In T.S Sujatha v. TRO & Anr, the Kerala High Court ruled that where the assessee transferred a property to his spouse for inadequate consideration during block period for which search was carried out against him, in case of failure of assessee to pay tax demand determined in block assessment proceedings, department could proceed against aforesaid property of spouse under Explanation to section 222(1) of the Income Tax Act.
Coming to the facts of the case, assessee’s husband transferred a property in her name for inadequate consideration during block period for which search was carried out against him. The Income Tax Authorities initiated proceedings to recover the said amount by attachment and sale of the property which is in the name of the wife. Against this action, the wife approached the High court by contending that the transaction cannot be treated as sham since she has sufficient income to purchase the property and the value of the property is almost similar to the value of other properties in the identically situated lands.
The bench noted that the tax arrears in the name of the petitioner’s husband were remained as unpaid since a long time. It is in this circumstance, the Department proceeded against the property of the petitioner under the Explanation to Section 222(1) which deems any property transferred directly or indirectly on or after the 1st day of June, 1973 by the assessee to his spouse or minor child or son’s wife or son’s minor child otherwise than for adequate consideration and which is held by the aforesaid persons; to be the assessee’s movable or immovable property; which can be proceeded against under sub-section (1) of Section 222. “Hence, the property, which stands in the name of the petitioner, has not been proceeded with for any default committed by the petitioner herself.”
It was further noted that the transaction was made during the period in which suppression was found against the assessee, the petitioner’s husband, which, along with the inadequate consideration paid, makes it liable to proceedings for recovery deeming it to be the assessee’s property itself. “There is, hence, no necessity to serve a notice of demand on the petitioner and declare the petitioner to be an assessee in default,” the bench said.
The bench also said “the act of the assessee who practiced suppression and to avoid recovery, on such suppression being detected, by transferring the movable and immovable assets to his near relatives, to defeat the Revenue, is what is sought to be averted by the Explanation to Section 220(1) read with Rule 11 of Schedule II of the IT Act. The Tax Recovery Officer having proceeded against such property under the Explanation to Section 222(1), it is for the assessee to initiate a suit, if at all such recovery is to be interdicted.”
“It is also pertinent that Explanation to Section 222(1) specifically speaks of proceeding against the transferred movable or immovable assets of the assessee in default only in circumstances of the consideration being inadequate.” The bench added.
Read the full text of the Judgment below.