In a significant ruling the Madras High Court observed that Tax Recovery Officer under the Income Tax Act, 1961 is not empowered to declare sale made in favour of third party as void.
As the 4th respondent had defaulted in payment of tax, the respondent Income Tax authorities issued a Demand Notice under Rule 2 of the Second Schedule to the Income Tax Act, 1961. Again, another Demand Notice was issued demanding the fourth respondent to pay arrears of tax along with interest. It appeared that petitioner and the fourth respondent had earlier entered into a Sale Agreement for the sale of one of the properties.
The specific case of the fourth respondent is that the fourth respondent had never executed the aforesaid sale deed dated 24.02.2012 which has been registered in Document No.1981/2012. The fourth respondent filed a copy of certificate dated 19.03.2005 of S1FS India, Forensic Science Organization to substantiate that the aforesaid Sale Deed dated 24.07.2014 registered as Document No.1981 of 2012 was a forged document.
The Senior Counsel appearing for the petitioner submitted that the fourth respondent had an option to file a Civil suit. However, till date, the fourth respondent has not filed a suit against the petitioner. Thus, it is submitted that sale in favour of the petitioner vide registered Document No.1981 dated 24.02.2021 is binding.
It was also contended that the second respondent has no jurisdiction to declare that the sale deed dated 24.02.2012 registered as Document No.1981 was void under the provision of the Income Tax Act, 1961.
The counsel for the Income Tax Department argued that the sale was void by operation of law in terms of Rule 16(1) of the II Schedule of the Income Tax Act, 1961. It was therefore submitted that the sale which is said to have taken place on 24.02.2012, vide Document No.1981 pursuant to the sale agreement dated 19.02.2009 was void abinitio and that even if the second respondent was not required to declare the sale as void, by operation of Rule 16 of II Schedule of Income Tax Act, 1961, said sale was indeed void.
A Single Judge Bench of Justice C Saravanan observed that “The Hon’ble Supreme Court there had interpreted Rule 11 of the 2nd Schedule to the Income Tax Act, 1961 and observed that under Rule 11 (1), where any claim is preferred or any objection is made on the ground that such property is not liable to such attachment of sale, the Tax Recovery Officer shall proceed to investigate the claim or objection.”
“Therefore, the ratio laid down by the Supreme Court in Tax Recovery officer II, Sadar, Nagpur Vs. Gangadhar Vishwanath Ranade cannot be applied to the facts of the present case. Further, Tax Recovery officer is not required to declare the sale between the petitioner and the fourth respondent as invalid as the sale is void abinito. The petitioner has to institute a suit in a civil court to establish the right which he claims over the property in dispute” the Bench concluded.
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