Madras High Court
Palani Gounder (Decd.) And Others vs Income-Tax Revenue Department And ... on 15 March, 1996
Equivalent citations: [1998]229ITR59(MAD)
Author: P. Sathasivam
Bench: P. Sathasivam
JUDGMENT Sathasivam, J.
1. The unsuccessful plaintiffs are the appellants in the above second appeal. They filed the suit for a declaration to declare that the purchase of the suit properties by the first plaintiff on September 28, 1966, for a valid consideration of Rs. 23,000 from one Krishnasami Maniagarar under a duly registered sale deed is not void and for an injunction restraining the defendants from proceeding against the property and for declaring that the order of the third defendant dated June 1, 1974, is void and illegal.
2. The plaint averments are as follows :
According to the plaintiffs, a sum of Rs. 5,000 was paid by the first plaintiff to the vendor on the date of the execution of the document. The balance amount of Rs. 18,000 was paid before the Sub-Registrar on October 18, 1966, i.e., the date of registration of the document. The purchase was made only after the purchaser was satisfied that there was no encumbrance over the property. According to the plaintiffs, the vendor had also assured the purchaser that they was no encumbrance on the property and the vendor had also given an undertaking that he and his heirs would be liable for any loss that might be sustained by the first plaintiff due to any defect in title. The first plaintiff got possession of the property and the patta for the suit land was also transferred in the name of the plaintiff by the Tahsildar. The Tahsildar of Palani did not give any information to the plaintiff about the pendency of the proceedings before the income-tax authorities against one Krishnasami Maniagarar, the vendor. Later, at the time of the marriage of the second plaintiff, the first plaintiff promised the bride's party that some property would be settled on the second plaintiff and his wife, the third plaintiff herein. Accordingly, the first plaintiff executed a settlement deed in respect of the suit property in favour of plaintiffs Nos. 2 and 3 on May 24, 1973. Ever since, plaintiffs Nos. 2 and 3 have been in possession and enjoyment of the suit property. The first plaintiff came to know of the pendency of the proceedings under the Income-tax Act against the vendor only on March 15, 1970, when the Tahsildar, Palani, made enquiries about the same. The first plaintiff had no notice whatsoever of the proceedings of the income-tax authorities before that date. The Income-tax Officer, Circle I, Salem, has sent a notice to the first plaintiff on November 8, 1971, informing him that the officer proposed to treat the sale as void under section 281 of the Income-tax Act and then to proceed against the properties. The first plaintiff had sent his objection by registered post on November 15, 1971. In spite of this objection, the properties have been attached by the third defendant on January 10, 1972, stating that Krishnasami Maniagarar, the vendor, had failed to pay a sum of Rs. 3,27,742 as income-tax arrears payable under certificate M. K. 752 dated March 14, 1967. The said attachment of the suit property is illegal and void. The first plaintiff had no intention to defraud the Revenue. Notice under section 80, Code of Civil Procedure, was issued by the first plaintiff through his advocate on June 17, 1974, to the defendants. The third defendant alone sent a reply informing the first plaintiff that the threatened suit was awaited. Hence, the plaintiffs were constrained to file the above suit, seeking the relief of declaration and injunction as above stated.
3. The third defendant alone has filed the written statement and defendants Nos. 1 and 2 have adopted the same. In the written statement, the third defendant contended that the plaintiff who has purchased the property of the assessee tax defaulter is not a bona fide purchaser for value without notice, that the alienation in favour of the first plaintiff is void and cannot prevail over the claim of the Revenue, that the plaintiff's vendor, Krishnasami Maniagarar, is an assessee in the file of the Income-tax Officer, Salem, that he was in arrears to the tune of Rs. 3,37,742 and 35 paise, that, therefore, the certificate was issued under section 222 of the Income-tax Act to the Tax Recovery Officer, Madurai, requesting him to collect the arrears of tax from Krishnasami Maniagarar, that the first certificate was issued to the Collector of Salem who was then responsible for the recovery of the sum on February 17, 1965, and subsequently three more certificates were issued on January 20, 1966, March 14, 1967, and July 18, 1968, that the sale of the suit property which is said to have been purchased by the first plaintiff on September 28, 1966, is long after the issue of certificate to the defaulter, that the act of the defaulter in disposing of the property after the issue of certificate shows that he had done so only to escape from the liability, that the Tax Recovery Officer, Salem, in his letter dated December 28, 1971, intimated that the defaulter had transferred his landed property to the first plaintiff and to one Haji Mohammed Rahamathulla, that it is only on the basis of the certificates, the property was attached by the issue of I.T.C.P. No. 16, dated January 10, 1972, that the attempt of the plaintiff to establish the bona fides on the basis of the patta transfer proceedings is not correct, that the plaintiff is not entitled to question the order of attachment made by the third defendant on January 10, 1972, that the alienation in favour of the plaintiff by the assessee tax defaulter, who knew or must be deemed to have known of the pendency of the proceedings against him under the Income-tax Act was made with a view to defraud the Revenue and that the sale is, therefore, hit by section 281 of the Income-tax Act. With these averments, the defendants prayed for dismissal of the suit.
4. The first plaintiff himself was examined as P.W.-1 and he has marked exhibits A-1 to A-9 in support of their case. On behalf of the Income-tax Department, none was examined; however, exhibits B-1 to B-9 were marked in support of their defence.
5. After framing necessary issues, the trial court came to the conclusion that the purchase by plaintiff No. 1 is hit under rule 16(1) of the Second Schedule and also section 281 of the Income-tax Act and, consequently, dismissed the suit with costs.
6. Aggrieved by the judgment and decree of the trial court the plaintiffs filed an appeal, A.S. No. 345 of 1980 before the District Court, Madurai. Before the lower appellate court, the very same contentions were raised on behalf of the plaintiffs. The lower appellate court on the basis of the evidence, more particularly, relying on exhibit B-1, confirmed the finding of the trial court and, consequently, dismissed the appeal.
7. Against the concurrent findings of the courts below, the plaintiffs filed the present second appeal before this court. While entertaining the second appeal, this court has framed the following substantial questions of law for consideration :
"1. Whether the courts below were right in dismissing the suit when no notice as contemplated under rule 2 of the Second Schedule was served on the defaulter before sale ?
2. Whether the courts below were right in holding that the alienations of the suit land would be void under the provisions of rule 16(1) even though the sale under exhibit A-1 dated September 28, 1966, had taken place even before the issue of notice under rule 2 of the Rules made under the Income-tax Act ?
3. Whether the courts below erred in interpreting section 281 of the Act as it stood before the amendment under Act 41 of 1975 and whether the decision of the courts below is, therefore, liable to be set aside ?"
8. Learned counsel appearing for the appellants, after taking us through the various factual findings of the courts below, contended that notice under rule 2 of the Second Schedule to the Income-tax Act is mandatory and no such notice was served on the vendor prior to the sale dated September 28, 1966. According to him, the entire subsequent proceedings initiated by the income-tax authorities are vitiated and, consequently, he prayed for setting aside the decrees of the courts below. On the other hand, learned counsel for the respondents, viz., the Income-tax Department, after pointing out the necessary provisions of the Income-tax Act and Rules, in the light of exhibit B-1, contended that the plaintiffs' vendor was quite aware of the entire proceedings and hence, according to her, the judgments and decrees of the courts below are correct and prayed for the dismissal of the second appeal.
9. Under exhibit A-1, the plaintiffs have purchased the suit property in question from one Krishnasami Maniagarar on September 28, 1966. According to the plaintiffs, they have verified and obtained the encumbrance certificate in respect of the suit property. After the sale, they also obtained the patta under exhibit A-3 in their favour. It is the definite case of the plaintiffs that they were not aware of the prior income-tax recovery proceedings and neither of them, nor their vendor were served with any statutory notice, more particularly under rule 2 of the Second Schedule. It is the specific contention of the defendants that the sale deed, exhibit A-1, effected by Krishnasami Maniagarar after the initiation of the proceedings for recovering the income-tax arrears, viz., after the Income-tax Officer issued a certificate under section 222(1) of the Act is void and it is hit by rules 16(1) and 16(2) of the Second Schedule to the Income-tax Act and, therefore, the plaintiff cannot claim the reliefs of declaration and injunction. It is also urged by the defendants that the said transfer is also void under section 281 of the Income-tax Act. It is relevant to refer to section 222(1) of the Income-tax Act which reads as follows :
"When an assessee is in default or is deemed to be in default in making a payment of tax, the Income-tax Officer may forward to the Tax Recovery Officer a certificate under his signature specifying the amount of arrears due from the assessee, and the Tax Recovery Officer on receipt of such certificate, shall proceed to recover from such assessee the amount specified therein by one or more of the modes mentioned below, in accordance with the rules laid down in the Second Schedule -
(a) attachment and sale of the assessee's movable property;
(b) attachment and sale of the assessee's immovable property;
(c) arrest of the assessee and his detention in prison;
(d) appointing a receiver for the management of the assessee's movable or immovable properties."
10. The Second Schedule to the Income-tax Act is a detailed and self-contained Schedule which deals fully with the modes for the recovery of tax arrears. Rule 2 of the Second Schedule provides that when a certificate is received by the Tax Recovery Officer from the Income-tax Officer for the recovery of arrears under the Schedule, the Tax Recovery Officer shall cause to be served upon the defaulter a notice requiring the defaulter to pay the amount specified in the certificate within 15 days from the date of service of the notice and intimating that in default steps would be taken to realise the amount under the Schedule. Rule 16(1) of the same Schedule provides that when a notice has been served on a defaulter under rule 2, the defaulter or his representative-in-interest shall not be competent to mortgage, charge or lease or otherwise deal with any property belonging to him except with the permission of the Tax Recovery Officer, nor shall any civil court issue any process against such property in execution of a decree for the payment of money. Rule 16(2) is as follows :
"Where an attachment has been made under this Schedule, any private transfer or delivery of the property attached or of any interest therein and any payment to the defaulter of any debt, dividend or other movies contrary to such attachment, shall be void as against all claims enforceable under the attachment."
11. Rule 51 of the Second Schedule provides that "Where any immovable property is attached under this Schedule, the attachment shall relate back to, and take effect from, the date on which the notice to pay the arrears, issued under this Schedule, was served upon the defaulter."
12. Rule 48 of the Second Schedule provides that :
"Attachment of the immovable property of the defaulter shall be made by an order prohibiting the defaulter from transferring or charging the property in any way and prohibiting all persons from taking any benefit under such transfer or charge."
13. It is the specific contention of the defendants that the transfer under exhibit A-1 on September 28, 1966, in favour of the first plaintiff had been made after the certificate of arrears was issued by the Income-tax Officer, Salem, to the Tax Recovery Officer. Exhibit B-1, the file relating to the collection of arrears to the Income-tax Department from the vendor of the plaintiffs, clearly shows that the said Krishnasami, the defaulter, had taken part in the proceedings taken by the Tax Recovery Officer, Salem, and had also filed petitions for adjournment and for stay and, therefore, he was aware of the proceedings being initiated by the Income-tax Department for the collection of the arrears and, therefore, the transfer made during the pendency of the proceedings under the Income-tax Act was with a view to defraud the Revenue as provided under section 281 of the Income-tax Act (Amended Act 41 of 1975). It is true that the notice under rule 2 was served on the defaulter only on March 29, 1967, i.e. after exhibit A-1, dated September 28, 1966. Exhibit B-1 further shows that three certificates under section 222(1) of the Income-tax Act were sent by the Income-tax Officer to the Tax Recovery Officer. The file also shows that necessary notices under the Revenue Recovery Act have been served on the vendor of the plaintiffs. But, after knowing that action should be taken under the provisions of the Income-tax Act, notice dated March 28, 1967, has been sent to the defaulter. Here, the complaint of the plaintiffs is that though the plaintiffs' vendor was served with a notice under the provisions of the Revenue Recovery Act, a notice under rule 2 of the Second Schedule to the Income-tax Act has not been sent prior to exhibit A-1. It is useful to mention rule 2 of the Second Schedule to the Act which reads as follows :
"Issue of notice. - When a certificate has been drawn up by the Tax Recovery Officer for the recovery of arrears under this Schedule, the Tax Recovery Officer shall cause to be served upon the defaulter a notice requiring the defaulter to pay the amount specified in the certificate within fifteen days from the date of service of the notice and intimating that in default steps would be taken to realise the amount under this Schedule."
14. A reading of the above said rule shows that the Tax Recovery Officer has to serve a notice on the defaulter, requiring the defaulter to pay the amount specified in the certificate within 15 days from the date of the service of the notice and also intimating the defaulter that the steps will be taken to realise the amount under the Schedule. In other words, the rule mentioned above makes it clear that me nonce must contain one details of the arrears towards the income-tax and the time within which the amount to be paid. In order to given opportunity to the defaulter, all necessary things have to be mentioned in the notice under rule 2. In this respect, it is the contention of learned counsel for the respondents that though the notice under rule 2 has not been served prior to exhibit A-1, other notices mentioning the tax arrears and the time within which the defaulter has to settle the amount have been sent and as a matter of fact, the defaulter himself gave an undertaking before the officer that he would pay the tax amount, if sufficient time is granted. In other words, even though no specific notice under July 2 was given, the necessary ingredients mentioned in rule 2 have been fully satisfied by the Department by sending various notices prior to exhibit A-1. Hence, the contention of learned counsel for the appellants that the entire proceedings are vitiated because of non-compliance with rule 2 cannot be accepted.
15. Moreover, exhibit B-1 shows that oh April 18, 1966, itself the vendor of the plaintiffs had given a statement before the Tahsildar which runs as follows [Portion in vernacular not printed here] :
* * * * * * * * *
16. Page 23 of the file shows that on April 26, 1966, Krishnasami Pillai had given another application before the Tahsildar, Mettur Dam, requesting for time. In that application, he has stated as follows [Portion in vernacular not printed here] :
* * * * * * * * *
17. On May 21, 1966, counsel for Krishnasami Pillai had filed a petition before the Tahsildar, Mettur (page 29 of exhibit B-1), stating that he had filed a petition before the District Collector, Salem, for grant of time for payment of arrears of income-tax and for stay of distraint proceedings instituted by the Tahsildar, Mettur, and the District Collector was pleased to issue an interim order staying the distraint proceedings against the petitioner on May 21, 1966. In May, 1966, a notice had been issued by the Tahsildar asking him to pay the income-tax arrears of Rs. 66,716.15 within twenty days of the receipt of the notice which reads as follows :
This notice had been received by the assessee, Krishnasami on May 22, 1966, and he had signed on the back of the notice at pages 33-34 of exhibit B-1 file and he has put the date May 22, 1966. Page 53 of exhibit B-1 shows that on May 11, 1966, the assessee, Krishnasami Pillai, has filed a petition before the District Collector, Salem, stating as follows :
"The petitioner undertakes not to alienate any of his properties till he clears off the entire income-tax arrears. He is prepared to deposit Rs. 3,000 per month towards the income-tax arrears due from him. If he is given time till the month of December, 1966, he would be able to pay up the entire amount due from him."
18. In view of the above factual position as seen from exhibit B-1, the contention of learned counsel for the appellants cannot be accepted. Learned counsel for the respondents cited a decision of this court in N. Bella Gowder v. Tahsildar [1969] 71 ITR 26 wherein, in almost identical circumstances, a Division Bench has taken the view that :
"The petitioner being aware of the recovery proceedings and having participated in them cannot object to the proceedings on the ground that no notice as required under rule 2 of Part I of the Second Schedule to the Income-tax Act, 1961, had been given."
19. Here also, even though no specific notice under rule 2 referred to above has been served on the defaulter prior to exhibit A-1, the relevant document, exhibit B-1, shows that the plaintiffs' vendor was served with necessary notices and he was aware of the tax arrears and the steps taken by the Income-tax Department in respect of the attachment over his properties. In the light of the factual position, as well as the provisions of the Income-tax Act and Rules referred to above, I am unable to accept any of the contentions of learned counsel for the appellants. Consequently, the judgment and decree of the courts below are confirmed; accordingly, the second appeal fails and is dismissed. No order as to costs.