Case Note & Summary
The petitioner, Nitin Nagarkar, purchased a land and farm house at village Bawdhan, Pune, vide a deed of conveyance dated 5th August 1997 from vendors including K. K. Mistri. After about ten years, on 27th June 2007, Respondent No. 2 (Income Tax Officer) passed an order under Section 281 of the Income Tax Act, 1961, declaring the transfer void as against tax claims payable by the assessee K. K. Mistri, on the ground that the assessee had created a charge on the property and parted with possession during the pendency of assessment proceedings. The petitioner challenged this order. The court considered whether the order could be sustained without notice to the transferee. The petitioner argued that the order was contrary to the Supreme Court's decision in Tax Recovery Officer v. Gangadhar Vishwanath Ranade, which held that a transferee must be given an opportunity to show that the transfer was for adequate consideration and without notice of pending proceedings. The court agreed, noting that the petitioner had purchased the property for adequate consideration and without notice of any pending proceedings, as the sale deed was executed in 1997 and the assessment proceedings were initiated later. The court held that the impugned order violated principles of natural justice as no notice or opportunity of hearing was given to the petitioner. The court quashed the order and directed the respondents to issue a fresh notice to the petitioner and decide the matter afresh after hearing him.
Headnote
A) Income Tax - Section 281 - Transfer Void - Bona Fide Purchaser - The court considered whether an order under Section 281 of the Income Tax Act, 1961, declaring a transfer void as against tax claims, can be passed without notice to the transferee. Held that the transferee must be given an opportunity to show that the transfer was for adequate consideration and without notice of pending proceedings. (Paras 2-5) B) Income Tax - Section 281 - Notice to Transferee - Natural Justice - The court held that the Assessing Officer must issue notice to the transferee before passing an order under Section 281, as the transferee's rights are affected. The impugned order was set aside for violation of principles of natural justice. (Paras 5-6) C) Income Tax - Section 281 - Adequate Consideration - The court noted that the petitioner had purchased the property for adequate consideration and without notice of any pending proceedings against the assessee, as the sale deed was executed in 1997 and the assessment proceedings were initiated later. (Paras 3-4)
Issue of Consideration
Whether an order passed under Section 281 of the Income Tax Act, 1961, declaring a transfer of property void, can be sustained without giving notice or opportunity of hearing to the transferee, and whether the transferee is a bona fide purchaser for adequate consideration without notice of pending proceedings.
Final Decision
The court quashed the impugned order dated 27th June 2007 and directed the respondents to issue a fresh notice to the petitioner and decide the matter afresh after giving him an opportunity of hearing.
Law Points
- Section 281 of the Income Tax Act
- 1961
- Transfer void against tax claims
- Bona fide purchaser without notice
- Adequate consideration
- Notice of pendency of proceedings
- Opportunity of hearing to transferee
