
1[ds]7. This Court carefully considered the rival contentions. Two facts are not in dispute. The vendor of the writ petitioners herein is a defaulter-assessee and that he alienated the subject properties only after receipt of notice under Rule 2 of the Second Schedule to the Income Tax Act. Secondly, the orders of attachment were issued by the respondent only after such purchase by the writ petitioners hereinGoing by the plain language of the said section, it is clear that the main provision is concerned only with those transactions executed by the assessee during the pendency of any proceedings under the Income Tax Act or after the completion thereof, but before the service of notice under Rule 2 of the second schedule. In this case, it is evident from the face of the record and it is again not in dispute that notice under Rule 2 of second schedule was served on the defaulter on 05.01.2013 and that the sale transactions executed by the said defaulter-assessee took place thereafter. Therefore, this Court is of the view that it would not be open to the purchasers to claim the benefit of the proviso to Section 281 (1) of the Act13. In this case, the property belonged to the defaulter-assessee. He had been served with notice under Rule 2. The moment such a notice was served on the defaulter-assessee, by virtue of Rule 16(1) of the second schedule, he became incompetent to deal with the property. In Rule 16(1), it is expressly stated that the defaulter assessee shall not be competent to deal with the property. If the vendor was not competent to deal with the property, he could not have passed any valid or legal title to the purchaser. Thus, the issue has to be approached through the prism of Section 11 of the Contract Act, 1872Though on the face of it the submission of the learned counsel appearing for the petitioners is formidable, on a closer scrutiny, the legal position is totally otherwise. As per Rule 11(3) of the second schedule, the objector or claimant must adduce evidence to show that in the case of immovable property on the date of the service of the notice issued under this schedule to pay arrears, he had some interest in or was possessed of the property in question. The notice referred to in Rule 11(3)(a) is obviously the notice under Rule 2. It cannot be disputed that on the said date the present writ petitioners did not have any interest in the property in question and they were also not in possession of it15. Rule 11 (3) of the Second Schedule to the Income Tax Act deals with two categories. One is immovable property and the other is movable property. Rule 11(3)(a) pertains to immovable property while Rule 11(3)(b) relates to movable property. In the case of movable property, the claimant or objector must adduce evidence to show that on the date of attachment, he had some interest in or was possessed of the property in question. On the other hand, in the case of immovable property, the claimant or objector must adduce evidence to show that at the date of service of the notice issued under this schedule to pay the arrears, he had some interest in or was possessed of the property in question. Thus, there is a significant distinction between the language used in the case of immovable property on the one hand and movable property on the other. In the case of movable property, the relevant date is the date of attachment. But, in the case of immovable property, the material date is the date of service of Rule 2 Notice. This Court is of the view that failure to note this difference in the language has led to conceptual confusion vitiating the entire process of reasoning16. More than anything else, as rightly pointed out by the learned standing counsel for the respondent Department, any attachment of an immovable property made under the second schedule would relate back to and take effect from the date on which the notice to pay the arrears issued under II schedule was served on the defaulter. This legal effect of Rule 51 of second schedule cannot be overcome. In this case, this Court, therefore, comes to the conclusion that the attachment made subsequent to the purchase by the writ petitioners would relate back to and take effect from 05.01.2013 onwards17. It is true that as stronglycontended by the learned counsel for the petitioners, if two interpretations are possible, the one that is beneficial to the assessee must be. But, in this case, this Court has absolutely no doubt that on a plain reading of the relevant provisions, only one interpretation is possible and that one is in favour of the RevenueBut this Court is unable to agree with the said submission. It is true that the Division Bench of this Court in the decision reported in [1986] 159 ITR 646 (Mad) observed that it is an acceptable principle in the matter of construction of an Indian statute as far as possible that there must be uniformity of construction and if the provision of law which falls for consideration before the Court has already been construed by another High Court, normally that construction should be accepted. But then the Honourable Division Bench also added a caveat that if there are compelling reasons to depart from the view taken by the other High Court, the said construction need not be accepted. This Court is of the considered opinion that there are compelling reasons to depart from the view taken by the Division Bench of the Gujarat High Court. Again as already pointed out, this Court is treading the path taken by the Honble Division Bench of the Punjab and Haryana High Court21. Yet the orders impugned in these writ petitions cannot sustained as such. The Honble Supreme Court in (1998) 6 SCC 658     has held that it is the function of the civil Court to declare a transaction to be null and void and that the Tax Recovery Officer cannot exercise the said function. Therefore, the respondent clearly erred in declaring the transactions to which the petitioners are parties as null and void. Therefore, the orders impugned in these writ petitions stand quashed to that extent. It would certainly be open to the petitioners herein to avail the remedy set out in Rule 11(6) of the second schedule of the Income Tax Act. If the respondent authority wants to have the transactions nullified, it is the respondent who must go to the civil Court to seek declaration to that effect. If the writ petitioners want the attachment to be lifted, it is for them to move the civil Court and obtain relief as provided in Rule 11(6) of the second schedule of the Income Tax Act.