The department has declared my purchase void under s.281 and attached the property. Do they not have to go to a civil court first, as the Supreme Court said in Gangadhar Vishwanath Ranade?
The Andhra Pradesh High Court held that they do not. It reasoned that once a statute itself declares a transfer void there can be no further judicial declaration to be obtained, that s.281 is unlike s.53 of the Transfer of Property Act because it makes the transfer void and not voidable, and that since the words 'with the intention to defraud the revenue' were deleted in 1975 there is nothing left for the Revenue to prove in a suit. The remedy under Rule 11(6) of the Second Schedule belongs to the transferee, who must go to the civil court, not to the department.
Decided by the High Court (V. Ramasubramanian J and Ms. J. Uma Devi J) on 2018-05-02, reported as Writ Petition No. 11629 of 2007 (High Court of Judicature at Hyderabad; indiankanoon lists the decision under 'Andhra HC (Pre-Telangana)' and carries a duplicate listing under the Telangana High Court at /doc/120622559/). No law-report citation appeared in the text read.. It bears on section 281, section 222, section 230A of the Income Tax Act 1961, in Demand, Recovery & Stay matters.
This is squarely against the way s.281 is usually presented, and a practitioner needs to know it exists before he tells a client that the department must sue. The Supreme Court in Tax Recovery Officer v. Gangadhar Vishwanath Ranade held that the Tax Recovery Officer cannot declare a transfer void under s.281 and must go to the civil court; this Division Bench, with respect, said the Bombay High Court in the second round of that very case had fallen into error in equating s.281 with s.53 of the Transfer of Property Act, and refused to let the purchaser take shelter under the Supreme Court decision. Be careful how far you push it: the Court's route was to distinguish, on the ground that the Supreme Court had been construing a version of s.281 that still contained the fraud requirement, so this is not presented as a refusal to follow. It also matters that the purchaser here was on notice - the company had applied for and been refused a s.230A certificate because of arrears, and the Court said she 'clearly took a chance'. On different facts, the proviso to s.281(1), which saves a transfer for adequate consideration without notice of the pendency, is the real battleground, and after this decision the burden of bringing yourself within the proviso is squarely on the transferee.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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The third respondent company became liable to pay income tax of Rs 1,92,27,635 for 1995-96 to 2002-03 and was ordered to be wound up by the Company Court by order dated 8 January 2003. It owned two immovable properties, one in Jubilee Hills, Hyderabad and another in Chakkarpur, Gurgaon District. Before selling, it applied in May 2000 for a certificate under s.230A, which the Assessing Officer refused on the ground that there was a demand for arrears of Rs 36,73,050. Section 230A was itself repealed with effect from 1 June 2001, after which the company sold the Jubilee Hills property to the petitioner by two registered sale deeds dated 20 June 2001 and 22 June 2001. On coming to know of the sale the Assistant Commissioner issued a show-cause notice under s.281 asking the petitioner to show cause why the sale should not be declared void. The sale was declared void by an order passed in 2005. The petitioner did not come to court then; she came only after an order of attachment was issued.
The writ petition was dismissed. The statutory declaration in s.281(1) does not require to be confirmed by a judicial declaration, and it is not possible to hold that the Tax Recovery Officer must go to the civil court, file a suit and obtain a declaration that the transfer is void (para 34). The petitioner could not take shelter under the Supreme Court's decision in Gangadhar Vishwanath Ranade; having known that the assessee owed arrears and having had the s.230A application rejected, she clearly took a chance in going ahead with the purchase, and was not entitled to have the attachment order or the order declaring the sale void set aside (para 56). Miscellaneous petitions were closed and no costs were awarded (para 57).
The Court reproduced s.281 in full, including the proviso saving a transfer made for adequate consideration and without notice of the pendency of the proceeding or of the tax payable, or with the previous permission of the Assessing Officer, and the sub-section (2) thresholds. It identified two difficulties with Gangadhar Vishwanath Ranade. The first is that once a statute declares a transfer void, a court cannot impose on the Revenue the burden of going to a civil court for a declaration: over and above a statutory declaration there cannot be a judicial declaration. A statutory declaration of voidness in a taxing statute is not to be equated with the position under the Indian Contract Act, where transactions between private parties are in the realm of contract and a party asserting nullity may have to obtain a judicial declaration (para 25). Comparing s.281 with the insolvency legislation, the Court observed that s.281(1) does not use the expression 'voidable' as s.53 of the Provincial Insolvency Act does, and does not impose the rider 'shall be annulled by Court' found in ss.53 and 54(1) of that Act, so it cannot be interpreted as though it did (para 34). It held that the Bombay High Court in the second round of Gangadhar Vishwanath Ranade, upheld by the Supreme Court, had with respect erred in comparing s.281 with s.53 of the Transfer of Property Act, which makes a fraudulent transfer voidable at the option of a defeated creditor and not void; and there were two distinguishing features - s.53 makes such a transfer voidable while s.281 makes it void, and the Revenue cannot be equated to a mere creditor because tax due to the State is a crown debt (paras 36 and 37). Decisively, when the Supreme Court considered s.281 the provision contained the words 'with the intention to defraud the revenue', but those words were deleted by the amendment introduced in 1975, so that irrespective of intention the transfer is declared void by the statute itself and no question arises of the Revenue going to court to establish fraud (para 46). Under the amended provision mens rea does not arise and the entire burden of showing that the transfer falls within the two clauses of the proviso is on the assessee, who must go to the civil court to establish it (para 55). Rule 11(6) of the Second Schedule was read as the window through which a person aggrieved by an attachment following a s.281 declaration may move the civil court, so the transferee is not without a remedy.
In our considered view, the statutory declaration contained in Section 281(1) does not require to be baptised by a judicial declaration.
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Handle my notice → Ask a CA on WhatsAppThe Andhra Pradesh High Court held that they do not. It reasoned that once a statute itself declares a transfer void there can be no further judicial declaration to be obtained, that s.281 is unlike s.53 of the Transfer of Property Act because it makes the transfer void and not voidable, and that since the words 'with the intention to defraud the revenue' were deleted in 1975 there is nothing left for the Revenue to prove in a suit. The remedy under Rule 11(6) of the Second Schedule belongs to the transferee, who must go to the civil court, not to the department. This was decided by the High Court (V. Ramasubramanian J and Ms. J. Uma Devi J) and bears on section 281, section 222, section 230A of the Income Tax Act 1961. It is reported as Writ Petition No. 11629 of 2007 (High Court of Judicature at Hyderabad; indiankanoon lists the decision under 'Andhra HC (Pre-Telangana)' and carries a duplicate listing under the Telangana High Court at /doc/120622559/). No law-report citation appeared in the text read.. This is squarely against the way s.281 is usually presented, and a practitioner needs to know it exists before he tells a client that the department must sue. The Supreme Court in Tax Recovery Officer v. Gangadhar Vishwanath Ranade held that the Tax Recovery Officer cannot declare a transfer void under s.281 and must go to the civil court; this Division Bench, with respect, said the Bombay High Court in the second round of that very case had fallen into error in equating s.281 with s.53 of the Transfer of Property Act, and refused to let the purchaser take shelter under the Supreme Court decision. Be careful how far you push it: the Court's route was to distinguish, on the ground that the Supreme Court had been construing a version of s.281 that still contained the fraud requirement, so this is not presented as a refusal to follow. It also matters that the purchaser here was on notice - the company had applied for and been refused a s.230A certificate because of arrears, and the Court said she 'clearly took a chance'. On different facts, the proviso to s.281(1), which saves a transfer for adequate consideration without notice of the pendency, is the real battleground, and after this decision the burden of bringing yourself within the proviso is squarely on the transferee. If it applies to you, the first step is this: Do not advise a client that the department must first obtain a civil court declaration; tell him the position is contested and that at least one High Court has held it need not.
The third respondent company became liable to pay income tax of Rs 1,92,27,635 for 1995-96 to 2002-03 and was ordered to be wound up by the Company Court by order dated 8 January 2003. It owned two immovable properties, one in Jubilee Hills, Hyderabad and another in Chakkarpur, Gurgaon District. Before selling, it applied in May 2000 for a certificate under s.230A, which the Assessing Officer refused on the ground that there was a demand for arrears of Rs 36,73,050. Section 230A was itself repealed with effect from 1 June 2001, after which the company sold the Jubilee Hills property to the petitioner by two registered sale deeds dated 20 June 2001 and 22 June 2001. On coming to know of the sale the Assistant Commissioner issued a show-cause notice under s.281 asking the petitioner to show cause why the sale should not be declared void. The sale was declared void by an order passed in 2005. The petitioner did not come to court then; she came only after an order of attachment was issued. The matter was decided on 2018-05-02 by the High Court (V. Ramasubramanian J and Ms. J. Uma Devi J). On those facts the High Court held as follows. The writ petition was dismissed. The statutory declaration in s.281(1) does not require to be confirmed by a judicial declaration, and it is not possible to hold that the Tax Recovery Officer must go to the civil court, file a suit and obtain a declaration that the transfer is void (para 34). The petitioner could not take shelter under the Supreme Court's decision in Gangadhar Vishwanath Ranade; having known that the assessee owed arrears and having had the s.230A application rejected, she clearly took a chance in going ahead with the purchase, and was not entitled to have the attachment order or the order declaring the sale void set aside (para 56). Miscellaneous petitions were closed and no costs were awarded (para 57).
The Court reproduced s.281 in full, including the proviso saving a transfer made for adequate consideration and without notice of the pendency of the proceeding or of the tax payable, or with the previous permission of the Assessing Officer, and the sub-section (2) thresholds. It identified two difficulties with Gangadhar Vishwanath Ranade. The first is that once a statute declares a transfer void, a court cannot impose on the Revenue the burden of going to a civil court for a declaration: over and above a statutory declaration there cannot be a judicial declaration. A statutory declaration of voidness in a taxing statute is not to be equated with the position under the Indian Contract Act, where transactions between private parties are in the realm of contract and a party asserting nullity may have to obtain a judicial declaration (para 25). Comparing s.281 with the insolvency legislation, the Court observed that s.281(1) does not use the expression 'voidable' as s.53 of the Provincial Insolvency Act does, and does not impose the rider 'shall be annulled by Court' found in ss.53 and 54(1) of that Act, so it cannot be interpreted as though it did (para 34). It held that the Bombay High Court in the second round of Gangadhar Vishwanath Ranade, upheld by the Supreme Court, had with respect erred in comparing s.281 with s.53 of the Transfer of Property Act, which makes a fraudulent transfer voidable at the option of a defeated creditor and not void; and there were two distinguishing features - s.53 makes such a transfer voidable while s.281 makes it void, and the Revenue cannot be equated to a mere creditor because tax due to the State is a crown debt (paras 36 and 37). Decisively, when the Supreme Court considered s.281 the provision contained the words 'with the intention to defraud the revenue', but those words were deleted by the amendment introduced in 1975, so that irrespective of intention the transfer is declared void by the statute itself and no question arises of the Revenue going to court to establish fraud (para 46). Under the amended provision mens rea does not arise and the entire burden of showing that the transfer falls within the two clauses of the proviso is on the assessee, who must go to the civil court to establish it (para 55). Rule 11(6) of the Second Schedule was read as the window through which a person aggrieved by an attachment following a s.281 declaration may move the civil court, so the transferee is not without a remedy. In the words reproduced by the source cited on this page: "In our considered view, the statutory declaration contained in Section 281(1) does not require to be baptised by a judicial declaration." The decision followed or applied Tax Recovery Officer II, Sadar, Nagpur v. Gangadhar Vishwanath Ranade (SC, 10 September 1998) - distinguished, on the footing that it construed s.281 as it stood before the 1975 amendment. The law-report citation was not verified for this entry..
It was decided by the High Court on 2018-05-02 and is reported as Writ Petition No. 11629 of 2007 (High Court of Judicature at Hyderabad; indiankanoon lists the decision under 'Andhra HC (Pre-Telangana)' and carries a duplicate listing under the Telangana High Court at /doc/120622559/). No law-report citation appeared in the text read.. Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 281, section 222, section 230A, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the department, and it appears in this library for that reason — you need to know what the Assessing Officer will cite against you. The writ petition was dismissed. The statutory declaration in s.281(1) does not require to be confirmed by a judicial declaration, and it is not possible to hold that the Tax Recovery Officer must go to the civil court, file a suit and obtain a declaration that the transfer is void (para 34). The petitioner could not take shelter under the Supreme Court's decision in Gangadhar Vishwanath Ranade; having known that the assessee owed arrears and having had the s.230A application rejected, she clearly took a chance in going ahead with the purchase, and was not entitled to have the attachment order or the order declaring the sale void set aside (para 56). Miscellaneous petitions were closed and no costs were awarded (para 57). It arises in Demand, Recovery & Stay matters, on section 281, section 222, section 230A of the Income Tax Act 1961, and was decided by V. Ramasubramanian J and Ms. J. Uma Devi J. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Build the case inside the proviso to s.281(1) instead: adequate consideration, and no notice of the pendency of the proceeding or of the tax payable - or the previous permission of the Assessing Officer. Preserve and produce the evidence of no notice - title search, encumbrance certificate, seller's declarations - because after this decision the entire burden of bringing the transfer within the proviso is on the purchaser. Use Rule 11 of the Second Schedule promptly: prefer the claim or objection to the Tax Recovery Officer, and if it is disallowed under Rule 11(5), institute the suit that Rule 11(6) allows within the time it allows - the Court treated that as the transferee's route. Move at once when the transfer is declared void; the Court held against this petitioner in part because she did not come to court when the order declaring the sale void was passed in 2005 but only after the attachment. Where the transfer predates 1975 or the department's own case is framed on an intention to defraud, the distinction this Court drew cuts the other way - check the version of s.281 that governs.
Validity check could not be completed. This is not a difference between High Courts and must not be read as one. The only opposing authority identified is the Supreme Court, in Tax Recovery Officer v. Gangadhar Vishwanath Ranade, which the library already carries and which holds that the Tax Recovery Officer cannot himself declare a transfer void under s.281 and that the department must go to the civil court. This Andhra Pradesh Division Bench distinguished that decision rather than declining to follow it, on the footing that the Supreme Court was construing the pre-1975 text containing the words 'with the intention to defraud the revenue'; and in doing so it said that the Bombay High Court, in the second round of that very case and in a decision the Supreme Court upheld, 'with great respect, fell into an error in comparing Section 281 of the Income Tax Act, 1961 with Section 53 of the Transfer of Property Act, 1882'. No search for later treatment of this decision, for a Supreme Court appeal, or for the views of any other High Court on the same point was run, and no second High Court taking this view was located. Until a second High Court is identified, the honest position is that a single High Court has declined to apply a Supreme Court decision by distinguishing it. A practitioner must lead with the Supreme Court decision, which binds every court in India, and must not treat the question as jurisdiction-dependent. Note also that this decision does not disturb the two settled limits on s.281 — that the transfer is void only as against the Revenue's claim and not generally, and that any actual recovery must still go through the Second Schedule. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The indiankanoon print rendering returned paragraph 34 in two different forms across passes: on one pass paragraph 34 appeared as a passage beginning 'In fact, any interpretation to be given to Section 281(1) should be in conformity with Rule 11(6)', and on two others as the passage about the Presidency Towns Insolvency Act and the Provincial Insolvency Act that ends with the 'baptised' sentence. A direct question to the source confirmed the 'baptised' sentence sits in paragraph 34, between paragraphs 33 and 35, and returned that paragraph in full; the existence of the sentence in this document was separately confirmed by an exact-phrase search on indiankanoon, which returned this judgment and its Telangana-listed duplicate (/doc/120622559/) and nothing else. The passage about Rule 11(6) is therefore in some neighbouring paragraph whose number could not be fixed and is described here without a number. The date on which the transfer was declared void is given in the judgment as 2005; the show-cause notice date was not stated in the text read. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The writ petition was dismissed. The statutory declaration in s.281(1) does not require to be confirmed by a judicial declaration, and it is not possible to hold that the Tax Recovery Officer must go to the civil court, file a suit and obtain a declaration that the transfer is void (para 34). The petitioner could not take shelter under the Supreme Court's decision in Gangadhar Vishwanath Ranade; having known that the assessee owed arrears and having had the s.230A application rejected, she clearly took a chance in going ahead with the purchase, and was not entitled to have the attachment order or the order declaring the sale void set aside (para 56). Miscellaneous petitions were closed and no costs were awarded (para 57).
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