Dr. Kolla Prabhakar Reddy and 3 Others V. The Union of India and 5 Others

WP/3721/2020

AI Insights

The case involves a writ petition filed by Dr. Kolla Prabhakar Reddy and others, challenging an order by the Tax Recovery Officer (TRO) which declared the transfer of immovable property void. The property in question was part of a development agreement and had multiple residential flats sold to various purchasers, including the petitioners. The TRO's order was based on the assertion that the property transfer violated Section 281 of the Income Tax Act, 1961, due to pending tax recovery proceedings against the original owner. The petitioners argued that they were unaware of these proceedings and had purchased the property in good faith. The court examined the procedural adherence of the TRO and the applicability of Section 281(1), ultimately finding in favor of the petitioners.

• Counselvise Citation: [2021] 140 COUNSELVISE.COM (IT) 734003 (HC-TELANGANA)
• Appeal Type: Others
• Pronouncement Date: 28-09-2021
• Assessment Year: misc
• Other Referred Cases: ICICI Bank Limited V/s. Tax Recovery Officer-I, Income Tax Department and others
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: NAMAVARAPU RAO; K RAJI REDDY; PRABHAKAR SRIPADA
• Assessee Lawyers: DIDA KUMAR
• Keywords: Immovable Property; Mandamus; Tax Recovery; Void transfer; Writ petition
• Section: 226; 281(1)

Judgement Text

"HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAD (Special Original Jurisdiction) TUESDAY, THE TWENTY EIGHTH DAY OF SEPTEI ,1BER TWO THOUSAND AND TWENTY ONE THE HON'BLE THE ACTING CHIEF JUSTICE M.S.RAMACHANDRA RAO AND THE HON'BLE SRI JUSTICE T.VINOD KUMAR wRtT PETIT|ON NO. 3721 0F 2020 Between: AND 1 Dr. Kolla Prabhakar Reddy, S/o. Major K.P.M. Reddy, Aged about 77 years, Occ. Doctor, PJo. 2-2-1816511, D.D. Colony, Amberpet, Hyderabad (temporarily residing at UK) Dr. Kolla Prasuna Reddy, W/o. Dr. Kolla Prabhakar Reddy, Aged about 73 years, Occ. Doctor, No. 2-2-1816511, D.D. Colony, Amberpet, Hyderabad (temporarily residing at UK) Kolla Plashanthi Reddy, D/o. Dr. Kolla Prabhakar Reddy, Aged.about 5'1 years, Occ. Doctor, PJo.2-2-i8l65l'1, D.D. Colony, Amberpet, Hyderabad (temporarily residing at lreland) Dr. Kol-la Pradeep Reddy, S/o. Dr. Kolla Prabhakar Reddy, Aged about 43 years, Occ. Doctor, No.2-2-14rc51'1, D.D. Colony, Amberpet, Hyderabad (temporarily residing at UK) All are represented by their G.P.A. holder Koran Anand Srinu, S/o. Koran Kistamma, aged about 51 years, Occ. business, R/o. 1-9-28612141C11, Ram Nagar Gundul Hanuman Teniple, Jana Priya Apartments, Hyderabad. 2 J 4 ...PETITIONERS 1. The Union of lndia, Rep. by its Secretary, I/inistry of Finance, New Delhi 2. The Tax Recovery Officer, Company Range-ll, lV Floor, New Block, Room No. 404,121, N.H. Road, Chennai - 34 3. lr//s. l.G.G.l. Resorts lnternational Ltd., A Company incorporated under the provisions Of Companies Act, 1956, having its office At 5-18-A, Alsa Mall Complex, 149, tvlonteth Road, Egmore, Chennai-600 008. Rep. by its Chairman and Managing Director 4. M/s. Lifestyle Constructions, A Partnership Firm, having its office At H N.o Q-.2- 42, A.C. Guards, Hyderabad, Rep. by its Managing Partner, G. Srinivas Reddy, S/o. G. Hanimi Reddy. 5. The District Regrstrar, Red Hills, Hyderabad. 6. The Joint Sub-Registrar, Sanjeeva Reddy Nagar, Hyderabad. ...RESPONDENTS Petition under Article 226 of the Constitution of lndia praying that in the circumstances stated in the affidavit filed therewith, the High Court may be pleased to issue a Writ, order or direction more particularly one in the nature of writ of Mandamus challenging the order of the Respondent No.2 dated 05/05i2009 T.R. No. 29/02-03/TRO-ll wherein the Respondent No.2 has opined that the transfer of immovable property pertaining to H. No. 6-2-42, A.C. Guards, Hyderabad is declared void as illegal, arbitrary, without jurisdiction and in contravention to the Rule 11 of the Second Schedule to the lncome Tax Act and in violation to the Section 281(1) of PRESENT 2- the lncome Tax Act, besides violation of principles of natural justice and consequenfly to set aside the order of the Respondent No.2 dated o5/05/2oog r-R. No. 29l02-03/TRO-lt pertaining to H. No. 6-2-42, A.C. Guards, Hyderabad. lA NO: 1 OF 2020 Petition under Section 151 cpc praying that in the circumstances stated in the affidavit filed in support of the petition, the High court may be preased to direct the Respondent No.5 and 6 to accept, process and register the documents presented by the Petitioners for sale of their flats bearing Nos. 101, 102, 103 and 104 pe(aining to H. No. 6-2-42, A.C. Guards, Hyderabad. Counsel for the Petitioner: SRI DIDA VIJAYA KUMAR counsel forthe Respondent No.1: sRr NAMAVARAPU RAJESHWAR RAo, ASSISTANT SOL]CITOR GENERAL Counsel forthe Respondent No.2: SRI K. RAJI REDDY, SPECIAL SENIOR COUNSEL FOR INCOME TAX Counsel for the Respondent No.3: SRt PRABHAKAR SRtPADA Counsel for the Respondent Nos.s & 6: Gp FOR REVENUE Counsel for the Respondent No.4: - The Court made the following: ORDER rI OR ER : (per Honble Sri Justice T.Vinod Kumar) This Writ Petition is filed challenging the order of the 2nd respondent dt.05.05.2009 in TR.No.29/02/03/TRO-II, wherein the said respondent had declared that transfer of immovable property bearing House No.6-)-42, A.C.Guards, Hyderabad, is void. 2. The petitioners contend that they are the bona fide purchasers of residential flats constructed by the 4h respondent under a Development Agreement entered into with the 3'd respondent in respect of land purchased by the 3'd respondent in the year 1995; that the petitioners had purchased the residential flats from the 3'd and 4th respondents by paying valuable consideration and getting registered sale deeds executed in their favour on 1g.O7.lgggi that the impugned order passed by the 2nd respondent is without notice to the petitioners, as provided under the Income Tax Act, 1961 (for short,'the Act'), and the Schedule thereunder; and that by the date the 2nd respondent had initiated proceedings under the Act, the property in which the petitioners' residential flats are located are already in their possession and no notices calling for objections as contenlplated in Second Schedule to the Act were issued to them. 3. The petitioners also contend that they were in possession and enjoyment of the said propefty purchased by them from the 3'd and 4th respondents, and when the petitioners were trying to alienate the same to meet the financial necessitles during the year 2019 and approached the 6n respondent to obtain valuation and encumbrance certiflcates in August, I THE HON'BLE THE ACTING CHIEF JUSTICE SRI M.S,RAMACHANDRA RAO AND THE HON'BLE SRI JUSTICE T.VINOD KUMAR WRIT PETITION No.3721 of 2020 2019, they became aware of the proceedings issued by the 2nd respondent attaching immovable propefty bearing House No.6-2-42 situated at A.C.Guards, Hyderabad, vide Warrant of Attachment in ITCP-16 dt.04.10.2002; and on further enquiry, they came to know of the 2nd respondent passed the impugned order dt.05.05.2009 declaring the transfer of subject immovable property, as void. 4. It is also contended that the petitioners were taken by surprise about some suits being flled in their name before the Civil Court questioning the said order of the 2nd respondent, and the said suits having been dismissed for non-prosecution on 26.10.2017; that the petitioners were not aware of the said civil suits initiated in their name, since at the relevant point of time, they were not even available in the country and were residlng in United States of America; and that, while reserving a right to lodge a complaint against the suits filed ln their names, the petitioners are challenging the order of the 2nd respondent declaring the transfer of immovable property in their favour as void, as the said authority is not conferred with such power. 5. In suppoft of the above contentions, the petitioners rely upon the judgment of the erstwhile common High Court in the case of ICICI Bank Limited V/s. Tax Recovery Officer-I, fncome Tax Depaftment and other/. 6. Counter affidavit has been filed by the 2,d respondent. 7. By the said counter-affidavit filed, the 2nd respondent while denying the claim of the petitioners that the 3d and 4th respondents had agreed to jointly execute the project of construction of a building consisting of residential flats under a Memorandum of understanding dt.05.06.1gg5, r (2019) 411 ITR 518 2 3 // would contend that the 3'd respondent has purchased the property bearing House No.6-2-42, A.C.Guards, Hyderabad, from its vendor under registered Document N0.3990/95, dt.13.10.1995; that the 3'd respondent entered into a turnkey agreement on 28.12.1995 and a joint venture agreement on 2B.O4.tgg7 with the 4th respondent to develop the above said property; and that as on the date of purchase of the said propety by the 3'd respondent, the assessment proceedings against the 3'd respondent were already pending with the department and a notice under section 143(2) of the Act was issued on 25.09.1995 and the said notice was served on the 3'd respondent on 11.10.1995; that these agreements cannot be accepted as valid agreements, as on the date of the said agreements, the assessment proceedings having been set in motion against the 3'd respondent, the said agreements would be void under Section 281 of the Act' B. The respondents would further contend that, since the assessment proceedings were pending, before service of notice under Rule 2 of Second schedule of the Act, the 3d respondent cannot create any charge over the property in view of the restrictions placed under Section 281 of the Act' (which stipulates that, if assessee creates a charge by way of a sale' mortqage, gift, exchange, or any other mode of transfer whatsoever of any ofhisassetsinfavourofanyotherperson,Suchchargeortransfershal|be void, insofar as claim in respect of tax or any other sum payable by the assessee, as a result of completion of the said proceeding); that since, the assessment proceedings had commenced against the 3'd respondent on 25'09.1995 and the same were being attended to on behalf of the 3rd respondent by his authorized representative, the provisions of Section 281 of the Act would Stand attracted; and that the General Power of Attorney (GPA) executed by the 3'd respondent on 1l'06.'1997 in favour + of one Mr.srinivas Reddy and another GPA given on 18.08.2000 to one Mr.U.Vijay Kumar are not valid in the eye of law for the above said reason. 9. It is also contended that no evidence has been produced by the petitioners to substantiate the stand that the GPA holder had executed the sale deeds in favour of the petitioners; that since the original sale deed, under which the subject property was purchased by the 3'd respondent on 13.10.1995 was surrendered to the Income Tax Department on 28.10.1998, the sale deed under which the subject transaction has been entered into was executed without verifying the original sale deed; and that the petitioners cannot claim that their transaction is a bona fde transaction. 10. We have given our utmost consideration to the subrnissions made by the parties. 11. By the impugned order, the 2nd respondent has stated that the immovable property was attached under warrant of attachment in ITCP-16, dt.04.10.2002, since the 3'd respondent had failed to pay the taxes assessed for the assessment years 1994-95, 1995-96, 1996-97 and 2000-2001 and were certified to by the 2nd respondent for recovery of a sum of Rs.71.,22,29,4961-. L2. By the order impugned, it is also stated that since one of the owners of the flats constructed in the property attached had raised objection to the attachment issued, the 2nd respondent issued notices to all the occupants of the attached property, numbering to 28, calling upon them to show cause as to why the transfer of immovable property in question should not be declared void. The impugned order also records that information was sought for and obtained from the Sub-Registrar's Office, Sanjeev Reddy Nagar, to furnish encumbrance certificate and sale deed copies for the prope(y in t- 5 question for last 25 years and reply thereto was received on 31.03.2009 enclosing copies of encumbrance certificate for the period from 01.05.1995 t0 19.03,2009. However, no sale deed copies were enclosed thereto. It is also stated therein that one of the flat owners, Sri G.K.Vijay Bhaskar Reddy, and other owners of the immovable property in question had claimed that the transfer was valid and bona fide. It is also noted therein that some of the owners of the flats also enclosed copies of the sale deeds of their purchase of the property and also encumbrance certificate pertaining to the transaction. 13. By the impugned order passed, the 2nd respondent stated that cn veriFication of the encumbrance certificate issued by the 6th respondent for the period ending 03.05.2004, it is noticed that the property in question still belongs to the 3'd respondent as they appear to be claimants of the propety having purchased the same from the vendor. It is also stated therein that there are no other entries in the encumbrance certificate, including the encumbrance of the attachment issued by the office of the 2nd respondent on 04.10.2002. By the impugned order, while casting a doubt on the sale deeds executed by the GPA holder in favour of the petitioners, the 2nd respondent relied on the encumbrance cetificate issued by the 6th respondent on 03.05.2004 (as it does not reflect the sale deeds executed ir.l favour of various purchasers), and declared the transfer of the subject immovable property as one in violation of provisions of Section 281 of the Act and hence, void. 14. Having regard to the categorical stand of the 2nd respondent in the impugned order that the encumbrance ceftlficate dt.03.05.2004, furnished by the 6th respondent did not reflect the sale deeds executed by the petitioners, this Court, on 28.06.2021, directed the learned Standing Counsel ---- / 6 to place a copy of the said encumbrance certificate dt.03.05.2004 allegedly issued by the Sub-Registrar's Office, Sanjeev Reddy Nagar, Hyderabad, for perusal ofthis Court and directed the matter to be listed on 06.07'2021. 15. On 06.07.2021, at request, the matter was adjourned to L2.07.2021. In spite of the specific direction by this Court and the matter having undergone two adjournments, the respondents did not place before this Court the copy of the encumbrance certificate dt.03.05.2004 referred to and relied upon in the impugned order. Thus, the matter was heard on 12.07.2021 and the orders thereon were reserved. 16. While, the 2nd respondent had placed reliance on the alleged encumbrance certificate, dt.03.05.2004, to claim that none of the transactions entered into by the 3'd and 4th respondents with various purchasers, including the petitioners, are not reflected in the encumbrance certificate obtained, the documents placed before this court, on the contrary, indicate that the petitioners purchased their respective flats in the subject property developed by the 3rd and 4h respondents, and they were duly registered with the 6h respondent on 19.07.1999 and 24.07.1999. Futher, it is also to be seen that though the impugned order records that some of the objectors had filed copies of the sale deed and also encumbrance certificate, the 2nd respondent did not choose to get the correctness of the same verified by referring them to the 6tt' respondent. 17. Further, the impugned order nowhere mentions that the subject transactions under which the petitioners and other owners have purchased the flats from the 3rd and 4rh respondents is not for a valid consideration and the said transfer is only intended to defraud the revenue. r 18. The erstwhile combined High Court in the judgment rendered in the case of ICICI Bank Limited (suprA speaking through the Hon'ble lustice Sri V.Ramasubramanian, (as His Lordships then was) dealt with the issue as to whether all transfers made by the assessee during the pendency of proceeding would automatically become null and void by virtue of operation of Section 281(1) of the Act and as to whether the Tax Recovery Officer is competent to issue declaration of nullity and voidity of transfer under Section 281 of the Act. 19. In the above said decision, after taking note of the provisions of Section 281 and the Second Schedule to the Act and also the provisions relating to modes of collection and recovery of tax, the court had laid down the sequence of steps to be taken firstly by the Assessing Officer and then by the Tax Recovery Officer in terms of Section 222(1) read with Rules 2, 4, 16 and 48 of the Act and the Schedule. 20. In the said judgment rendered by this Coutt, the steps have been compartmentalized into three sections, viz., (l) lhefirst, up to the issue oF a certificate of recovery;(2), the second, from the issue of a certificate of recovery up to the attachment of the propefi for non-compliance with the demand made under Rule 2; and (3), the third, the voidity of all transfers from the date of the order of attachment. 21. in the above said decision, after noting the above three steps, the Court observed in paras 24 and 25 as under: '24. Section 281 (1) operates from the stage of commencement af proceedings under the Act upto the stage of service of a notlce of demand under Rule 2. Rule 16 (1) operates from the stage of service of a demand under Rule 2 upto the stage of attachment. Rule 16 (2) takes over from the stage of attachment, Among these 3 provisions namely section 281 (1), Rule 16(1) read with Rule 2 and Rule 16(2), on/y the ...t!=!!- ,/ B first (section 281) and the third (rule t6[2)) ialk about voidity. Rule 16 (1) merely talk about prohibitron of alienation, 25. Therefore the only way Section 2g1 (l) can be reconciled with sub-rules (1) and (2) of Rule 16 b to hold that up to the stage of issue of an attachment in terms of Rule 49, the transfers made by the assessee in default can be declared void on/y if an exercise is carcied out by some one (be it the Tax Recovery Officer or a Ovil Court). But after an attachment is made, the declaration of voidity under Sectjon 2Bl (1) becomes automatic without any further effort on the paft of any one. This is in view of sub-ru/e (2) of Ru/e 16., Further, this Court also observed in paras 27 and 28 asunder '27. The procedure prescribed in Ru/e ll for the investigation of c/aims and objections to the attachment or sale of a propetty, is relatab/e to the proviso to sub-section (1) of Section 281. It may be seen from the main paft of sub-section (1) of Section 2g1 that the same declares all transfers and creation of charges to be void. But the proviso to sub-section (1) carves out an exception, in cases where the creation of the charge or the transfer was for adequate consideration and without notice of the pendency of any proceeding under the ALt. What is important to note from the provin (i) is that the exception carued out therein may be available only up to the stage of issue of an order of attachment. The proviso (0 to sub_section (1) of Section 2BI uses the words \"without notice of the pendency of such proceeding,,. Thereforq an assessee or a transferee or a mortgagee can clatm the benefit of prov$o O only if the transfer has been made or charge created before the issue of an order of attachment, but during the pendency of the proceedings under the Act. Once a,1 order of attachment is to be issued, then Rule t6 (2) wi// cone into ltay and the benefit of the proviso to sub-section (1) of Section 2g1 ,nav not be avai/ab/e. 28. Therefore, it ls c/ear that the proviso (i) to sub-section (l) of Section 281 provides an escape route for innocent thiro parties, to whom the property of the assessee is transferred during the pendency of the proceedings, but before an a2achment is ordered. This compartmentalization is very important to be note4 in viey/ of the fact that during the pendency of the proceedings for assessment, an assessee does not become an assessee in defautt. Section 281 (1) cannot be interpreted to mean that every assessee is likely to become 9 an assessee in default and therefore, all transfers effected by him even before he becomes a defaulter are null and void\" 22. In the light of the above discussion by this Court, it is to be noted that the provisions of Section 281(1) of the Act would stand attracted' only when a demand is raised and the same is not paid by the assessee, thereby' becoming an assessee in default' It is only when an assessee is declared as assessee in default and certificate of recovery is drawn up' the protection provided under the said Section 281(1) of the Act would be available' 23. In the facts of the case' it is not shown to this Couft that the transfer affected by the 3'd and 4th respondents in favour of the petitioners is not for adequate consideration or that attachment of the subject property has been made before the petitioners had purchased the same' 24. Going by the admission of the 2nd respondent in the impugned ordet' itself, it is evident that warrant of attachment in ITCP-16 was issued for the first time on 04'10'2002' On the other hand' the sale deeds under which petitioners 1, 2 and 4 had purchased the property are all registered on 19.07.1999 and that of the 3'd petitioner on 24'07'1999' Further' it is also to be noted that the order of attachment issued mentions that certlFrcate of recovery has been drawn up only on 02.06.2000, whereby it is held that the 3'd respondent has failed to pay the sum as shown therein' 25. As the 3'd respondent is treated as an assessee in default only upon the drawing up of certif,rcate of recovery dt' 02'06'2000' the transfers of immovable property effected prior to the said date in favour of the petitioner cannot be said to be hit by the provisions of section 281(1) of the A't; consequently' the purchase of flats by the petltioners is a bona fide I I 7 10 purchase and are covered by the escape route provided under Section 281(1) of the Act, as hetd in iCICI Bankcase (supra). 26' Thus, the petitioners are entiued to craim the benefit of protection provided under Section 2g1(1) of the Act in respect of purchase of flats made by them from the 3'd respondent under registered documents bearing Nos.1666/99, 1667/gg and 1668/99 dt.19.07.1999 executed by the 3rd and 4ti' respondents in favour of petitioners 7, 2 and4 and registered document No.1736 of 1999 executed on 24.07.1999 in favour of the 3,d petitioner by the 3,d and 4rh respondents. 27. In view of the above, the impugned order dt.05.05.2009 in TR No.29/02/03-pRO_II passed by the 2no respondent insofar as the propefties of the petitioners are concerned, cannot be herd to be varid and thus, riable to be set aside and we do so. 28. Accordingly, the writ petition is allowed and the impugned order dt.0S,05.2009 in TR No.29l02l03-pRO-II passed by the 2nd respondent is herE[y 5s1 aside to the extent oF the properties oF the petitioners, as i:rdicated herein above. 29. pending miscellaneous petitions. if any, shall stand closed in the light of tlis flnqlgr!_e1!9 older as ro cosrs. To, //rRuE copy// or.,rroi?tfo?Jli.jH I ffiffi 1. 2. J 4 6. 7. 8. 9. 10 11 MP TP HIGH COURT DATED: 28109t2021 ORDER WP.No.3721 of 2O2O f!:_L.gwNc rHE wRr PEfliloN WTHOUT COSTS. { 3 zs ogr2op! IA e S H 1 * , {., ,6 to "