Revenue Recovery proceedings can’t be initiated against a ‘Bonafide’ Purchaser of Property: Madras HC [Read Judgment]

In a case between M.Thirumaran vs. Commercial Tax Officer, Madras High Court has held that revenue recovery proceedings can’t be initiated against a bona fide purchaser of the property.

Assessee in the present case is an individual Mr.Thirumaran has purchased a land of 1 acre and 42 cents for a sale consideration of  Rs.1,25,000 during the assessment year 2004 and he verified the encumbrance certificate from sub-registrar with regard to the property he purchased and he was of the view that there was no encumbrance  and that ever since the date of purchase, he has been in continuous possession and enjoyment of the said property.

However, during the year 2009, a notice was issued by Commercial Tax Officer to the Assessee by directing him to pay a sum of Rs.8,53,373 on account of arrears of tax payable by his vendor Mr.Dinesh N.Patel in respect of the said property.

In response to the notice the Assessee contended that he is a bona fide purchaser for value and that he has purchased the property after due verification of the encumbrance certificate in the office of the Sub Registrar and he was not aware of any of the proceedings initiated by the Commercial Tax Officer on account of arrears of tax payables by his vendor Mr.Dinesh N.Patel.

However, the Officer refused to accept the contention of the Assessee and also initiated revenue recovery proceedings against the Assessee, the present owner of the property.

Thereafter the Assessee carried the matter before the Court and counsel for the Assessee advocate Mr.S.Karunakar submitted that The property had been purchased in the year 2004 by him from Mr.Dinesh N.Patel and he was unaware of the pendency of any proceedings by the Commercial Tax Officer under the Act and he is a bona fide purchaser of the aforesaid property, therefore, a charge over his property cannot be created by the Officer. Further, he argued that the Assessee cannot be said to have actual or constructive notice of the charge, prior to the transfer of the property and therefore, he must be treated as a bona fide purchaser for value. He was of the view that the Commercial Tax Officer cannot direct the Assessee to pay tax

While allowing the writ petition filed by the Assessee, the division bench comprising of Justice M. Sathyanarayanan and Justice R.Hemalatha observed that “even though a charge is created on the properties on the finalization of the assessment of tax and a demand is raised, the same would not preclude the bona fide purchaser from seeking protection under Section 24 (A) of the Tamil Nadu General Sales Tax Act, 1959. While perusing the available material facts it is clear that the Assessee had verified the encumbrance details in the Registration Department and finding that there was no encumbrance over the property, he had purchased the same. This would show that the appellant had made sincere efforts to find out whether there was an encumbrance over the property”.

The Court further observed that “the Commercial Tax Officer did not also file any materials before this Court to show that steps have been taken by them under the Provisions of the Revenue Recovery Act, against the defaulter from whom the Assessee had purchased the property in the year 2004. Therefore in the instant case, it cannot be said that there was willful abstention or gross negligence in making any inquiry that would tantamount to a notice under Section 3 of the Transfer of Property and the Assessee is a bona fide purchaser of value”.

 The Court has set aside the revenue recovery proceedings against the assessee.