The Tax Recovery Officer has attached property I bought, for somebody else's tax arrears. What do I file, what do I have to prove, and what happens if he rejects it?
You file a claim or objection under Rule 11 of the Second Schedule. The Tax Recovery Officer must investigate it, unless he considers it was designedly or unnecessarily delayed. The burden is on you: Rule 11(3) requires you to adduce evidence that you had an interest in, or were possessed of, the property at the relevant date — the date the Rule 2 notice was served for immovable property, the date of attachment for movable property. If he rejects the claim, Rule 11(6) gives you a suit in a civil court, and until you win it his order is conclusive.
Rule 11 of the Second Schedule is the third party's route, and it is worth reading the words because the whole shape of the remedy is in them.
Rule 11(1): 'Where any claim is preferred to, or any objection is made to the attachment or sale of, any property in execution of a certificate, on the ground that such property is not liable to such attachment or sale, the Tax Recovery Officer shall proceed to investigate the claim or objection'. There is a proviso: 'no such investigation shall be made where the Tax Recovery Officer considers that the claim or objection was designedly or unnecessarily delayed.' There is no prescribed period, but delay is the one thing that can shut the enquiry out altogether, so the claim goes in as soon as you know of the attachment.
Rule 11(2) lets the Tax Recovery Officer who ordered a sale postpone it pending the investigation, 'upon such terms as to security or otherwise as the Tax Recovery Officer shall deem fit'. That is the provision to invoke when the property has already been advertised — the objection does not stay the sale automatically.
Rule 11(3) fixes the burden and it is on the claimant: 'The claimant or objector must adduce evidence to show that—(a) (in the case of immovable property) at the date of the service of the notice issued under this Schedule to pay the arrears, or (b) (in the case of movable property) at the date of the attachment, he had some interest in, or was possessed of, the property in question.' Two things follow. First, this is your case to make out, not the officer's to disprove. Second, the relevant date is different for the two kinds of property, and for immovable property it is not the date of attachment at all — it is the date the Rule 2 notice to pay the arrears was served on the defaulter. A purchaser who bought after that date is in difficulty from the start, and Rule 16 compounds it: once a Rule 2 notice has been served the defaulter 'shall not be competent to mortgage, charge, lease or otherwise deal with any property belonging to him except with the permission of the Tax Recovery Officer'.
Rule 11(4) is the release limb, and the language shows what the enquiry is actually about: 'Where, upon the said investigation, the Tax Recovery Officer is satisfied that, for the reason stated in the claim or objection, such property was not, at the said date, in the possession of the defaulter or of some person in trust for him or in the occupancy of a tenant or other person paying rent to him, or that, being in the possession of the defaulter at the said date, it was so in his possession, not on his own account or as his own property, but on account of or in trust for some other person, or partly on his own account and partly on account of some other person, the Tax Recovery Officer shall make an order releasing the property, wholly or to such extent as he thinks fit, from attachment or sale.' Every word of that is about possession and the capacity in which it is held. Title is not the question.
Rule 11(5) is the mirror: where the officer is satisfied the property was in the defaulter's possession as his own property, or in someone else's possession in trust for him, or occupied by a tenant paying rent to him, 'the Tax Recovery Officer shall disallow the claim.'
Rule 11(6) is the exit: 'Where a claim or an objection is preferred, the party against whom an order is made may institute a suit in a civil court to establish the right which he claims to the property in dispute; but, subject to the result of such suit (if any), the order of the Tax Recovery Officer shall be conclusive.' Read it carefully. It runs both ways — the Department has the same right of suit where the claim is allowed. And it means the officer's order stands until a civil court says otherwise; there is no appeal against it under the Income-tax Act and nothing in s.246A covers it.
Rule 10 is worth checking before you assume everything is attachable: 'All such property as is by the Code of Civil Procedure, 1908 (5 of 1908), exempted from attachment and sale in execution of a decree of a civil court shall be exempt from attachment and sale under this Schedule.'
Now the s.281 overlay, which is where the buyer of a flat usually finds himself. Section 281 makes a transfer made during the pendency of a proceeding, or after it but before the tax is paid, void as against the Department's claim — void as against, not void for all purposes — subject to the proviso protecting a transfer for adequate consideration without notice of the pendency or of the tax payable, and a transfer made with the Assessing Officer's previous permission. The library covers the section separately.
What matters procedurally is that s.281 supplies no machinery. In Tax Recovery Officer II v. Gangadhar Vishwanath Ranade the Supreme Court held that in a Rule 11 enquiry the Tax Recovery Officer can only decide who is in possession and in what capacity, and cannot declare a transfer by the assessee in favour of a third party void under s.281; if the Department wants that declaration it must sue, in the same way as s.53 of the Transfer of Property Act requires. That decision is in this library. So a Rule 11 order that rejects your objection with a line saying the sale deed is void under s.281 is an order made outside the officer's power, and that is the point to take — separately from, and before, any argument about whether your purchase was bona fide.
Three further decisions came up in the research and are named here for what they are worth, each on a single source. Dr. Manoj Kabra v. ITO, 364 ITR 541 (All): an Income-tax Officer issued a notice under s.281 questioning a registered sale of 25 September 2007 by a seller whose assessment for AY 2005-06 was pending, found the consideration inadequate and declared the conveyance void; the High Court quashed the order, holding that the legislature does not confer exclusive power or jurisdiction on the income-tax authority to make that determination and that the route is a civil suit under s.53 of the Transfer of Property Act. Karsanbhai Gandabhai Patel v. TRO [2014] 43 taxmann.com 415 (Guj): notice of the proceedings must be served on the transferee as well as the transferor. Rekhadevi Omprakash Dhariwal v. TRO [2018] 96 taxmann.com 84 (Guj): a bona fide purchaser for adequate consideration who has conducted due diligence is not to be visited with the transferor's liability. None of those three judgments was read in the original and each rests on one commentary page; verify before citing.
A note on where Rule 11 does not reach. If the department has issued a garnishee notice under s.226(3) to your bank or your debtor, that is a different mechanism and Rule 11 is not the answer — the objection there is the statement on oath under s.226(3)(vi).
A buyer who finds a stranger's tax arrears attached to his flat instinctively argues that he paid full price and knew nothing, which is a s.281 proviso argument. That is not what the Rule 11 enquiry is about, and putting it first loses the enquiry. Rule 11 is a possessory investigation with a fixed relevant date and the burden on the claimant, and the s.281 argument — if it has to be made at all — belongs in the civil suit, or in resisting the Department's suit. Getting the two apart, and getting the claim in before it can be called delayed, is most of the work.
My assessment was reduced in appeal after the officer had already sent a recovery certificate to the Collector and my property was attached. Can he carry on with the old certificate?
The TRO has attached property the defaulter transferred years ago and calls the transfer void. Can he do that?
The deductor deducted my tax and never deposited it. The Assessing Officer says he cannot give me credit until the money reaches the treasury, and has attached my bank account. Is he right on both counts?
My appeal is filed and part-heard, but the Assessing Officer says pay 20% or recovery continues, and my bank account is attached. What can the High Court do?
What is the officer actually required to do when deciding your stay application?
The officer has attached my cash credit account under 226(3). Can an unutilised overdraft limit be garnished?
I bought a property at the liquidator's e-auction. The Income Tax Department had attached it before the liquidation started and the Sub-Registrar will not register my sale deed. Where do I stand?
The department has attached my bank account under s.226(3) because I did not pay the 20%. I say I have already paid more than that. Will the High Court interfere?
Every page in this library links to what it was written from, so you can check it rather than take our word for it.