1 IN HIGH COURT OF JUDICATURE AT MADRAS DATED: 13.10.2015 CORAM: HONOURABLE MR.JUSTICE R.MAHADEVAN WP.No.12540 of 2013 M/s.Sree Foundation,a registered Partnership firm, represented by its Partner Mr.Chimanlal, Chennai-3 Petitioner Vs. 1.The Tax Recovery Officer-I, Company Range I, Aayakar Bhavan , Nungambakkam, Chennai-600 034. 2.The Sub-Registrar, No.11, Davidson Street, Sowcarpet, Chennai-600 079. 3.M/s.Cosmo Foundation Limited, Cosmo Nest , No.16, Bank Street, Halls Road, Kilpauk, Chennai-600 010. Respondents Prayer:- This Writ Petition is filed under Article 226 of Constitution of India, for relief as stated therein. For Petitioner : Mr.R.Gopinath For Respondent : Mr.T.Pramodkumar Chopda, SC-RR1&2 Mr.A.Thiagarajan, SC for Mr.S.Nagarajan-R3 ORDER This Writ Petition is filed to issue writ of Mandamus, directing first respondent to remove charge and lift attachment created in respect of immovable property at Old No.510, New No.6, Mint Street, Sowcarpet, Chennai-79 and comprised in Old Survey No.6072, 6073 and 6075 and re- survey No.602, measuring extent of 8 grounds and 1290 sq.ft. 2. case of Petitioner is as follows:- 2 a. Petitioner firm had entered into agreement of sale dated 20.01.2010 registered as Document No. 101/2010 in Sub Registrar's Office of Sowcarpet for purchase of immovable property situated at old No. 510, New No., 6, Mint Street Sowcarpet, Chennai-79 and comprised in old survey No. 6072,6073 and 6075 and re-survey No. 602 measuring extent of 8 grounds and 1290 sq.ft with third respondent herein, namely M/s Cosmo Foundations Ltd. At time of entering into agreements of sale with third respondent, there were only two encumbrances/charges over aforesaid property viz., (a) Mortgage Deed dated 01.02.2007 registered as Document No. 109 of 2007 and (b) Mortgage Deed dated 28.08.2007 registered as Document No. 883 of 2007. petitioner firm, from and out of sale consideration on 29.1.2010 and 30.1.2010 has paid entire dues to said mortgagees and had cleared entire dues of third respondent. Necessary full discharge receipts viz., Receipt dated 30.01.2010 registered as Document No.109/2010 and Receipt dated 30.01.2010 registered as Document No. 110/2010 were also executed and registered in Sowcarpet registration office. At request of 3rd Respondent, entire sale consideration for purchase of aforesaid property was paid by them in following manner:- a. Rs.19,00,000/- (Rupees Nineteen Lakhs only ) paid by Cheque No.589552 dated 20.01.2010 drawn on Bank of Baroda, Sowcarpet Branch, Chennai at time of execution and registration of agreement of sale dated 20.01.2010; b. Rs5,50,00,000/-(Rupees Five Crores Fifty Lakhs Only) paid by Pay Order No. 447004 dated 27.01.2010 issued by Bank Baroda, Sowcarpet Branch, Chennai to discharge loan availed by 3rd Respondent under Mortgage Deed dated 28.08.2007 registered as document No. 883 of 2007 in Sub 3 Registration Office of Sowcarpet; c. Rs. 5,29,91,128/- paid by Cheque No.589557 dated 30.01.2010 drawn on Bank of Baroda, Sowcarpet Branch, Chennai to discharge loan availed by Vendor under Memorandum of Deposit of Title Deeds dated 01.02.2007 registered as Document No.109 of 2007 in Sub-Registration Office of Sowcarpet; d. Rs.1,08,872/- paid by Cheque No.589558 dated 10.02.2010 drawn on Bank of Baroda, Sowcarpet branch, Chennai; b. As entire sale consideration was paid to 3rd respondent, 3rd respondent handed over vacant possession and all original documents pertaining to said property and also executed power of attorney dated 11.02.2010 registered as Document No.41/2010 in Sub-Registrar's Office of Sowcarpet. 3rd respondent executed power of attorney to enable Petitioner to execute and register sale deed in their favour or in favour of their nominees as and when required by them. Further, supplementary agreement of sale dated 18.02.2010 was also executed evidencing all aforesaid facts. Therefore, entire sale transaction was completed on 18.02.2010 itself as per Section 2(47) of Income Tax Act, 1961. After completion of entire transaction with 3rd respondent on 18.02.2010 and after he became owner of aforesaid property, 1st respondent after span of over one year had attached aforesaid property on 08.04.2011. In mean while, based on power of attorney dated 11.02.2011, sale deed dated 21.12.2011 was executed and registered as Document No.P87/2011 before Sub-Registrar's Office at Sowcarpet. 2nd respondent did not give regular number for registration of aforesaid sale deed and refused to release sale deed due to attachment on aforesaid property. sale deed is still 4 lying with 2nd respondent. In fact, 2nd respondent also wrote letter dated 22.01.2013 to petitioner in this regard and suitable reply dated 07.02.2013 was also sent to 2nd respondent. While matter stood thus, firm had received summon dated 13.06.2011 under Section 131 of Income Tax Act, 1961 from first respondent. Thereafter, petitioner firm made enquires from third respondent and ascertained that Income Tax Department had initiated action against 3rd respondent M/s.Cosmo Foundations Ltd under Section 147 of Income Tax Act, 1961 and Assistant Commissioner of Income Tax, Company Circle I(32), Chennai-600 034 has passed order dated 31.12.2009 alleging that assessee has concealed taxable income and raised demand calling upon 3 rd Respondent to pay sum of Rs.1,63,08,463/- towards arrears of Income Tax for assessment year 2006-2007. 3rd respondent further informed petitioner that he has preferred appeal against said order and same is pending before Commissioner of Income Tax (Appeals III), Chennai. Without disclosing aforesaid facts, 3rd respondent had sold aforesaid property to petitioner. Petitioner is bona fide purchaser of aforesaid property and as prudent purchaser, had done all scrutiny and verification of title of aforesaid property before purchasing property. It will also be pertinent to note that petitioner had also conducted search with respect to any encumbrance on aforesaid property with registrar of companies before purchasing property and no encumbrance was reflected on aforesaid property. 5 c. petitioner also ascertained that M/s.Cosmo Foundation, 3rd respondent herein was issued with notice of demand as early as on 31.07.2010 under ITCP No.1 to pay dues to Department within 15 days. aforesaid notice was issued much after entire sale transaction with respect to aforesaid property was completed between petitioner and 3rd respondent. Similarly, first respondent created charge and attached immovable property at Old No.510, New No.6, Mint Street, Sowcarpet, Chennai-79 only 08.04.2011 through intimation to second Respondent that M/s.Cosmo Foundation had failed to pay dues to department on time and hence, property is being attached. first respondent do not have any right to create charge on aforesaid property because petitioner firm had completed entire sale transaction as contemplated under Income Tax Act, 1961 as early as on 18.02.2010 itself and property belonged to petitioner and 3rd respondent was no longer owner of aforesaid property. In such circumstances, first respondent ought not to have attached property belonging to petitioner. Assistant Commissioner of Income Tax, Company Circle I(3), Chennai had issued summons on 13.06.2011 to petitioner company for verification of transaction regarding sale of immovable property. reply through petitioner Company's authorized representative was duly submitted, furnishing all particulars with regard to above said transaction. notice under Section 226(3) of Income Tax Act dated 22.11.2011 and another letter dated 7.12.2011 were issued by first respondent to petitioner company asking certain particulars with regard to 6 sale transaction and to furnish all documents connected therewith. petitioner furnished all documents and particulars as required by first respondent along with their letter dated 16.12.2011. d. third respondent had also requested first respondent vide letter dated 27.03.2012 to remove charge and lift attachment on immovable property at Old No.510, New NO.6, Mint Street, Sowcarpet, Chennai-769 as it has already been sold to petitioner company and 1 st respondent has also attached another adjacent property of 3rd respondent on 7.7.2011 being all that piece and parcel of premises bearing Municipal Door No.512, Mint Street, Sowcarpet, Chennai measuring extent of 8992 sq.ft or thereabouts to satisfy tax dues of department. Petitioner further submitted that this property itself is sufficient to discharge tax arrears, if any, of 3rd respondent. In spite of fact that first respondent had no charge over property at Old No.510, New No.6, Mint Street, Sowcarpet, Chennai, till entire sale transaction was completed, he had without any right and authority created charge over said property with second respondent and deny petitioner firm's enjoyment of property that rightfully and legally belonging to them. petitioner firm had meticulously checked documents related to property at Old No.510, New No.6, Mint Street, Sowcarpet, Chennai and only after being satisfied that there were no attachments on said property, paid entire consideration. In fact, 3rd Respondent had not informed anything about demand from Income Tax Department and petitioner is bona fide purchaser for valuable 7 consideration. Hence, attachment made by first respondent is not binding on petitioner firm. Out of entire sale consideration of Rs.11 crores, only sum of Rs.20,08,872/- was paid to 3rd respondent and balance sale consideration of Rs.10,79,91,128/- was paid only to clear encumbrance and charge created over aforesaid property in 2007 itself and this clearly proved that entire transaction is bona fide and proper. In such circumstances, this Writ Petition has been filed. 3. 1st Respondent has filed counter affidavit, wherein it is averred as follows:- a. property at old No.510, New No.6, Mint Street, Chennai-79 and comprised in old Survey No.6072, 6073 and 6075 and re- survey No.602 measuring extent of 8 grounds and 1290 sq.ft. was attached on 08.04.2011 itself as against tax arrears to tune of Rs.162.86 lakhs pertaining to assessment year 2006-07 of 3rd Respondent Company. above tax arrears was certified on 30.07.2010 for recovery action by Assessing Officer viz. Asst. Commissioner of Income-tax, Company Range I, Chennai-34 and Form No. 57/ITCP-I dated 31/07/2010 was issued to 3rd Respondent. When certificate has been drawn up by Tax Recovery Officer, for recovery of arrears under Second Schedule to Income-tax Act 1961, Tax Recovery Officer shall cause to be served upon defaulter notice requiring defaulter to pay amount specified in certificate within fifteen days from date of service of notice and intimating that in default steps would be taken to realise amount under this Schedule. Assessment for 8 assessment year 2006-07 was completed on 31-12-2009 raising demand of Rs. 1,63,08,463/- and 3rd Respondent company failed to pay tax dues to department. Therefore, tax arrears to tune of Rs. 162.86 lakhs pertaining to assessment year 2006-07 was certified on 30/07/2010 for recovery action. above notice was duly served on 3rd Respondent. As 3rd Respondent failed to pay income-tax dues to department on time, above property was attached vide ITCP-16 dated 05-08-10 on 08-04- 2011.Though 3rd respondent was well aware of its tax arrears payable to department it has entered into sale transaction without previous permission of Assessing Officer. Hence, action of 1st respondent is proper under provisions of Income Tax Act. b. 1st respondent issued notice u/s 226(3) of Income Tax Act dated 22.11.2011 and another letter dated 7.12.2011 to petitioner requesting to furnish certain particulars and same has been filed by petitioner vide letter dated 16.12.2011. Vide letter dated 3.5.2012, 3rd respondent has been informed to pay entire arrears together with interest to consider their request for lifting of attachment of above mentioned property. above property itself is sufficient to discharge tax arrears is not acceptable, since property is in dispute and subject to many encumbrances. Hence, in interest of Revenue, attachment made in respect of property at Old No.510, New No.6, Mint Street, Sowcarpet, Chennai, cannot be lifted. Though 3rd respondent was well aware of its tax liability, he had entered into sale transaction without previous permission of assessing 9 Officer. Therefore, action of 1st respondent is legal and as per law. In such circumstances, this Writ Petition is liable to be dismissed as devoid of merits. 4. 3rd Respondent has filed counter affidavit, wherein it is averred as follows:- a. third respondent company was owner of property bearing Old No.510, New No.6, Mint Street, Sowcarpet, Chennai and comprised in Old Survey No.6072, 6073 and 6075 and resurvey No.602, measuring extent of 8 grounds and 1290 sq.ft. aforesaid property was mortgaged to bank and private financier and property was on verge of being auctioned by mortgagee at throw away price, therefore, in interest of company it was decided to sell aforesaid property and resolution dated 21.12.2009 was passed to sell schedule mentioned property to M/s.Sree Foundation, petitioner herein. Accordingly, property was sold to M/s.Sree Foundations for total sale consideration of Rs.11,00,00,000/- and entered into agreement of sale dated 20.01.2010 registered as Document No.101 of 2010 in Sub-Registrar's Office of Sowcarpet and advance sale consideration of Rs.19,00,000/- was paid by Cheque No.589552 dated 20.01.2010 drawn on Bank of Baroda, Sowcarpet Branch, Chennai. Thereafter, petitioner paid balance sale consideration of Rs.10,81,00,000/-. On receipt of entire sale consideration, on 11.02.2010, 3 rd respondent had handed over all original documents pertaining to aforesaid property and vacant possession of aforesaid property to petitioner. aforesaid 10 facts was also duly recorded under supplement agreement of sale dated 18.02.2010. Further, on receipt of entire sale consideration, 3 rd respondent had also executed general power of attorney dated 11.02.2010 registered as Doc.No.41 of 2010 in Sub-Registrar's Office of Sowcarpet with respect to aforesaid property in favour of Mrs.Manu Jain and Mrs.Anjana to enable them to execute and register sale deed in favour of petitioner and or their nominee/s and handed over possession of aforesaid property to petitioner. Based on aforesaid power of attorney, sale deed dated 21.12.2011 was duly executed in favour of petitioner. b. first respondent had issued notice to 3rd respondent determining his taxable income at Rs.3,32,76,270/- for assessment year 2006-07 and demanded tax/interest of Rs.1,63,08,463/-. Aggrieved by said order, 3rd respondent preferred appeal in ITA.No.733/09-10/A1. During pendency of Appeal, first respondent has attached aforesaid property bearing Old No.510, New NO.6, Mint Street, Sowcarpet, Chennai, for recovery of aforesaid amount. It will not be out of place to mention here that 3rd respondent's adjacent property comprised in Municipal Old Door No.512/1, New No.2/1, Mint Street, Chennai, comprised in O.S.No.600, R.S.No.600/2 of VOC Nagar Division, measuring extent of 8992 sq.ft has also been attached by 1st respondent. 3rd respondent already sold aforesaid property bearing Old No.510, New No.6, Mint Street, Sowcarpet, Chennai, to petitioner and entire transaction including receipt of entire sale was completed in year 2010 and handed over possession of 11 property and property became vested in petitioner and third respondent do not have any right, title or interest in aforesaid property. order of Assessing Officer for year assessment year 2006-07 under Section 144 read with Section 147 of Income Tax, 1961, resulted in demand of Rs.1,63,08,463/-. said order was challenged by way of appeal instituted on 04.02.2010 against order passed by ACIT Company Circle 1(3) Chennai (AO) before CIT (A) 1 Chennai. CIT (A) after hearing appellant and also AO by way of remand report and after considering subsequent submission by appellant on remand report, gave substantial relief to appellant. c. Giving effect order to above said order of CIT (A) has been passed by DCIT Company Circle 1(3) Chennai dated 11.06.2014 with final demand of Rs.10,59,259/- inclusive of interest under Section 234B and 234C. said demand emanating from giving effect order has been met by 3rd respondent. Though said amount has been paid by 3 rd respondent, vide Receipt/Chellan No.ITNS 280 dated 02.01.2015 issued by 1 st respondent, 3rd respondent has also preferred appeal before ITAT Chennai. Similarly, department has also preferred appeal before ITAT Chennai on same order. However, as on date, there is no tax demand from Revenue as demand emanating from giving effect order is already remitted. In view of payment of entire amounts due and payable to first respondent being paid by 3rd respondent, 1st respondent may be directed to remove charge and lift attachment created in respect of 12 property bearing old No.510, New No.6, Mint Street, Sowcarpet, Chennai and comprised in Old Survey No.6072, 6073 and 6075 and Resurvey No.602, measuring extent of 8 grounds and 1290 sq.ft. Further, 2 nd respondent may also be directed to number sale deed dated 21.12.2011 registered as Doc.No.P87 of 2011 in Sub-Registrar's Office of Sowcarpet in regular course and release sale deed to petitioner and in such circumstances, this Writ Petition is liable to be allowed. 5. learned counsel for Petitioner contended that action of first respondent in so far as attaching immovable property belonging to petitioner firm is illegal and violative of settled principles of law and action of respondent in initiating recovery proceedings by issue of notice under Section 226(3) and initiation of provisional attachment proceeding is without jurisdiction and void ab-initio since required preconditions for initiating proceedings under section 281B are not satisfied. There has been compete transfer of impugned property as per definition of word 'transfer' as provided in Section 2(47) of Income Tax Act. 1 st respondent has erred in attaching impugned property after execution and registration of agreement of sale dated 20.01.2010 by petitioner and learned counsel for Petitioner contended that even on date entire arrears have been settled by 3rd Respondent as per appeal order of CIT(A) and hence, continuance of attachment is illegal and he sought to allow Writ Petition. 6. learned standing counsel for 1st Respondent reiterated averments made in counter affidavit filed by them and supported 13 impugned attachment. 7. learned counsel for 3rd Respondent has supported case of Petitioner for removing charge over property in question and lifting attachment created thereon. 8. This court heard and considered submissions made by learned counsel on either side and also perused materials placed on record. 9. Petitioner had entered into agreement of sale dated 20.01.2010 for purchase of property in question with 3rd Respondent, by paying advance sale consideration of Rs.19,00,000/-, out of total sale consideration of Rs.11,00,00,000/-. There were two encumbrances/charges over property by virtue of two registered mortgage deeds dated 01.02.2007 and 28.08.2007. Petitioner cleared said two encumbrances on 27.1.2010 and 30.1.2010, by paying dues to tune of Rs.10,79,91,128/- by way of pay order and cheque. Thereafter, Petitioner paid balance sale consideration of Rs.1,08,872/- on 10.02.2010 by way of cheque. Thus, Petitioner paid entire sale consideration. Further, supplement agreement of sale dated 18.02.2010 was also executed evidencing all aforesaid facts. Therefore, entire sale transaction was completed as early as on 18.02.2010. Thereafter, sale deed dated 21.12.2011 came to be executed and registered. 10. After completion of entire transaction on 18.02.1010, 1 st respondent attached property in question on 08.04.2011 and another property of 3rd Respondent on 7.7.2011, for tax liability due and payable 14 by 3rd Respondent. Registering Authority, without numbering sale deed, refused to release sale deed dated 21.12.2011, due to attachment of property in question by Respondent Department. Petitioner made several representations for release of sale deed. Thereafter, Petitioner came to know that Department initiated proceedings against 3rd Respondent for recovery of arrears of tax as early as on 31.12.2009. notice of demand was sent to 3rd Respondent on 31.07.2010 i.e. after date of completion of entire sale transaction on 18.02.2010. Without disclosing aforesaid facts, 3rd respondent had sold aforesaid property to petitioner. 11. At this juncture, it is relevant to refer to decision of Honourable Supreme Court rendered in case of Mysore Minerals Ltd. v. CIT (JUDGMENT 1999 (1) Supp. SCR 192), wherein it has been held that person who had taken possession and made payment of consideration was owner though he had not obtained deed of conveyance. In case on hand, Petitioner, having purchased property in question, by paying entire sale consideration, became absolute owner of property in question. 12. Calcutta High Court in case of Electro Zavod (India) Pvt. Ltd. vs Commissioner Of Income-Tax And ((2005) 199 CTR Cal 612:2005 278 ITR 187 Cal) has held that on date of passing order of attachment, property in question did not belong to assessee and on that date, there was no interest because such interest has already been passed on 15 to petitioner therein and accordingly, held that order of attachment of property claimed and held by petitioner was not sustainable under law. 13. In case on hand, Petitioner has become owner of property in question, to put it differently 3rd Respondent ceased to be owner on and from 08.02.2010, when everything for transfer of property excepting execution and registration of conveyance was completed. Admittedly, alleged dues are recoverable from 3rd Respondent. Under Income-tax Act, dues of Revenue do not form charge on property and this can only be recovered under method and mode as provided under Income-tax Act and Rules framed thereunder. 14. Since 3rd Respondent failed to pay dues to department on time, property in question has been attached. In proceedings between Department and 3rd Respondent, tax liability was reduced by CIT(Appeals) and same was also paid by 3rd Respondent. By virtue of completion of entire sale transaction and registration of same, Petitioner became absolute owner of property in question. While so and when 3rd Respondent was not owner of property and when on date of passing order of attachment, property in question did not belong to assessee, namely, 3rd Respondent, attachment of property in question, which has been in absolute possession and enjoyment of Petitioner by virtue of completion of entire sale transaction, made by 1st Respondent for dues payable by 3rd Respondent, is not binding on Petitioner and hence, 16 unsustainable and accordingly, impugned attachment has to be lifted and consequently, sale deed has to be released, after numbering same. If at all 1st Respondent can proceed on other property of 3rd Respondent for tax liabilities if any payable by 3rd Respondent. 15. In view of discussions and reasons and in light of decision cited supra, impugned attachment of property in question is directed to be lifted forthwith and concerned Registering Authority is directed to number impugned sale deed executed in respect of property in question and release sale deed, if it is otherwise in order. However, it is open to 1st Respondent Department to proceed against other property of 3rd Respondent for tax dues if any payable by 3rd Respondent, in accordance with law, by keeping attachment of other property, pending R.MAHADEVAN, J. Srcm disposal of appeal preferred by 3rd Respondent as well as 1st Respondent. 16. With above directions, this Writ Petition is disposed of. No costs. 13.10.2015 Index:Yes/No Web:Yes/No Srcm To: 17 1.The Tax Recovery Officer-I, Company Range I, Aayakar Bhavan , Nungambakkam, Chennai-600 034. 2.The Sub-Registrar, No.11, Davidson Street, Sowcarpet, Chennai-600 079. 3.M/s.Cosmo Foundation Limited, Cosmo Nest , No.16, Bank Street, Halls Road, Kilpauk, Chennai-600 010. WP.No.12540 of 2013 M/s.Sree Foundation v. Tax Recovery Officer-I / Sub-Registrar / M/s. Cosmo Foundation Limited