High Court Of Bombay
Master Aditya Kumar Kedia vs. Tax Recovery Officer & Ors.
Section Sch. II, Rule 11
S.H. Kapadia & A.P. Shah, JJ.
Writ Petn. No. 3060 of 1999
29th February, 2000
Arun P. Sathe, for the Petitioner : B.M. Chatterjee, for the Respondents
By the court :
The short point which arises for determination in this petition is whether the TRO was right in refusing to adjudicate upon the claim of the petitioner under r. 11 of the Second Schedule to the IT Act, 1961, on the ground that the AO has declared the gift deed dt. 2nd Dec., 1986, as void under s. 281 of the Act. The gift deed is in favour of the petitioner. It pertains to Flat No. 23, “Belle View”, Bhulabhai Desai Road, Mumbai.
2. The brief facts of the case are as under : The Tax Recovery Officer (TRO), Ward No. 24, Mumbai, vide order dt. 17th Nov., 1989, attached the above flat under Sch. II to the IT Act, 1961, on account of tax arrearsoutstanding in the case of the assessee by name Vinod Bhatia. The attachment has since been continued. By letter dt. 31st March, 1994, addressed by the advocate on behalf of the petitioner to the AO, it was pointed out that the assessee has gifted the above flat to the petitioner herein under the gift deed dt. 2nd Dec., 1986. Accordingly, the petitioner called upon the AO to furnish a copy of the order attaching the flat. A similar letter was also addressed to the TRO calling upon him to forward the prohibitory order to the petitioner. By letter dt. 15th April, 1994, the petitioner forwarded to the TRO a copy of the gift deed, copy of the application made for membership to the society and copy of the computation of income and wealth-tax returns by the petitioner. However, by order dt. 11th Feb., 1993, the AO treated the gift as null and void under s. 281 of the IT Act. Hence, by letter dt. 12th Oct., 1994, the AO was requested to furnish to the petitioner details of the proceedings pending in the case of the assessee-Vinod Bhatia (donor) at the time of making the above gift on 2nd Dec., 1986, and the date of the filing of the return of Vinod Bhatia in order to enable the petitioner to ascertain the validity of the said order, dt. 11th Feb., 1993, passed under s. 281 of the Act. By letter, dt. 5th Jan., 1995, the AO informed the natural guardian of the petitioner herein that there was no provision under the IT Act to furnish information asked for in the above letter. By letter dt. 15th Feb., 1995, addressed by the TRO to the petitioner, it was stated that the gift of the flat is treated void under s. 281 of the IT Act by the AO and since the flat stands in the name of Vinod Bhatia, the petitioner was not entitled to be furnished with copies of the documents sought for by the petitioner. Being aggrieved by the order of the TRO, the petitioner preferred a petition under r. 86 of the Second Schedule to the appellate authority. By order, dt. 10th May, 1999, the appellate authority ruled that the decision of the TRO was conclusive and the only remedy of the petitioner is to institute a suit and the appeal was misconceived. Hence, the appeal came to be dismissed. Being aggrieved by the said order, the present petition has been filed.
3. Mr. Sathe, learned counsel appearing on behalf of the assessee, contends that on the petitioner coming to know that the flat in question stood attached, the petitioner moved the TRO with a request to furnish to the petitioner all the relevant documents so that the petitioner could file objections under r. 11(1) of the Second Schedule to the IT Act. Mr. Sathe further contended that in the present matter, the TRO has refused to give the documents. He further contended that the petitioner has forwarded to the TRO the gift deed, the wealth-tax return, the income-tax return and other connected documents to show that the petitioner was in possession of the flat and the petitioner was the owner under the above gift deed. However, the TRO has not adjudicated upon the claim of the petitioner. On the contrary, in view of the decision of the AO declaring the gift deed to be void, the TRO has not adjudicated upon the claim of the petitioner under r. 11 of the Second Schedule to the Act. Mr. Sathe further contended that even under s. 281 of the IT Act, the petitioner was entitled to a show-cause notice before issuance of a declaration that the gift deed was void. He contends that an ex parte order has been passed under s. 281 of the IT Act without giving any opportunity to the petitioner. He further contends that in the present matter there is nothing to indicate that the assessee-Vinod Bhatia was in arrears of tax on the date when he executed the gift deed. Mr. Sathe, therefore, contends that the declaration that the gift deed is void should be set aside.
4. The short point which arises for determination is : Whether the TRO was right in refusing to adjudicate the petitionerâs claim/objection under r. 11 on the ground that the AO has declared the gift deed as void under s. 281 of the IT Act ?
5. In the case of Gangadhar Vishwanath Ranade vs. ITO (1989) 177 ITR 163 (Bom) : TC 52R.1424, the question regarding the scope, validity and operation of s. 281 of the IT Act arose for determination. In that matter, the facts were as follows. The assessee was doing business. His assessments for the years 1962-63 to 1964-65 were reopened. The assessee had executed a mortgage in favour of a bank on 2nd Dec., 1967, after obtaining a certificate from the IT Department under s. 230A. In 1969, he declared a trust in respect of the property in favour of his wife and other persons as beneficiaries. The house property was subsequently transferred to the assesseeâs wife in February,1969. In January, 1972, some of the properties of the assessee were attached. Subsequent to the attachment, a show-cause notice was issued under s. 281 of the IT Act. The ITO was of the opinion that the transfer of property was with an intention to defraud the Revenue during the pendency of the proceedings under the IT Act. By order dt. 9th May, 1974, the transfer was declared void as against the Department under s. 281 of the Act. This order was challenged by the writ petition. It was held that s. 281 of the IT Act and s. 53 of the Transfer of Property Act are pari materia. That s. 281 only states what the law of the land is. It does not say that any conclusion or declaration by an authority entrusted with the functions to be performed under the IT 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 s. 281 as void and therefore, not standing in the way of recovery proceedings to be taken by the TRO. That the jurisdiction of the TRO as contemplated by r. 11 is not taken away by the expression of any opinion or intention by the ITO expressed under s. 281. That the adjudicatory process under r. 11 still survives and can be availed of by the claimant to claim that the transfer was not made during the pendency of proceedings. Therefore, it has been held that s. 281 merely declares the intention of the AO. It is merely a step to recover the dues of the State from the defaulter. That the jurisdiction of the TRO under r. 11 is not taken away by the expression of any opinion or intention of the AO expressed under s. 281 of the IT Act.
6. In the case of the TRO vs. Gangadhar Viswanath Ranade (1998) 149 CTR (SC) 90 : (1998) 234 ITR 188 (SC) : TC S.52.414, the facts were as follows. The assessee was assessed for the asst. yrs. 1962-63, 1963-64 and 1964-65. The amount of tax so assessed became final on 7th Aug., 1967. Accordingly, the TRO served notices on the assessee under r. 2 of the Second Schedule to the IT Act on 21st Oct., 1972. On 23rd Oct., 1972, an immovable property came to be attached by the TRO. In the objections filed by the assessee, he stated that on 2nd Dec., 1967, he had executed a mortgage in favour of the Bank of Maharashtra for raising a loan. That on 21st Feb., 1969, he has executed a trust deed in respect of same property in favour of his wife and daughter and on 27th Feb., 1969, he had conveyed the said property to his wife and his daughter. Similar objections were filed on behalf of his wife and daughter claiming title to the property. It was contended by the claimants that on the day when the notice under r. 2 came to be issued and on the day when the property was attached, the property belonged to the wife and the daughter. Thereafter, a show-cause notice came to be issued on 21st Jan., 1974, under s. 281 on the original assessee. The AO held an enquiry, recorded evidence and passed an order on 9th May, 1974, declaring that the transfer in favour of the wife and the daughter was void against the Department under s. 281 of the IT Act. This decision was a subject-matter of challenge in the earlier proceedings before the High Court. In that earlier judgment, it was held that the proceedings taken pursuant to the declaration by the AO under s. 281 was a mere prelude to the procedure for the recovery of tax and that the order under s. 281 did not, in any way, affect the rights of the parties pertaining to the said properties, which could be considered under the proceedings under r. 11. By order dt. 17th Sept., 1981. The TRO in the proceedings under r. 11 overruled the objections filed by the assessee, his wife and his daughter and declared the mortgage and the trust deed as also the conveyance as void. This order was challenged by a writ petition. The High Court held that contention of the claimants that the TRO had no power under r. 11 to declare the transfer of property as void under s. 281 of the Act. The matter was carried in appeal to the Supreme Court by the Department. Under the above facts, the Supreme Court held that the order, under s. 281, merely declared the intention of the Department to treat the transfer as void under s. 281 and it did not take away the right of the claimants to raise objections under r. 11. It was also held by the Supreme Court that the powers of the TRO under r. 11 are different from the powers of the AO under s. 281. That under r. 11(1), where any claim is preferred to, or where any objection is made to the attachment or sale of any property on the ground that such property is not liable to such attachment or sale, the TRO shall proceed to investigate the claim. That the TRO has to examine who is in possession of the property and in what capacity. That he can attach the property in the possession of the assessee if it is held in his own right. That, if the property attached is claimed by a third party, who has evidence to show that he possessed the property under title, then the property will have to be released from attachment. That the TRO is required to examine that the possession of the third party is of a claimant in his own right or whether it is on account of the assessee. It was held by the Supreme Court on the facts that the TRO could not have examined whether the transfer was void under s. 281 of the IT Act and, therefore, his adjudication in that regard was without jurisdiction. That the declaration under s. 281 cannot affect, in any event, the legal rights of the parties under r. 11. That the Department cannot proceed on the assumption that the transaction is void under s. 281.
7. In the present case the petitioner claims to be in possession of the property in his own right under the gift deed. According to the petitioner, the donor was not in arrears of taxes when the order dt. 11th Feb., 1993, came to be passed. The petitioner has not filed an application under r. 11 till today. However, he has sought inspection of the documents from the AO which were not furnished. The petitioner has forwarded all documents, to show that the petitioner was in possession in his own right, to the TRO. In view of the above judgments notwithstanding, the declaration under s. 281 declaring the gift as null and void, the TRO is duty bound to adjudicate the claim of the petitioner under r. 11. Under the above circumstances, we are directing the TRO to adjudicate the claim of the petitioner under r. 11. It would be open to the petitioner in the said adjudication to raise the contention before the TRO that the gift deed was not executed during the pendency of the proceedings as held by the Bombay High Court in Gangadhar Vishwanath Ranade (No. 1) vs. ITO (supra). The TRO will furnish all relevant documents on which the Department seeks to place reliance in the said enquiry under r. 11. It is expressly made clear that all contentions raised by the petitioner in this petition are expressly kept open. Accordingly, the above issue is answered in the negative. Under the above circumstances, without distributing the declaration of the gift deed as void under s. 281, we direct the petitioner to file his claim/objection under r. 11 of the Second Schedule to the Act within two weeks. The TRO shall take steps to adjudicate upon the claim of the petitioner herein under r. 11 of the Second Schedule to the IT Act. The TRO shall consider the requisite documents which are produced by the petitioner herein showing his possession on the relevant date. The TRO shall examine as to whether the petitioner was in possession in his own right and that the transfer was not made during the pendency of the proceedings. On the merits all the contentions of the petitioner are kept open. Attachment to continue till the adjudication is done as directed above. Accordingly, the writ petition is disposed of. No order as to costs.
[Citation : 248 ITR 659]