Case Law-SANCHETI LEASING COMPANY LTD required

[sujittalukder]

Dear Members,
Could anyone please provide case law for the following case:
SANCHETI LEASING COMPANY LTD. v. INCOME-TAX OFFICER & ANR. (C. BALAN v. ITO.)

Thanking you,
regards
Sujit Talukder

[tax_counsel]

Sir,

Here it is:

Sancheti Leasing Company Ltd. And ... vs Income-Tax Officer And Anr. on 5 November, 1998
Equivalent citations: 2000 246 ITR 814 Mad

JUDGMENT

R. Jayasimha Babu, J.

1. The petitioners are purchasers of two different items of properties from a common vendor. They are aggrieved by the order of the Income-tax Officer who has declared their purchases as void by his order dated April 7, 1994, which concludes as under :

"Considering all the above facts, Section 281(1) of the Act, is clearly attracted in respect of the sales effected by the assessee on March G, 1985, and July 15, 1987. I, therefore, treat the following sales of immovable properties effected by the assessee as 'null and void' under Section 281(1) of the Income-tax Act, 1961.

(i) Property (residential house) at old No. 27 (new No. 68), Bunder Street, Madras, sold on March 6, 1985, to Sanchetty Leasing Co. Ltd., as per document No. 222 of 1985 of the Registrar, North Madras.

(ii) Property at No. 8 (old No. 85), Varadha Muthiappan Street, Madras, sold on July 16, 1987, to Sri C. Balan as per document No. 827 of 1987 of the Sub-Registrar, Sowcarpet, Madras."

2. The petitioners are the purchasers of the two properties mentioned in the order of the Income-tax Officer. The assessee referred to therein is their common vendor.

3. As stated, this order was made in 1994, nine years after the first sale and seven years after the second sale. It is the case of the petitioners that the sale deeds in their favour have been duly registered and that such registration took place after the income-tax clearance certificate had been issued by the Revenue authorities and, consequently, there was full and effective transfer of title over these properties to the petitioners. The sale so effected in their favour cannot be declared "null and void" by the Income-tax Officer who according to them has no jurisdiction to do so. It is also the case of the petitioners that they have no knowledge whatsoever regarding the liability, if any, of their vendor for payment of income-tax. They have stated that they are bona fide purchasers for value who have acted in accordance with law.

4. It is not necessary in this case to go into the question as to whether the reasons given by the Income-tax Officer are tenable or lacking in any substance. The Revenue's claim that notice had been issued to the assessee before the sale under the relevant provisions of the Act, and that the alienation made by the assessee subsequently was without the permission of the Tax Recovery Officer, even if argued to be correct, the impugned order cannot be suspended.

5. Section 281(1) of the Act had been relied upon by the Income-tax Officer. That section declares certain transactions as void. The section, however, does not vest the authority in the Income-tax Officer to make such a declaration.

6. Before a transaction involving immovable property can be declared as void, all the requirements of law must necessarily be satisfied. The fact that a statute provides for such a declaration being made, if the conditions mentioned in the statute are satisfied, does not imply that an officer exercising powers under the provisions of the statute can assume to himself the power and jurisdiction to declare what is otherwise a legally valid transaction as void. Adjudication is the function of the courts. Any declaration of a transaction being void must be sought in the civil court. The Income-tax Officer moreover in this case is an interested party as it is in the interests of the Revenue to make such a declaration and proceed to recover the vendor's arrears of tax from such person.

7. The Supreme Court of India in its recent decision rendered in the case of TRO v. Gangadhar Viswanath Ranade (Decd.) [1998] 234 ITR 188 has held that if the Department finds that the assessee has transferred a property to a third party with the intention to defraud the Revenue, the Revenue will have to file a suit under Rule 11(6) of Schedule II to the Income-tax Act to have the transfer declared void under Section 281 of the Income-tax Act.

8. It is, therefore, clear that the Income-tax Officer had no jurisdiction to declare the transaction of sale to which the petitioners were parties as purchasers, as void. The impugned order, in so far as it affects the petitioners' interest in the property is, therefore, set aside. The writ petitions are allowed accordingly. Consequently, W. M. P. Nos. 10903 and 26026 of 1994 are closed.

[sujittalukder]

Thank you tax_counsel  for the case law.
regards