Case Note & Summary
The petitioner, Bank of Nova Scotia, a Canadian banking corporation, filed a writ petition challenging an order dated December 24, 1991, passed by the Assistant Commissioner of Income Tax, Circle 1(4), Bombay, which held that the transfer of office premises situated at Nariman Point, Bombay, by respondent No.3 (Victoria Finance Pvt. Ltd.) in favor of the petitioner was void under Section 281 of the Income Tax Act, 1961. The undisputed facts are that the petitioner was put in absolute and exclusive possession of the premises under an agreement dated June 14, 1983, and subsequently claimed to have purchased the premises under an agreement dated September 9, 1983. The petitioner filed the requisite forms with the income tax authorities, and a no-objection certificate was issued on March 21, 1987, approving the transfer. However, the Assistant Commissioner later passed the impugned order declaring the transfer void under Section 281, on the ground that the transfer was made with the intention to defeat or delay the recovery of tax dues of respondent No.3. The legal issue was whether the transfer was void under Section 281. The petitioner argued that the transfer was bona fide and for adequate consideration, and that the Revenue failed to prove any fraudulent intent. The Revenue contended that the transfer was made when assessment proceedings were pending and tax arrears existed. The court analyzed Section 281 and held that the provision requires the Revenue to prove that the transfer was made with the intention to defeat or delay tax recovery. The mere pendency of assessment or existence of tax arrears is not sufficient. The burden of proof lies on the Revenue, and in this case, the Revenue did not discharge that burden. The court also noted that the petitioner was a bona fide purchaser for value without notice. Consequently, the court quashed the impugned order and allowed the petition, holding that the transfer was not void under Section 281.
Headnote
A) Income Tax - Section 281 - Void Transfer - The Revenue must prove that the transfer was made with the intention to defeat or delay tax recovery; mere existence of tax arrears or pendency of assessment does not automatically void a transfer. (Paras 1-10) B) Income Tax - Section 281 - Burden of Proof - The burden of proving fraudulent intent under Section 281 lies on the Revenue, not on the transferee. (Paras 5-10) C) Income Tax - Section 281 - Bona Fide Purchaser - A transferee who is a bona fide purchaser for value without notice of any tax liability is protected under Section 281. (Paras 8-10)
Issue of Consideration
Whether the transfer of office premises by respondent No.3 in favor of the petitioner is void under Section 281 of the Income Tax Act, 1961.
Final Decision
The court allowed the petition, quashed the impugned order dated December 24, 1991, and held that the transfer of premises by respondent No.3 in favor of the petitioner is not void under Section 281 of the Income Tax Act, 1961.
Law Points
- Section 281 of the Income Tax Act
- 1961 requires the Revenue to prove that the transfer was made with the intention to defeat or delay tax recovery
- mere pendency of assessment proceedings does not render a transfer void
- the burden of proof lies on the Revenue to establish fraudulent intent
- a bona fide purchaser for value without notice is protected.
