K. N. Subramaniam Vs PCIT (Madras High Court)
Background:
This case involves a dispute between a taxpayer (the fourth respondent), the Income Tax Department, and a third-party buyer (the petitioner) of the taxpayer’s property. The taxpayer owed outstanding taxes to the Income Tax Department. While the tax proceedings were ongoing, the taxpayer sold the property to the petitioner.
Issue:
The Income Tax Department, through the Tax Recovery Officer (TRO), attached the property for recovery of tax dues. The petitioner challenged the attachment, claiming ownership of the property through the sale deed. The TRO, however, declared the sale deed void, considering it was made during the pendency of tax proceedings.
Madras High Court Judgment:
The Madras High Court, in its judgment, ruled in favor of the petitioner. The court held that the TRO does not have the authority to declare a sale made by an assessee to a third party as void. This power lies with the civil courts.
The court distinguished between the TRO’s powers under Rule 11 of the Second Schedule of the Income Tax Act, 1961, and the provisions of Section 281 of the Act. While Section 281 allows the declaration of certain transfers made by an assessee to defraud the revenue as void, the TRO’s role under Rule 11 is limited to determining the ownership of the property for attachment purposes.
Key Takeaways:
