TAX RECOVERY OFFICER Vs. RADHAKRISHNA ERADI V

JUDGEMENT

(1.) This appeal is against the decision of a learned Judge of this Court whose judgment is reported in Radhakrishna Eradi v. The Tax Recovery Officer (ILR 1976 (2) Ker. 312). The Tax Recovery Officer, Income Tax Department, Calicut is the appellant before us. The writ petition was to quash Ext. P1 order passed by the Tax Recovery Officer on a claim petition preferred by the respondent (writ petitioner) against the recovery proceedings initiated by the Income Tax Department, and attachment of a property in pursuance of the said proceedings. One M. K. Raru was a defaulter to the Income Tax Department to the tune of Rs. 1,59,641 plus interest and process fee. The Tax Recovery Certificates for recovery of the said amount had been issued by the Income Tax Officer and demand notices under R.2 of the second schedule of the Income Tax Act, 1961, were served on the defaulter, and after his death, on his legal representatives between 24th March 1967 and 29th March 1972. The defaulter died on 24th December 1971. The immovable properties of the defaulter were attached under R.48 of the second schedule to the Income Tax Act on 27th April 1972. One item of property attached item 4 in the order under R.48 consisted of houses bearing Corporation Nos. 26/197, 26/196, 26/195, 26/195A, 26/194 and 26/192 together with land measuring 13 cents in Survey No. 15/1, 41 cents in Survey No. 15/2, 79 cents in Survey No. 15/3, and 1 acre 17 cents in Survey No. 154 and 158 in Kommeri desom. It was represented by the legal representatives that the properties were mortgaged to the respondent M/s V. K. Eradi and Co., Calicut. By letters dated 15th January 1973 and 7th June 1973 the respondent preferred a claim petition under R.11 of the second schedule to the Act. It claimed that the above fourth item among the properties attached was equitably mortgaged under deposit of title deeds to it as security for a loan of Rs. 25,000 granted by it to the firm M/s M. K. Raru and Sons. The respondent therefore claimed a first charge on the properties and contended that the properties can be attached for claim of income tax arrears only after satisfying the prior claim or the first charge of the respondent. The claim was sought to be supported by the production of the mortgage document dated 15th March 1969. The Tax Recovery Officer held that the demand notices under R.2 of the second schedule were served on the defaulter between 24th March 1967 and 12th March 1969, which were all prior to the date of the mortgage (15th March 1969) relied on by the respondent. Under R.51 of the second schedule, the attachment under R.46 effected on 27th April 1972, would relate back to the date of service of the notices. Under R.15 of the rules of the second schedule, an alienation effected subsequent to the attachment would be void against all claims enforceable under the attachment. On this ground, the Tax Recovery Officer rejected the claim of the respondent. It was this order (Ext. P1) that was sought to be quashed in the writ petition. The learned Judge noticed S.281 of the Income Tax Act which provides for the avoidance of fraudulent transfers effected with intent to defraud the Income Tax Department. The section contained a proviso protecting bona fide transfers effected for valuable consideration without notice of the attachment. The argument advanced before the learned Judge was that this protection in favour of bona fide transferees for valuable consideration must be available even to transfers dealt with by R.16 of the second schedule to the Act. By a process of elaborate reasoning, the learned Judge came to the conclusion that the rule has to be read so as to harmonise with the Act and that the protection conferred by the proviso to S.281 must be available in respect of R.16 of the rules as well. The learned Judge concluded as follows

(2.) We are unable to agree with the conclusion and the reasoning of the learned Judge. We may extract S.281 of the Act as it stood at the relevant time:

(3.) Counsel for the respondent invited our attention to S.281 as amended by Act 41 of 1975 with effect from 1st October 1975. The section as amended reads as follows: