S.P. Bharucha, J.
1. A question of some interest and importance is raised in this petition. It concerns the powers of a Tax Recovery Officer under rule 11 of the Second Schedule to the Income-tax Act, 1961. Is he hereby invested with the poser under section 281 of the Act to declare void a transfer of property by an assessee during the pendency of proceedings against him under the Act on the ground that it was made with the intention to defraud Revenue ?
2. The first petitioner is the assessee with whom we are here concerned. On December 2, 1967, he executed a mortgage in favour of the Bank of Maharastra in respect of an immovable property belonging to his being Improvement Trust Plot No. 1 situated in civil station extension Scheme, N.I.T. South Dharampeth precincts, Part I, Circle No. 20, Division No. 8. Ward No. 42, Nagpur (Now referred to as 'the property') The mortgage was effected in respect of a loan of Rs. 75,000 obtained for the purposes of a firm in which he was a partner. The mortgage was executed after the tax authorities had given the first petitioner a certificate under section 23A. In June or July 1968 the partnership business ceased. On February 21, 1969, the first petitioner executed a trust deed, which was registered, in favour of his wife and daughter (the second petitioner) in respect of the property. On February 25, 1969, the first petitioner's wife agreed in writing to take over the mortgage liability. She had her own assets and was a partner in two partnership firms. On February 27, 1969, the first petitioner conveyed the property to his wife and the second petitioner by a registered deed. On December 9, 1969, the first petitioner was asked by the bank to pay it about Rs. 86,000 in respect of the mortgage dues. On March 5, 1970, the first petitioner's wife informed the bank that the she would pay the mortgage dues in installments of Rs. 1,000 per month. On March 6, 1970, the bank agreed to accept the mortgage dues from the first petitioner's wife by such instalments. On April 22, 1970, the Nagpur Improvement Trust intimated that the property had been transferred to the names of the first petitioner's wife and the second petitioner.
3. On September 14, 1972, a writ petition (being Writ Petition No. 961 of 1972) was filed by the first petitioner in this court against the tax authorities and the Life Insurance Corporation of India. This petition was rejected. This petitioner claimed that he had assigned to his wife certain policies and the tax authorities had no claim thereon. On October 6, 1975, an appeal filed therefrom before the Supreme Court was concluded when counsel for the Life Insurance Corporation state that it would state before the tax authorities that the moneys under the policies did not belong to the first petitioner.
4. On October 23, 1972, the first petitioner received a notice from the tax authorities under rule 2 of the Second Schedule to the Act date October 21, 1972, regarding the property. On the same day, the property was attached in recovery of the first petitioner's tax dues. On November 17, 1972, objections were filed by the first petitioner, his wife and the second petitioner to such attachment. On February 25, 1974. The first petitioner's wife's statement was recorded in an enquiry commenced by the Income-tax Officer in respect of proceedings under section 281 of the Act. On may 9, 1974, the Income-tax Officer made an order under section 281 wherein he held that the transfers of the property and of certain shares and policies were void. On June 10, 1974, a writ petition (being Writ Petition No. 959 of 1974) was filed impugning the order dated May 9, 1974. On January 9, 1981 (see p. 163 (supra)), it was dismissed upon the ground that what was represented to be the order of May 9, 1974, was no more than an internal decision of the tax authorities to proceed against the property. Shares and policy. We shall have occasion to refer to the judgment in this earlier petition in greater detail.
5. In the meanwhile, on August 2, 1979, the first petitioner's wife made a will whereby she bequeathed her entire estate to the second petitioner. She appointed the first petitioner executor thereof. She died on September 24, 1979. On May 6, 1981, probate of her will was obtained. The first petitioner was then shown as an owner of the property in his capacity as executor of his wife's will.
6. On July 27, 1981, additional objections were filed on behalf of the first petitioner as executor of his wife's will. On September 14, 1981, he was examined before the Tax Recovery Officer. On September 17, 1981, the Tax Recovery Officer passed the impugned order upon the objections. He held that the provisions of section 281 were applicable to the case and that the mortgage deed of December 2, 1967, the trust deed of February 1, 1969, and the conveyance deed of February 27, 1969, were all illegal and void. As such, he held that the property vested in the hands of the first petitioner at the time of the service upon him of the notice under rule 2 of the Second Schedule. He, therefore, rejected the objections filed originally by the first petitioner, by his late wife, by the second petitioner, by the first petitioner thereafter as executor of his wife's will and by the bank. This petition filed on September 28, 1981, impugns the Tax Recovery Officer's order of September 17, 1981, and seeks that he be restrained from proceeding with the recovery of the arrears of the first petitioner's taxes from the property.
7. There are three contentions that have to be considered, the first and third of which are raised on behalf of the petitioners and the second on behalf of the respondent:
(i) The Tax Recovery Officer has no power under rule 11 of the Second Schedule to declare as void under section 281 a transfer of property effected by an assessee during the pendency of proceedings against him under the Act on the ground that such transfer was made with the intention to defraud the Revenue.
(ii) That the petitioners cannot so contend by reason of the judgment in the earlier petition.
(iii) That the impugned order is not a speaking order annd must, in any event, be set aside.
8. To appreciate the arguments, it is necessary to reproduce section 281, as it then stood, and rule 11 of the Second Schedule.
Section 281: 'Where, during the pendency of any proceeding under this Act, any assessee creates a charge on or parts with the possession by way of sale, mortgage, exchange or any other mode of transfer whatsoever, of any of his assets in favour of any other person with the intention to defraud the revenue, such charge or transfer shall be void as against any claim in respect of any tax or any other sum payable by the assessee as a result of the completion of the said proceeding;
Provided that such charge or transfer shall not be void if made for valuable consideration and without notice of the pendency of the proceeding under this Act.'
Rule 11(1): 'Where any claim is preferred to, or any objection is made to the attachment or sale of, any property in execution of a certificate, on the ground that such property is not liable to such attachment or sale, the Tax Recovery Officer shall proceed to investigate the claim or objection:
Provided that no such investigation shall be made where the Tax Recovery Officer considers that the claim or objection was designedly or unnecessarily delayed.'
Rule 11(2): 'Where the property to which the claim or objection applies has been advertised for sale, the Tax Recovery Officer ordering the sale may postpone it pending the investigation of the claim or objection, upon such terms as to security or otherwise as the Tax Recovery Officer shall deem fit.'
Rule 11(3): 'The claimant or objector must adduce evidence to show that -
(a) (in the case of immovable property) at ther date of the service of the notice issued under this Schedule to pay the arrears, or
(b) (in the case of movable property) at the date of the attachment, he had some interest in, or was possessed of, the property in question.'
Rule 11(4): 'Where, upon the said investigation, the Tax Recovery Officer is satisfied that, for the reason stated in the claim or objection, such property was not, at the said date, in the possession of the defaulter or of some person in trust for him or in the occupancy of a tenant or other person paying rent to him, or that, being in the possession of the defaulter at the said date, it was so in his possession, not on his own account or as his own property, but on account of or in trust for some other person, or partly on his own account and partly on account of some other person, the Tax Recovery Officer shall make an order releasing the property, wholly or to such extent as he thinks fit, from attachment or sale.'
Rule 11(5): 'Where the Tax Recovery Officer is satisfied that the property was, at the said date, in the possession of the defaulter as his own property and not on account of any other person, or was in the possession of some other person in trust for him, or in the occupancy of a tenant or other person paying rent to him, the Tax Recovery Officer shall disallow the claim.'
Rule 11(6): 'Where a claim or an objection is preferred, the party against whom an order is made may institute a suit in a civil court to establish the right which he claims to the property in dispute; but, subject to the result of such suit (if any), the order of the Tax Recovery Officer shall be conclusive'.
9. It must be noted that the provisions of rule 11 of the Second Schedule are analogous to those of Order 21, rules 58 to 61 and 63 of the Code of Civil Procedure as they stood until rule 58 was amended in 1976. The two sets of provisions being analogous, they must be similarly construed.
10. It is settled law that complicated questions of title are not to be gone into under the summary procedure of investigation under Order 21, rule 58. The criterion on which the court has to carry out the investigation is possession. It is possible that in the course of the investigation as to who is in possession of the property attached, a question of some legal right, interest or title may arise. If such legal right, interest or title affects the determination of the question as to who is the person really in possession, such legal right, interest or title has to be taken into account (See Ganpati Ram Bhande v. Baliram Raghunath Jadhav : AIR1974Bom155 , Dudharam Janardan Chimurkar v. Balaji Raghobaji Band, : AIR1971Bom94 , Nalinkant Bhanushanker Dave v. Hiralal Amratlal Parekh, : AIR1959Bom87 , Ambalal Sankaleshwar Oza v. Punjabhai Trikamlal Pandya, AIR 1943 Bom 129 , se ILR 9 Cal 543, Ramaswami Chettiar (N.N.L.) v. Mallappa Reddiar, AIR 1920 Mad 748 The amendment of Order 21, rule 58, was effected to invest the court with the right to decide all questions including questions relating to right, title or interest in the property attached, arising between the parties and relating to the adjudication of the claim or objection. The objects and reasons for the amendment aver that, as it existed, the investigation had a limited scope and the matter had to be further adjudicated by way of regular suit. In order to prevent protraction of litigation, it was thought desirable to have all questions, including questions of title, settled finally in the execution proceedings.
11. Upon analogy, therefore, it must be said that the Tax Recovery Officer, acting under rule 11 of the Second Schedule, must direct his investigation to possession. It is not open to him to go into complicated questions of title. But, if in the course of such investigations as to who is in possession of the property attached, a question of some legal right, interest or title arises and if it affects the determination of the question as to who is the person really in possession, he can take such legal right, interest or title into account.
12. Mr. Natu, learned counsel for the petitioners, urged, upon this basis, that it was not open for the Tax Recovery Officer, acting under rule 11 of the Second Schedule, to go behind a document of title and declare it void. Mr. Shelot, learned counsel for the respondent, on the other hand, contended that the court, acting under the provisions of Order 21, rule 58, had jurisdiction to try the question whether the transfer of property attached was a sham or nominal or whether it had really transferred the rights. It could go behind the deed for the deed which purported to transfer the rights was not sacrosanct. Equally, it was open to the Tax Recovery Officer, acting under rule 11 of the Second Schedule, to try the question whether the transfer of property attached was sham or nominal or whether it had really transferred rights. He could go behind the deed and declare it void. Mr. Shelot placed great reliance upon the judgment of the Supreme Court in C. Abdul Shukoor Saheb v. Arji Papa Rao, : AIR1963SC1150 .
13. To appreciate the judgment in Abdul Shukoor Saheb's case, : AIR1963SC1150 , section 53(1) of the Transfer of Property Act needs to be set out.
Section 53(1): 'Every transfer of immovable property made with intent to defeat or delay the creditors of the transferor shall be voidable at the option of any creditor so defeated or delayed.
Nothing in this sub-section shall impair the rights of a transferee in good faith and for consideration.
Nothing in this sub-section affect any law for the time being in force relating to insolvency.
A suit instituted by a creditor (which term includes a decree-holder whether he has or has not applied for execution of his decree) to avoid a transfer on the ground that it has been made with intent to defeat or delay the creditors of the transferor. Shall be instituted on behalf of, or for the benefit of, all the creditors.
(2) Every transfer of immovable property made without consideration with intent to defraud a subsequent transferee shall be voidable at the option of such transferee.
For the purposes of this sub-section, no transfer made without consideration shall be deemed to have been made intent to defraud by reason only that a subsequent transfer for consideration was made.'
14. It was contended before the Supreme Court in Abdul Shukoor Saheb's case, : AIR1963SC1150 , that, on a proper construction of section 53(1) of the Transfer of Property Act, read in the light of the provisions of Order 21, rules 58 to 63, a transfer which was voidable under section 53(1) could be avoided only by a representative suit filed on behalf of the creditors of the transferor and not by an individual creditor who may be defeated or delayed by way of defense to a suit under Order 21, rule 63, to set aside a summary order under Order 21, rule 58. The argument before the court in this regard was (at p. 1158):
'Section 53 of the Transfer of Property Act assumes that there was a real transfer intended to pass title to the transferee but that the transfer was vitiated by fraud which rendered it voidable. In the summary proceedings under Order XXI, rules 58 to 61, having regard to the terms of rule 61, the court was concerned only with the question as to whether the transferee was in possession of the property in his own right and not on behalf of the judgment-debtor. When a transfer was real, though it was liable to be impeached as a fraud on creditors, and the transferee had entered into possession, he would succeed in the summary proceedings, with the result that it was the defeated attaching creditor who would have to figure as a plaintiff. If he figured as a plaintiff, the suit would have to be in a representative capacity, that is, under Order 1, rule 8, Civil Procedure Code. In every case, therefore, when a transfer was real but was liable to be set aside under section 53(1) or the provisions of Order XXI, rules 58 to 61, Civil Procedure Code, the transferee was bound to succeed in the summary proceedings and the attaching decree-holder would have to figure as a plaintiff and the suit would be a representative suit. It followed that in no case could the attaching creditor who defended the suit to set aside a summary order in his favour resist it on the plea of fraud under section 53(1).'
15. The Supreme Court observed that (at p. 1159):
'It would, however, be seen that this last step which was vital for the argument to have force did not follow..... The argument only established that if the court investigating claims under Order XXI, rule 58, etc., conforms strictly to the terms of those provisions adopted the transferee under a real sale would succeed in those proceedings..... This line of reasoning. In the argument did not take into account certain possibilities including the possibilities that the court making the summary enquiry might come to the erroneous conclusion that the transfer was sham and not real or that the transferee was in possession for the benefit of the judgment-debtor ..... The attaching decree-holder might also raise in the summary proceedings two alternative defences to a transferee's claim, (a) that the sale was sham and nominal and, therefore, the possession of the transferee was really on behalf of the judgment-debtor, and (b) that even if the sale be real and intended to pass title. It was voidable as a fraud on creditors.'
16. The court commented that (at p. 1159):
'It was, no doubt, true that the second or the alternative defence was not open in the claim proceedings, but if, however, the same were erroneously entertained and on order passed, rejecting the claim of the transferee, the same would nevertheless be an order which would have to be set aside by a suit by the defeated transferee and he cannot ignore it.'
17. The order under section 281 falls under category (b) above. Mr. Shelot submitted that such power existed in the Tax Recovery Officer under rule 11 of the Second Schedule because the Supreme Court had ruled in Abdul Shukoor Saheb's case, : AIR1963SC1150 , that if the court acting under Order 21, rule 58, did hold the transfer to be void, such order could only be challenged by a suit. From what has been quoted from the judgment, it will be clear that what the Supreme Court really said was that the defence that, even if the transfer be real and intended to pass title, it was voidable as a fraud was not open in claim proceedings under Order 21, rule 58. The court had thereunder no power to entertain such a claim. But if, none the less, it entertained such a claim and held the transfer to be void, such order could only be challenged by a suit. In our view, therefore, the judgment in Abdul Shukoor Saheb's case, : AIR1963SC1150 , far from assistant Mr. Shelot's contention, does the reverse.
18. On analogy, the Tax Recovery Officer, in proceedings under rule 11 of the Second Schedule, cannot entertain the claim on behalf of the tax authorities that the transfer by the assessee was void upon the ground that it was made while proceedings against him were pending with the intention of defrauding the Revenue.
19. Mr. Shelot urged that it had been held that section 281 applied to the stage of tax recovery (See : 122ITR227(Bom) ) and if it were held that the Tax Recovery Officer had no power to apply section 281, it could never be applied. The short answer is that nothing prevents the tax authorities from suing the assessee and his transferee in the civil courts for relief upon the basis of the law enunciated in section 281 and from obtaining interim relief in such suit to protect the property. It was also submitted by Mr. Shelot that the power to hold a transfer void vested in the Tax Recovery Officer under rule 11 of the Second Schedule where the transfer was demonstrably sham. The ambit of the power does not depend upon the strength or weakness of the particular case.
20. This brings us to the judgment in the earlier petition. The earlier petition challenged the order of the Income-tax Officer dated May 9, 1974. It concerned, inter alia, the property. The order stated that the Income-tax Officer had every reason to believe that the behaviors of the first petitioner in hurrying to transfer was with the intention of defrauding the Revenue during the pendency of proceedings under the Act against him. He held that the transfers were void as against the tax authorities under section 281. The contentions raised before the court were that the Income-tax Officer had no jurisdiction or authority to pass such an order section 281; that it was not clear who could take action under section 281 and that the jurisdiction of the civil courts was not out stated merely because section 281 found a place in the Act. It was also contended that the order suffered from numerous infirmities. The earlier petition was heard at some length. The tax authorities were then permitted to file an additional return. That additional return stated that the provisions of section 281 showed that it was for the tax authority concerned first to come the the conclusion as to whether a particular transfer, made during the pendency of proceedings under the Act, had been effected by the assessee with the intention to defraud the Revenue. If the authority on the available material found that the transfer in question came within the scope of section 281, it declared its intention of treating such transfer as void. This was done to manifest its intention to recover the tax dues by proceedings against the property in question. The assessee's remedies were not barred under the Act or otherwise. It was submitted by counsel for the tax authorities in the earlier petition that this expression of intention was a mere preliminary and a prior step against the property; it was not an adjudication so that the rights of the parties were in any was determined. Those rights, he submitted, were available both under the ordinary law and also under the provisions of the Second Schedule. It was also contended that. Looked at from this point of view, the arguments on behalf of the petitioners lost force. The court observed that it was inclined to accept these submissions with regard to section 281. The court held that section 281 was really a substantive declaration of what the law of the land was. It only stated what the law was in respect of transfer effected during the pendency of proceedings under the Income-tax Act. It did not say that any conclusion or declaration by the authority entrusted with the functions to be performed under the Income-tax Act would operate as conclusive or adjudicatory. The conclusion or declaration merely had the character of an expression of an intention or opinion on the part of such authority, that he intended to treat the transfer as affected by section 281 and, therefore, not standing in the way of recovery proceedings to be taken. The court observed, and upon this observation Mr. Shelot emphatically relied, that the jurisdiction of the Tax Recovery Officer as contemplated by rule 11 was not taken away by the expression of any opinion or intention of the Income-tax Officer under, or purporting to act under, section 281; that the adjudicator process still survived and could be availed of by the claimant to claim that the transfer was not made either during the pendency of proceedings or with the intention to defraud the Revenue. The court, in conclusion, observed that it did not appear that after the attachment, the properties were being put to sale under rule 11. The petitioners, other than the first petitioner, would be entitled to make claims and objections, which, if made, should be decided in accordance with the law.
21. It will thus be seen that the ambit of the power of the Tax Recovery Officer under Rule 11 of the Second Schedule was not called in question in the earlier petition, it was not argued, it was not discussed in the judgment and was not decided. The judgment in the earlier petition, therefore, does not, in any way, preclude the petitioners from contending in this petition that the Tax Recovery Officer does not have the power under rule 11 of the Second Schedule to declare the transfer of the property attached as void.
22. It is not really necessary, in these circumstances, to go to the alternative argument canvassed by Mr. Natu, viz., that the impugned order is not a speaking order and should, therefore, be quashed. But the order is so silent about the reasons which led the Tax Recovery Officer to hold that the transfer was void that we propose to comment upon it. The order sets out the facts about the notices. It sets out the objections taken. It quotes extensively the views of the Income-tax Officer upon the objections raised, communicated to the Tax Recovery Officer by a letter. The Tax Recovery Officer then states thus:
'Considering all the facts. I have come to the conclusion that the assessee had full knowledge of the proceedings of the income-tax assessments and I am of the opinion that the assessee had knowingly and wilfully mortgaged the property, created a trust and finally transferred the property.
Hence, the provisions of section 281 are clearly applicable in this case and the Income-tax Officer has rightly held so in his order dated May 9, 1974. In view of this, the mortgage deed executed by Shri G. V. Ranade on December 2, 1967, and subsequent creation of the trust dated February 21, 1969, and agreement dated February 25, 1969, and transfer of trust property February 27, 1969, are all illegal and transfer of trust property vested in the hands of the assessee, Shri G. V. Ranade. At the time of service of the notice under rule 2 of Schedule 11 to the Income-tax Act, 1961.
In view of the foregoing, the objection petitions of the following persons are rejected.
1. Bank of Maharashtra, Head Office Pune, Branch Sitabuldi, Nagpur.
2. Shri G. V. Ranade, assessee.
3. Late Smt. Kamlabai G. Ranade.
4. Smt. Shobha R. Nemiwant.
5. Shri G. V. Ranade as trustee executor of the will of Smt K. G. Ranade dated 2-8-1979.'
23. There can be no doubt that the Tax Recovery Officer was exercising a quasi-judicial power, upon the assumption that such power vested in him under rule 11 of the Second Schedule. The order contains no discussion of the merits or demerits of the evidence and the contentions. It contains no statement of reasoning. There is no way of determining whether or not the Tax Recovery Officer came to his conclusion upon evidence. We have no doubt that upon his ground the impugned order must. In any, event, be set aside.
24. In the premises, the Tax Recovery Officer is restrained form proceeding to recover the Tax arrears of the first petitioner by sale of the property attached. The order of attachment of the property is quashed. No order as to costs. Rule accordingly.
25. Mr. Shelot applied for leave to appeal to the Supreme Court. The decision that we have come to is based upon the judgment of the Supreme Court in Abdul Shukoor Saheb's case, : AIR1963SC1150 . No case arises for the grant of such leave. Mr. Shelot applies that the order quashing the attachment should not take effect for a period of eight weeks. In our view, it is enough that the order quashing the attachment should not become operative until February 1, 1983. Order accordingly.