Income Tax Dept has No Statutory Power to Cancel Sale Deeds : Madras HC Quashes Attachment Order [Read Order]

The Madras High Court, while quashing the attachment order passed by the TaxRecovery Officer ( TRO ), ruled that there is no statutory provision in favour of the income tax department to annul or cancel the sale deed between two parties which is already pending in dispute before the civil court.

The Division Bench comprising Chief Justice K.R. Shriram and Justice Sunder Mohan held that the Income Tax Department has no statutory authority to cancel sale deeds executed between private parties, thereby setting aside the controversial order dated 16.02.2023 issued by the TRO.

The appellant K.N. Subramaniam, purchased a property from the fourth respondent, Ms. Sameer Bhuvaneshwari, through a registered sale deed executed in 2012. However, in May 2012, the department passed an attachment order on the said property, contending it was liable for recovery of tax dues from the vendor.

In subsequent years, the vendor approached various legal forums alleging that the sale was fraudulent and executed using forged documents. The dispute ended in a criminal complaint which was ultimately dismissed by the Supreme Court, directing the parties to pursue civil remedies instead. Notably, no civil suit was filed by the vendor thereafter.

Despite this, the tax recovery officer of income tax department continued proceedings under the 2012 attachment and, after hearing objections from both parties, passed an order in 2023 declaring the registration of the sale deed to be “illegitimate and unlawful.” The order of the recovery officer directed the Sub-Registrar to cancel the registration and restore title to the vendor thereby confirming the property’s attachment for the purpose of recovering the vendor’s tax dues.

The High Court took strong exception to this overreach. During the hearing, the Bench said there is no provision empowering the tax authorities to cancel registered sale deeds.

Accordingly, the court set aside an order dated 16.02.2023 passed by the recovery officer. The Bench also clarified that it was expressing no opinion on the merits of the underlying dispute and left all rights and remedies of the parties open to be pursued in appropriate civil forums.

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