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Petitioner: SUNDERLAL DAGA through Legal Heirs and another VS Respondent: TAX RECOVERY JUDGMENT
Court Name: Bombay High Court Judge(s): G. D. Patil, L. Manoharan Title:SUNDERLAL DAGA through Legal Heirs and another vs TAX RECOVERY
JUDGMENT
Reported As: 1999 PTD 119 Result: Order accordingly Judgment JUDGMENT ' L. MANOHARAN, J.---The challenge in this writ petition is against the order Annexure-E rendered by the first respondent. For the income-tax dues from Adam Ali Hatimbhai, 1/4th share each of the said defaulters in 7.73 acres of land comprised in Kh. No,20 situated at Mouza Kachimeth, Tq. And District Nagpur, was attached by the first respondent. The said attachment orders, dated May 4, 1974, are at Annexures "A" and "B" Against the said attachment, the petitioners had preferred Annexure "C" objection by way of claim contending, the said survey field belonged to the firm--- K.S.M. Hassonjee & Sons and that the senior partner Mulla Akbar All sold the property to the petitioners pursuant to an agreement to sell in their favour, on February 1, 1972. They contended that they were put in possession pursuant to the said agreement to sell, and latter sale-deeds were also executed. Thus, according to them they were in possession of the entire property, which included the said 1/2 share which was attached. It is their case that they are in possession as absolute owners and, therefore, the said property was not liable for the claim against the defaulters. The first respondent, the Tax Recovery Officer, by Apexure "B" order, dismissed their objection. ' In this writ petition, the contention of the first respondent is that the property did not belong to the aforesaid firm but it originally belonged to Mulla Akbarali and his brother, Mulla Fidali. Mulla Fidali had two sonsHatimali and Adamali, the defaulters. Akbarali was having 1/2 share and Fidali was having the balance 1/2 share in the whole property. After the death of Mulla Fidali, his sons, Hatimali and Adamali, inherited 1/4th share each in the said property. Thus, according to the first respondent the defaulters, Hatimali and Adamali, were having 1/2 share in the property and that
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the said 1/2 share was attached for satisfying the claim of arrears of income-tax due from the aforesaid two defaulters. As already indicated, it is their case that the alleged firm---K.S.M. Hassonjee & Sons, never had any interest in the property and that Akbar Ali was not competent to deal with the whole property as if the same belonged to the aforesaid firm. ' Later, Hatimali expired. His legal representatives along with Adamali sought intervention in this writ petition. The intervention was allowed and they were impleaded as additional respondents Nos.2 to 8. They also maintained that 1/2 share in the entire property belonged to them and they denied that the property belonged to the aforesaid firm. They also challenged the competency of Akbarali to deal with their share in the property. In short, they supported the claim of the Revenue. ' As indicated, by the impugned order, the first respondent rejected the claim on the ground that the alleged sale-deeds in favour of the writ petitioners violative of section 230-A of the Income Tax Act, 1961 (for short "the I.T. Act"). Apart from finding that the aforesaid sale-deeds are violative of section 230-A of the Income Tax Act, the first respondent also found that the property did not belong to the aforesaid firm and that section 281 of the Income Tax Act has no application as the sale-deeds in favour of the petitioners were not executed by the defaulters. ' It was urged by learned counsel Shri V.C. Daga for the petitioners that Annexure-E order rendered by the first respondent is without jurisdiction, inasmuch as he held that the sale-deeds in favour of the writ petitioners are void. It is his case that the Tax Recovery Officer has no jurisdiction to hold the sale-deeds void. Apart from that, it is pointed out, that the said sale-deeds in favour of the writ petitioners do not violate section 230-A of the Income Tax Act. It was also urged by learned counsel that the finding by the Tax Recovery Officer that the property did not belong to the firm also is without jurisdiction as under rule 11 of the Second Schedule (for short "the Rules"), the Tax Recovery Officer does not have jurisdiction to declare a document void and, therefore, the order is bad for excessive exercise of jurisdiction. The order is also vitiated as, according to learned counsel, there is absolutely no adjudication on the question of possession as on the date of service of notice under rule 2 of the Rules. ' Shri P.N. Chandurkar, learned counsel on behalf of the first respondent, and Shri A.S. Bobde on behalf of respondents Nos.2 to 8, on the other hand, sought to support the impugned order maintaining that the first respondent has got jurisdiction to see whether the petitioners had locus to question the attachment. It is also maintained by them that as the petitioners, who were the claimants before the first respondent, since were not in possession of the said property on the date of rule 2 notice, they have no locus to agitate the validity of the order of attachment under rule 11 of the Rules. Therefore, according to learned counsel for the respondents, it was not necessary in the said context to adjudicate possession. ' As already noted, the impugned order, Annexure "E" reveals, the first respondent rejected the claim by the petitioners chiefly on two ground, viz., the sale deeds violate section 230-A of the Income Tax Act, and since the vendor or petitioners had no title to convey, the objections to the attachment are "redundant". The first respondent also is of the view that section 281 of the Income Tax Act has no application as the vendors are not the defaulters. In the context of the aforesaid factors and arguments, it would be convenient first to advert to the question whether as per section 230-A of the Income Tax Act, the sale-deeds in favour of the petitioners are vitiated, as the question as to the relevancy of title in a summary proceeding under rule 11 of the rules and whether a contest against the validity of the alienation as per section 281 of the Income Tax Act is contemplated can be gone into later. Photo copies of the two sale-deeds were produced by the first respondent. Section 230-A of the Income Tax Act, as it stood before the amendment of 1988 and 1995 enjoined, where any document purports to transfer, assign, limit, or extinguish the right, title or interest of any person to or in any property valued at more than fifty thousand rupees, no registering officer shall register such document, unless the Income-tax Officer issues certificate as enjoined under section
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230-A(1) of the Income Tax Act. The sale-deeds in question are, dated July 26, 1972, and July 31, 1972. The consideration for the first sale-deed is Rs,48,000 and the consideration for the second one is Rs,47,000. What is urged by learned counsel Shri Daga is that it is not the consolidated value of both the sale deeds that matters for the purposes of section 230-A but what should be taken into account is the value of the interest that is sought to be alienated by the particular document. Learned counsel, in support of the above contention, relied on the decision in the case of Samudrala Ganesh Rao v. State of Andhra Pradesh (1988) 174 ITR 304 (AP), wherein the sisters of the petitioners therein executed a document relinquishing their undivided 3/40ths share in the property in favour of the petitioner. The value of the said interest did not exceed Rs,50,000. The Registrar declined to register the document for non-production of the certificate under section 230-A(1) on the ground that the value of the entire property exceeded Rs,50,000, In the said decision the Andhra Pradesh High Court quashed the order of the Registrar, pointing out that the undivided share of the sisters was estimated at Rs,2,775 on the basis of wealth tax assessments. The Court held that the criterion in the context of section 230-A of the Income Tax should be the value of the property or the interest of the person in such property sought to be transferred. The same principle is laid down in the case of N.C. Rangesh v. Inspector-General of Registration (1991) 189 ITR 270 (Mad.) R. Lokeswa ri v. State of Tamil Nadu (1992) 196 ITR 501 (Mad.) and A: Mohan v. Dr. Vivekanandan (1994) 206 ITR 634 (Mad.) The principle laid down in these pronouncements certainly will support the argument of learned counsel Shri V.C. Daga, that inasmuch as the value of the property that is sought to be transferred by the individual sale-deed did not exceed Rs,50,000, it was not necessary to produce certificate under section 230-A of the Income Tax Act. Therefore, it is not possible to uphold the view of the first respondent that the sale-deeds are void as they violated the provisions of section 230-A of the Income Tax Act. Even in cases where there is violation of section 230-A of the Act, such transaction would be void only against the claim of tax liability. The Karnataka High Court in the decision in P.B. Shankar v. First ITO (1981) 128 ITR 431 held, the effect of the section is that, in cases covered by the said provision, registration of the document without the certificate enjoined in section 230-A(1) of the Act would not prejudicially affect the recovery of existing tax liability. ' The impugned order shows that the Tax Recovery Officer has gone into the question of title and found that the firm, K.S.M. Hassonjee & Sons, vendor of the petitioners, had no title to the property and also held that section 281 of the Act has no application, because the defaulters are not the transferors. Section 281 of the Act enjoins that where, during the pendency of any proceedings under the Act or after the completion thereof, but before the service of notice under rule 2 of the Rules, any assessee creates a charge on, or parts with the possession by way of sale, gift, etc., of, any of his assets in favour of any other person, such 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. This section is similar to section 53 of the Transfer of Property Act. Rule 11 of the Second Schedule is similar to rules 58 to 63 of Order 21 of the unamended Civil Procedure Code. The question whether a contention under section 53 of the Transfer of Property Act can be dealt with in a proceeding under rules 58 to 61 of Order 21 of the unamended Civil Procedure Code arose for determination before the Supreme Court in the decision in C. Abdul Shukoor Saheb v. Arji Papa Rao, AIR 1963 SC 1150. ' The argument was in a suit by the defeated claimant under Order 21, rule 63, of the unamended Civil Procedure Code, the attaching decree-holder cannot raise a contention under section 53 of the Transfer of Property Act. The reasoning projected was, in view of rule 61 of Order 21, when the transfer is real though voidable, in view of section 53 of the Transfer of Property Act, the claim of the transferee has to be upheld in the summary proceeding, in which case the attaching decree- holder has to bring a suit under rule 63 of the said Civil Procedure Code, which has to be under
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Order 1, rule 8, Civil Procedure Code. Consequently, it was contended, in a suit by the defeated claimant the attaching decree-holder cannot raise a defence under section 53 of the Transfer of Property Act. Repelling the said contention the Supreme Court observed in paragraph 25 (at page 1159): "It would, however, be seen that this last step which is vital for the argument to have force does not follow for the argument does not proceed on any construction of the terms of section 53(1) nor on any legal theory as to the mode or procedure by which the intention to avoid the transaction which the attaching creditor claims is voidable at his instance may be expressed or enforced. The argument would only establish that if the Court investigating claims under Order XXI, rule 58, etc., conformed strictly to the terms of those provisions the transferee under a real sale would succeed in those proceedings and he would be a defendant and need not be a plaintiff in the suit to set aside the summary order under Order XXI, rule 63. This line of reasoning does not take into account at least the following possibilities: (1) The claim or objection by the transferee may be rejected, not on the merits but because it has been designedly or unnecessarily delayed (vide Order XXI, rule 58, Civil Procedure Code). It is certainly not the contention of learned counsel that when there is a rejection of a transferee's claim under this provision the order of rejection is any the less final and has not to be set aside by a suit contemplated by Order XXI, rule 63 of the Civil Procedure Code, in order to overcome the effect of that finality. (2) The Court making the summary enquiry might come to an erroneous conclusion that the transfer is sham and not real or that the transferee is in possession for the benefit of the judgment- debtor. In the suit filed by the transferee to set aside this erroneous order, the plaintiff would have to establish his title and even if he succeeds in showing that the sale to him was real and effective, still the question would remain whether, having regard to the circumstances of the transfer, the same is not voidable under section 53(1). Thus, there would be occasions when a defeated transferee whose transfer is real might have to figure as a plaintiff in a suit to set aside a summary order under Order XXI, rule 63 of the Civil Procedure Code. (3) The attaching decree-holder might raise in the summary proceedings two alternative defenses to a transferee's claim (a) that the sale was sham and nominal and, therefore, the possession of the transferee was really on behalf of the judgment-debtor, and (b) that even if the sale be real and intended to pass title it was voidable as a fraud on creditors. It is, no doubt, true that the second or the alternative defence is not open in the claim proceedings, but if, however, the same were erroneously entertained and an order passed, rejecting the claim of the transferee, the same would nevertheless be an order which would have to be set aside by a suit by the defeated transferee and he cannot ignore it." ' So, with respect to the contention that the sale-deed is a fraud on creditors, the Supreme Court finds that the said defence is not open in a claim proceeding. This aspect was considered by this Court in two decisions--(1)Gangadhar Vishwanath Ranade (No,1) v. ITO (1989) 177 ITR 163 and (2) the second decision between the same parties Gangadhar Vishwanath Ranade (No,2) v. TRO at page 176 of the same volume. In the first case, the challenge in the petition was against the order under section 281 of the Act to proceed against the property of the defaulter with respect to which a sale deed was executed by the defaulter. It is held therein that when the Tax Recovery Officer passes and order under section 281 of the Act, to proceed against the property that would only mean that the Department signifies its intention to proceed against the property and, therefore, the same will not acquire the character of adjudication as to the nature of the transfer. But when the same question as to the nature of transfer whether the same is void on account of section 281 of the Act arises in a claim proceeding that involves adjudication and in that regard, relying on the decision in C. Abdul Shukoor Saheb v. Arji Papa Rao, AIR 1963 SC 1150, it was held that the Recovery
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Officer in a proceeding under rule 11 of the Second Schedule cannot entertain the claim on behalf of the taxation authorities that the transfer by the assessee is void on the ground that it was with the intention of defrauding the Revenue while proceedings against him were pending. Thus, now it is clear that section 281 of the Act cannot be entertained in a summary proceeding under rule 11 of the Second Schedule. ' The above conclusion is reached on account of the nature of the proceedings under rule 11 of the Second Schedule. As notice the tax Recovery Officer reached the conclusion that section 281 of the Act is not applicable not because the summary enquiry under rule 11 of the Second Schedule does not permit such a contention to be gone into, but because of his finding that the transfer is not by the defaulter,. He has also found that the firm on behalf of which Akbarali effected the transfer has not title to the property. In the decision in Gangadhar Vishwanath Ranade's case (1989) 177 ITR 176 (Born.) this Court observed that (at page 182): ' It is settled law that complicated questions of title are not to be gone into under the summary procedure of investigation under Order 21, rule 58." ' In the decision of the Calcutta High Court in the case of Anandilal Goenka v. TRO (1994) 208 ITR 46, the same view was taken. ' The impugned order bases its conclusion on the finding that the firm, K.S.M. Hassonjee & Sons, has no title to the property and also that the impugned transfers in favour of the writ petitioners are void as the same were executed in violation of section 230-A of the Act. ' In this context, it is necessary then to see as to what is the nature of enquiry that is contemplated under rule 11 of the Second Schedule. Rule 11 reads: "11. Investigation by Tax Recovery Officer.---(1) Where any claim is preferred to, or any objection is made to the attachment or sale of, any property in execution of a certificate, on the ground that such property is not liable to such attachment or sale, the Tax Recovery Officer shall proceed to investigate the claim or objection: ' Provided that no such investigation shall be made where the Tax Recovery Officer considers that the claim or objection was designedly or unnecessarily delayed. (2) Where the property to whim the claim or objection applied has been advertised for sale, the Tax Recovery Officer ordering the sale may postpone it pending the investigation of the claim or objection, upon such terms as to security or otherwise as the Tax Recovery Officer shall deem fit. (3) The claimant or objector must adduce evidence to show that --- (a) (in the case of immovable property) at the date of service of the notice issued under this Schedule to pay the arrears, or (b) (in the case of movable property) at the date of the attachment, he had some interest in, or was possessed of, the property in question. (4) 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. (5) Where the Tax Recovery Officer is satisfied that the property was, at the said date, in the possession of the defaulter as his own property and not on account of any other person, or was in the possession of some other person in trust for him, or in the occupancy of a tenant or other person paying rent to him, the Tax Recovery Officer shall disallow the claim.
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(6) Where a claim or an objection is preferred, the party against whom an order is made may institute a suit in a Civil Court to establish the right which he claims 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." ' A reading of the above rule clearly would show that the claimants or the objectors must adduce evidence to show that at the date of service of notice under Schedule II, he had some interest in, or was possessed of the property. Sub-rule (4) of rule 11 enjoins that where the Tax Recovery Officer is satisfied that the property, at the date of service of the notice under rule 2, was not in the possession of the defaulter or some person in trust for him or in occupation of a tenant, etc. Or where the defaulter is in possession, the same is not on his own account, but on account of some other person, then the property must be released from the attachment. Sub-rule (5) speaks of the circumstance when the claim has to be disallowed; that is, when the defaulter is in possession or some other person on his behalf is in possession, the claim has to be disallowed. Sub-rules (4) and (5) of rule 11, thus, bring out the real scope of an enquiry under rule 11; and sub-rule (3) states that the burden is on the claimants to adduce evidence and to prove that the property at the relevant time was in his possession independently of the defaulter. Thus, the central point to be adjudicated in a proceeding under rule 11 is possession. The very scheme of rule 11 shows that the enquiry would include the question whether the possession of the claimant is on behalf of the defaulter or independently of him. Though an adjudication of the title is not warranted in an enquiry under rule 11, the question of title may become relevant incidentally to decide the character of the possession as indicated above. The role of title in relation to rule 11 is only to that limited extent. ' In the decision in Paparaju Veeraraghavayya v. Killaru Kamala Devi, AIR 1935 Mad. 193, at page 194, in relation to rule 59 of Order 21 of the unamended Civil Procedure Code, it is observed: "But then it is argued that under Order 21, rule 59, the claimant is bound to show that at the date of the attachment he had some interest in the property attached, which interest, it is contended, means an estate in land. I cannot agree that the interest referred to in this rule is necessarily an interest in land in the sense that expression is used in section 54 of the T.P. Act..." ' This Court in the case of Nalinkant Bhanushanker Dave v. Harilal Amraislal Parekh, AIR 1959 Born. 87, as regards interest, observed (at page 88): "The claimant objecting to the attachment has to show that at the date of the attachment he had some interest in the property or was possessed thereof, and the words 'some interest' occurring in rule 59 have been interpreted as meaning such interest as would make the possession of the judgment-debtor not on his own account but on account of or in trust for the claimant. ( See Satkari Mandal v. Tirtha Narain, AIR 1915 Cal. 116), or the claimant may prove his own possession. It is only in such cases that a claim for removal of attachment can succeed." ' This Court in the case of Ganpati Ram Bhande v. Balram Raghunath Jadhav, AIR 1974 Born. 155, with reference to the nature of the enquiry and also as to the interest of the claimant, at page 160, held that: "It requires to be emphasized that the direction of the investigation, which the Court has to carry out, points to possession being the criteria. It is, of course, possible that in the course of such an investigation as to who is in possession of the property subjected to attachment, the question of some legal right or interest or title may also arise and if such legal right affects the determination of the question as to who is the real person in possession in fact or in law, then such a legal right or interest will naturally have to be taken into account. But it is also settled law that complicated questions as to title are not to be gone into under the summary procedure of the investigation under Order XXI, rule 58." ' In that case, it is also held that where in proceedings under Order 21, rule 58, the lower Court instead of going into question as to the possession of property on the date of its attachment, directed the enquiry as to whose title was superior, the Court must be held to have failed to
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exercise jurisdiction vested in it under Order 21, rules 51 to 61 and the High Court in its revisional jurisdiction can interfere with the decision. Ultimately, in that case on account of the said defect in the order, this Court allowed the revision and set aside the order of the trial Court and remanded the matter to the trial Court for disposal in accordance with law. In the case of Punnen Abraham v. Varkey Varkey, AIR 1965 Ker. 145, the Kerala High Court held that though the impugned order found that the claimant is in possession, since the order was rendered without further deciding whether the said possession is in trust or on behalf of judgment-debtor, the order is defective. Consequently, the order was set aside and the matter was remanded of fresh disposal according to law. ' The aforesaid pronouncements…
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