Friday, April 18, 2014

TRO couldn't declare sale of property void under sec. 281 and attach property even if tax was overdue from seller

TRO had no power to declare sale transaction as void and attach property even when several demand notices were issued against the seller of such property
Facts
a)    The assessee purchased a property from one 'M' who had defaulted in making payment of income tax dues even after issuing with several demand notices by AO.
b)    Consequently, TRO attached the said property and passed the order without giving any notice to the assesse about recovery of the tax dues of ‘M’.
c)    Consequently, assessee preferred a writ with Gujarat High Court.
Held
1)   Section 281 provides that if during pendency of any proceedings under the Act or after completion thereof, an assessee creates a charge on or parts with the possession of any of his assets in favour of any other person, such charge or transfer shall be held void if any tax was payable by the assesse as a result of completion of the said proceedings unless such charge or transfer was made-
a)   For adequate consideration and without any notice of pendency of such proceedings or tax payable by assesse; or
b)   With prior permission of AO.
2)    The above two exceptions are equally applicable to the transferor as well as to the transferee. Therefore, even if the transferor had notice of the pendency or the outstanding tax or sum payable, the transferee can still take shelter of the transactions having been entered into by him for adequate consideration and without notice of such proceeding against the transferor.
3)    The Bombay High Court in the case of GangadharVishwanathRanade v. T.R.O. [1989] 177 ITR 176 held that under section 281, the TRO has no power to declare a transfer as void. This decision of the Bombay High Court was carried in appeal before the Supreme Court. The Apex Court in TRO v. GangadharVishwanathRanade [1998] 100 Taxman 236 confirmed the view of the Bombay High Court.

4)    Since the issue involved in the instant case is squarely covered by the decision of the Supreme Court in the case of GangadharVishwanathRanade (supra), the order passed by the Tax Recovery Officer under section 281 was liable to be set aside- KarsanbhaiGandabhai Patel v.Tax Recovery Officer [2014] 43 taxmann.com 415 (Gujarat)
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