Law:

Section:

Section 281 of the Income-tax Act, 1961 - Certain transfer to be void - Assessment years 1996-97, 1998-99 to 2001-02 - Where charge created by assessee in favour of financial institution by equitable mortgage of immovable property in question was for valuable consideration and without notice of proceedings for recovery of income-tax dues against assessee, such mortgage was saved by proviso to section 281(1) [In favour of assessee] The first respondent, a financial institution advanced loan to the assessee which created an equitable mortgage property in question in favour of first respondent. The first respondent, as a secured creditor, took physical and actual possession of the secured assets under section 13(4) of the SARFAESI Act and issued a public notice for sale. The case of the revenue was that the assessee, being defaulter, having not paid huge outstanding income tax demand, secured assets had already been attached by the revenue and, therefore, first respondent could not have taken possession of same and such transfer was void under section 281. The stand of the first respondent was that the mortgage created by the assessee in favour of the first respondent was saved by the proviso to sub-section (1) of section 281 and, therefore, not void. Held that the charge had been created by the assessee as borrower in favour of the first respondent-financial institution by way of equitable mortgage in respect of the immovable property in dispute, during the pendency of the proceeding under the Income-tax Act. Therefore, the rigour of sub-section (1) of section 281 was attracted in respect of the mortgaged property in question. However, under the proviso to sub-section (1) of section 281, the charge or transfer shall not be void if made - (i) for adequate consideration and without notice of the pendency of such proceedings or (ii) without notice of tax or other sum payable by the assessee. There was nothing on record to suggest that any notice was given by the revenue to the first respondent relating to pendency of such income-tax proceeding or liability of any tax payable by the assessee in favour of the revenue. Therefore, the first respondent was entitled to…

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