The petitioner is the wife of the assessee in default who has been proceeded against for the income-tax dues for the block period 1986-87 to 1995-96. The transfer has been made on 05.1991; within the block period and during which period the assessee is said to have practised suppression and evasion. The act of the assessee who practised suppression and to avoid recovery, on such suppression being detected, by transferring the movable and immovable assets to his near relatives, to defeat the Revenue, is what is sought to be averted by the Explanation to Section 220(1) read with Rule 11 of Schedule II of the IT Act. The Tax Recovery Officer having proceeded against such property under the Explanation to Section 222(1), it is for the assessee to initiate a suit, if at all such recovery is to be interdicted.
Extract of the High Court Judgment
The petitioner, the wife of an assessee in default, is before this Court aggrieved by Exhibits P9, P10 and P12 by which the Income-tax authorities proceeded against her property comprised in Survey Number 354/17/8, Re-survey number 681/9; which also adjoins the property in which the petitioner runs a hotel. The petitioner’s husband is an assessee in default, of the tax assessed on him by reason of a block assessment made, pursuant to a search and inspection conducted in his residential premises.
2. Admittedly, a search and seizure under section 132 of the Income Tax Act, 1961 [for brevity “IT Act”] was made at the residential premises of the petitioner and her husband, on 24/09/1996; the materials seized thereat leading to a block assessment for the period 1986-87 to 1995-96. The tax liability was determined at Rs.4,00,36,404/-. The statutory appeal ultimately reduced the amount to Rs.1,03,89,878/-. The impugned action was to recover the said amount by attachment and sale of the property, owned by the petitioner as per Exhibit P1 and P2 deeds; conveyed to her for consideration. Whether the conveyance was a sham transaction, insofar as there being no adequate consideration is the crux of the matter in addition to the procedural defects alleged as also the total lack of jurisdiction asserted by the petitioner.
3. The petitioner contends that the petitioner herself was running a business, namely a hotel, from which sufficient income was generated to purchase the property. It is also contended that the purchase made by Exhibit P1 was for valid consideration, which valued the property as similarly valued in Exhibits P3 and P4 transactions made of identically situated lands. An alternative contention is also taken taken up that the subject property, situated adjacent to the property in which the hotel was run by the petitioner did not have a pathway and had only access through the adjoining property; which reduced its value and gave the petitioner, the adjoining property owner, an edge in purchasing the land.
4. The petitioner has raised a number of grounds against recovery attempted of the income-tax dues defaulted by the petitioner’s husband, sought to be recovered from the property of the petitioner. The petitioner also is an assessee in her individual capacity and, hence, contends that without a demand notice the petitioner cannot be deemed to be an assessee in default and proceeded against for recovery of debts due from another assessee. It is further contended that the Assessing Officer cannot proceed against the petitioner’s property for recovery of dues of another without filing a suit for declaration of the conveyance as void, as has been held in Tax Recovery Officer II v. Gangadhar Vishwanath Ranade [(1998) 6 SCC 658]. There is an objection raised that the survey number of the property differs and the attachment being bad on that ground also. The ground of limitation is also raised based on Rule 68B of Schedule II of the IT Act.
5. The difference in Survey number in the attachment order has been rectified by the Recovery Officer who attached the properties. The ground that no notice has been served, on the petitioner who is also an assesssee, is untenable insofar as the Department does not intend to declare the petitioner as an assessee in default. The proceedings against the petitioner’s property was initiated based on Explanation to sub-section (1) of Section 222 of the IT Act. Section 222 is extracted hereunder:
“222. (1) When an assessee is in default or is deemed to be in default in making a payment of tax, the Tax Recovery Officer may draw up under his signature a statement in the prescribed form specifying the amount of arrears due from the assessee (such statement being hereafter in this Chapter and in the Second Schedule referred to as “certificate”) and shall proceed to recover from such assessee the amount specified in the certificate 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 and immovable properties.
Explanation.- For the purposes of this sub-section, the assessee’s movable or immovable property shall include any property which has been transferred, directly or indirectly on or after the 1st day of June, 1973, by the assessee to his spouse or minor child or son’s wife or son’s minor child, otherwise than for adequate consideration, and which is held by, or stands in the name of, any of the persons aforesaid; and so far as the movable or immovable property so transferred to his minor child or his son’s minor child is concerned, it shall, even after the date of attainment of majority by such minor child or son’s minor child, as the case may be, continue to be included in the assessee’s movable or immovable property for recovering any arrears due from the assessee in respect of any period prior to such date.
(2) The Tax Recovery Officer may take action under sub-section (1), notwithstanding that proceedings for recovery of the arrears by any other mode have been taken”.
The recovery initiated on the strength of the Explanation was against a property conveyed by the petitioners husband, an assessee in default, to the petitioner his wife.
6. There is no dispute that a search was conducted in the residential premises of the petitioner and her husband on 24.09.1996. Pursuant to the search, on the basis of the materials seized, notice was issued to the petitioner’s husband and assessment completed for the block period 1986-87 to 1995-96. The petitioner’s husband, who was the assessee, was served with a demand notice, which stood unpaid even after the appellate remedies were availed with only partial success. The appeals were filed upto the Tribunal and the order of the Tribunal is said to be dated 03.11.2008. On the Department being unable to recover any amounts from the petitioner’s husband for reason of there being no property in his name, the Department proceeded against the property of the petitioner under the Explanation to Section 222(1).
7. The Explanation deems any property transferred directly or indirectly on or after the 1st day of June, 1973 by the assessee to his spouse or minor child or son’s wife or son’s minor child otherwise than for adequate consideration and which is held by the aforesaid persons; to be the assessee’s movable or immovable property; which can be proceeded against under sub-section (1) of Section 222. Hence, the property, which stands in the name of the petitioner, has not been proceeded with for any default committed by the petitioner herself. The property was conveyed to the petitioner by title deed at Exhibit P1 and correction deed at Exhibit P2 on 06.05.1991 and 24.12.1991, which are within the block period taken up for assessment. The conveyance was made during the period in which suppression was found against the assessee, the petitioner’s husband, which, along with the inadequate consideration paid, makes it liable to proceedings for recovery deeming it to be the assessee’s property itself. There is, hence, no necessity to serve a notice of demand on the petitioner and declare the petitioner to be an assessee in default.
8. The decision of the Supreme Court relied on by the petitioner, is also not applicable to the present case. The proceedings for recovery against the wife and daughter of the assessee in the said case was under Section 281 of the IT Act, as it stood then. The assessment years relevant for consideration, as is noticed from the decision, were 1962-63 to 1964-65. Notice of demand was served on the assessee on 21 .10.1972 and the attachment of the immovable property, being the residential house of the assessee, was made on 10.1972. The transfer asserted by the assessee was by virtue of a trust deed executed in favour of his wife and daughter on 21 .02.1969 and a conveyance of the property to his wife and daughter by a registered deed on 27.02.1969.
9. Section 281, as it stood then, reads as under:
“281. Where, during the pendency of any proceeding under this Act, any assesse creates a charge on or parts with the possession by way of sale, mortgage, exchange or any other mode of transfer whatsoever, of any of his assets in favour of any other person with the intention to defraud the Revenue, such charge or transfer shall be void as against any claim in repsect of any tax or any other sum payable by the assesse as a result of the completion of the said proceeding:
Provided that such charge or transfer shall not be void if made for valuable consideration and without notice of the pendency of the proceeding under this Act”.
Interpreting Section 281, which declares as void any transfer by the assessee during the pendency of proceedings under the Act with the intention to defraud the Revenue and the powers of the Tax Recovery Officer under Rule 11 of the Second Schedule to the IT Act, it was held that the Tax Recovery Officer cannot declare the transfer made to a third party as void. It was held that if the Department finds that the property of the assesse is transferred by him to a third party with intention to defraud the Revenue, it would have to file a suit under Rule 11(6) of the Second Schedule to the IT Act to have the transfer declared as void under Section 281. Explanation to Section 222 (1); by which the proceedings against the petitioner’s property was initiated, is substantially different from Section 281.
10. Section 222(1) read with the Explanation of the IT Act enables recovery of arrears due from an assessee by proceeding against any movable or immovable property of the assessee, and a property which stood transferred directly or indirectly to his spouse or minor child or son’s wife or son’s minor child. By sub-section (2), the Tax Recovery Officer is specifically empowered to proceed against such property, which is deemed to be included in the assessee’s movable and immovable property, for recovering any arrears due from the assessee. In such circumstance, the proposition as laid down in Gangadhar Vishwanath Ranade (supra) would not be applicable.
11. The petitioner is the wife of the assessee in default who has been proceeded against for the income-tax dues for the block period 1986-87 to 1995-96. The transfer has been made on 05.1991; within the block period and during which period the assessee is said to have practised suppression and evasion. The act of the assessee who practised suppression and to avoid recovery, on such suppression being detected, by transferring the movable and immovable assets to his near relatives, to defeat the Revenue, is what is sought to be averted by the Explanation to Section 220(1) read with Rule 11 of Schedule II of the IT Act. The Tax Recovery Officer having proceeded against such property under the Explanation to Section 222(1), it is for the assessee to initiate a suit, if at all such recovery is to be interdicted.
12. The next contention is with respect to the limitation as provided under Rule 68B of Schedule II of the IT Act. It is the submission of the petitioner that the block assessment against the husband of the petitioner attained finality on 03.11.2008 by the order of the Income Tax Appellate Tribunal; from which no further proceedings were taken either by the Revenue or the assessee. There is nothing to evidence this date, but the submission made across the Bar and not even an avernment. For argument sake, assuming it to be correct, going by Rule 68B, the limitation commences from 31.03.2009 and expires only three years from that date, i.e., on 31.03.2012. Sub-rule (2) of Rule 68B also provides for exclusion of any period commencing from the date of the presentation of any appeal against the order passed by the Tax Recovery Officer under the Second Schedule and ending on the day the appeal is decided. The order impugned herein was passed on 09.03.2010 and no appeal was filed.
The present writ petition was initiated on 18.03.2010, well within the limitation period. In such circumstances, as per the proviso to sub-rule (2) of Rule 68B, the period shall stand extended to 180 days since the proceeding initiated here, under Article 226, challenged the order passed by the Tax Recovery Officer.
13. It is also pertinent that Explanation to Section 222(1) specifically speaks of proceeding against the transferred movable or immovable assets of the assessee in default only in circumstances of the consideration being inadequate. The petitioner has produced two documents to contend that the consideration paid, as seen from Exhibit P1, is in consonance with the consideration as seen from the documents produced, being Exhibits P3 and P4. The Revenue has refuted such contention and has also produced, along with its counter affidavit, two documents as Exhibits R1(b) and R1(d) to contend that the consideration was inadequate. These are factual issues, which are to be examined by the original authority, on the basis of the location of the properties and the then prevalent market value.
14. The contention of the petitioner that the property did not have a proper access and, hence, was not of value but for the petitioner who has the adjoining land, cannot be countenanced for two reasons. The title deed produced at Exhibit P1 in its Schedule shows a pathway on one of the boundaries. Then there is nothing produced to show that the adjoining property belongs to the petitioner. The boundary shown in the Schedule also does not indicate a property belonging to the petitioner to be adjoining to the subject property. Be that as it may, the question of under-valuation having not been specifically considered in Exhibit P9, the same would have to be considered. The petitioner would appear before the Tax Recovery Officer within two weeks from the date of receipt of a certified copy of the judgment and file objections producing documents, if any, within that time. The Tax Recovery Officer would grant an opportunity for hearing within two weeks therefrom and pass orders within two weeks from the date of hearing. It is made clear that the directions are issued by this Court itself, since otherwise the time would run out on notice being issued and hearing being posted by a further notice.
For all the above reasons, the writ petition would stand disposed of rejecting all the grounds raised by the petitioner; but, however, directing the consideration of the question of under-valuation by the respondent-authority as directed hereinabove. Parties to suffer their respective costs.