Case: The Tax Recovery Officer, II, Sadar Nagpur Vs. Gangadhar Vishwanath Rande (dead) through Mrs. Shobas Ravindra Nemiwant

2. For the period relevant to the assessment years in question, the assessee was carrying on business as a partner of a firm known as United Capital Construction Company, and also as a Contractor. For the assessment years65 he was assessed toand the amounts of tax so assessed became final on 7.8.1967. There were alsodemands which were outstanding for the subsequent assessment years at the time, when the Tax Recovery Officer served notices on the assessee under Rule 2 of the Second Schedule to theAct, 1961 on 21.10.1972. Thereafter on 23.10.1972 an immovable property being a residential house of the assessee in Ramadaspeth, Nagpur was attached by the Tax Recovery Officer. In the objections filed by the assessee, original respondent No.l, it was stated that on 2.12.1967 he had executed a mortgage in respect of this property in favour of the Bank of Maharashtra for raising a loan of Rs. 75,000. He further stated that on 21.2.1969 he had executed ain respect of the said property in favour of his wife and his daughter. On 27.2.1969 the assessee, the original respondent No.l had, by a registered deed, conveyed the said property to his wife and his daughter, original respondent No.2. Similar objections were filed on behalf of the wife of the assessee and his daughter, original respondent No.2 claiming that the title to the said property vested in them as full owners and they were in possession of the said property. Objections were also filed by the Bank of Maharashtra. 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 theAct and also on the date when the said property was attached by the Tax Recovery Officer, the property was of the ownership of the wife of the assessee and his daughter, original respondent No. 2, who were also in possession of this property. Hence the property was not liable to attachment for the dues of the assessee, original respondent No.l.3. Thereafter anotice dated 21.1.1974 was issued under Section 281 of theAct as then in force, on original respondent No.l. It seems that the concerned Income Tax Officer held an inquiry, recorded evidence and passed an order dated 9.5.1974 declaring, inter alia, that the transfer in favour of the wife of the assessee and his daughter, original respondent No.2 of the said immovable property was void as against the Department under Section 281 of theAct. This decision was the subject matter of challenge in earlier proceedings before the High Court. The High Court by its judgment and order dated 9.1.1981, in the case of Gangadhar vishwanath Ranade, No.l and Ors v.Officer, 177 ITR 163  held that the proceedings taken pursuant to the declaration or expression of an opinion by the Income Tax Officer or authority under Section 281 were a mere prelude to the procedure for the recovery of tax and that the order of 9.5.1974 did not, in any way, affect the rights of the parties pertaining to the said property which could be considered in the proceedings under Rule 11.4. By his order dated 17.9.1981 the Tax Recovery Officer, in the proceedings under Rule 11, overruled the objections filed by the Objectors and declared that the mortgage dated 2.12.1967, thedated 21.2.1969 and conveyance dated 27.2.1969 were illegal and void and that the said property was liable to attachment and sale. This order of the Tax Recovery Officer was challenged by the assessed and the other respondents by filing a writ petition before the High Court. The High Court by its impugned judgment has set aside the order of the Tax Recovery Officer.5. The High Court has upheld the contention of the respondents that the Tax Recovery Officer has no power, under Rule 11 of the Second Schedule to theAct, to declare as void a transfer of property effected by the assessee during the pendency of proceedings against him under theAct on the ground that the transfer was with the intention to defraud the Revenue and was void as against the Department under Section 281 of theAct as it then stood. The High Court also negatived the contention of the Department that by reason of the judgment of the High Court in the earlier proceedings, the respondents were precluded from raising such a contention.6. The latter contention has been rightly negatived by the High Court in view of the express findings of the High Court in the earlier decision in the case of the assessee and reported in Gangadhar vishwanath Ranade, No.l and Ors v.Officer, 1989 177 ITR 163  which has become final. While examining the declaration given in the present case by the Income Tax Officer under Section 281 of theAct, the High Court had expressly held that by introduction of Section 281 in the Income Tax Act, 1961, the Legislature had no intention to confer an exclusive power and jurisdiction upon the income tax authorities to decide the questions arising under Section 281. Section 281 merely declared what the law was. Section 281 did not prescribe any adjudicatory machinery for deciding any question which may arise under Section 281. In order to declare a transfer as fraudulent under Section 281, appropriate proceedings would have to be taken in accordance with law in the same manner as they are required to be taken under Section 53 of the Transfer of Property Act. The High Court had held the order of 9.5.1974 as merely declaratory of the intention of the Department to treat the transfer as void under Section 281 and not as taking away the right of the respondents to raise objections under Rulel 1.

Court's reasoning:
No doubt, it is impossible to separate altogether the question of possession and of title. Thus, if thewas in possession, he may have been in possession as agent or trustee for another, and this has to be enquired into. To that extent title may be a part of the inquiry. Similarly, if the property attached is claimed by a third party who adduces evidence to show that he was possessed of the property under some kind of a title, the property will have to be released from attachment. The procedure is not meant to decide intricate questions of law as to title to the property. Therefore, where a claim is made to the property attached, by someone claiming to be a transferee from theand the claim is disallowed, the claimant can institute a suit under Order XXI, Rule 63 to establish his title to the property. In such a suit it would be open to the attaching creditor to plead in defence that the transfer was in fraud of the general body of creditors and was void under Section 53 of the Transfer of Property Act. Similarly, if the claim of the transferee is allowed, the attaching creditor may sue on behalf of himself and all other creditors under Section 53 of the Transfer of Property Act for a declaration that the transfer was void as it was in fraud of the creditors.In the light of this discussion about the provisions of Order XXI, Rules 58 to 63, if we examine Rule 11(4) of the Second Schedule to theAct, 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 desire transaction of transfer declared void under Section 281, the Department being in the position of a creditor, will have to file a suit for a declaration that the transaction of transfer is void under Section 281 of the Income Tax Act.13. In the present case the Tax Recovery Officer could not have examined whether the transfer was void under Section 281 of the Income Tax Act. His adjudication of the transfer as void under Section 281 is without jurisdiction. The Tax Recovery Officer has relied upon the earlier order of the Income Tax Officer dated 9.5.1974 declaring that the transactions is void under Section 281 of the Income Tax Act. In the earlier proceedings, however, although the High Court has not set aside this order of the Income Tax Officer, the High Court has expressly held that the order amounted only to an intention of declaration on the part of the Department to treat the transaction as void under Section 281. such a declaration cannot affect the legal rights of the parties affected under Rule 11. The High Court expressly held that the rights of the parties under Rule 11 were not affected in any way by this declaration. The Department, therefore, cannot proceed on the assumption that the transaction is void under Section 281, nor can the Tax Recovery Officer, while proceeding under Rule 11, declare a transaction of transfer as void under Section 281 by relying on the Order of 9.5.1974 or otherwise. His jurisdiction relates to examine possession, and only incidentally, any question of right to possession as claimed by the Objector. The High Court has, therefore, rightly set aside the order of the Tax Recovery Officer.14. However, the right of the Department to have the transfer declared as void under Section 281 of the Income Tax Act, as it stood at the relevant time, is not thereby taken away. We are informed that the property continues to be under attachment by virtue of interim orders passed in this appeal. The Department may, if it so desires, take appropriate proceedings in accordance with law for having the transfer declared as void under Section 281 of the