M/S. City Union Bank Limited v. Tax Recovery Officer-2, Income Tax

W.P.(MD).No.14573 of 2021 BEFORE THE MADURAI BENCH OF MADRAS HIGH COURT RESERVED ON : 09.08.2023 PRONOUNCED ON : 28.11.2023 CORAM THE HONOURABLE MRS.JUSTICE S.SRIMATHY W.P.(MD).No.14573 of 2021 and W.M.P.(MD)No.11505 of 2021 M/s. City Union Bank Limited,represented by its Manager (Legal),R.M.Renganath,23, Kallamman Koil Street,Trichirappalli, Tamil Nadu-620 002. ... Petitioner Vs. 1.Tax Recovery Officer-2, Income Tax, No.44, Williams Road, Cantonment, Trichy-620 001. 2.The Sub Registrar-1, Woraiyur, Tiruchirappalli. 3.M/s.Vasan Medical Centre (India) Private Limited, Represented by its Director, 15A, Thillai Nagar Main Road, Trichy-620 018. W.P.(MD).No.14573 of 2021 4.Meera Arun 5.Bala Yudish Murugaiah Arun 6.Tharana Arun 7.Rajeswari... Respondents PRAYER: Writ Petition filed under Article 226 of the Constitution of India, praying this Court to issue a Writ of Certiorarified Mandamus, to call for the records on the file of the 1[st] respondent in C.No.Rule 13/TRC No.02/17-18 TRO 2/TRY/2017-18 and to quash the impugned order of attachment in F.O.R.M No. I.T.C.P.16 in so far as Item 22 of the schedule of property attached to the said form dated 04.01.2018 namely in the Property measuring about 33.43 cents Vacant land at Chinthamani Village Salai limit T.S.No.21-part, New Ward B, Block 19, Trichy-2 as illegal, arbitrary and violation of the principles of natural justice and consequently, to direct the 2[nd] respondent to strike the name of the 1[st] respondent from the EC with respect to the property measuring about 33.43 cents vacant land at Chinthamani Village Salai limit T.S.No.21-part, New Ward B, Block 19, Trichy-2. For PetitionerFor R1For R2 : Mr.R.Sivaraman : Mr.N.Dilip Kumar : Mr.R.Suresh Kumar Additional Government Pleader For R3 to 7 : No appearance ***** W.P.(MD).No.14573 of 2021 O R D E R This writ petition is filed for writ of Certiorarified Mandamus, to quash the impugned order of the 1[st] respondent in C.No.Rule 13/TRC No.02/17-18 TRO 2/TRY/2017-18 and the impugned order of attachment in F.O.R.M No. I.T.C.P.16 in so far as Item 22 of the schedule of property attached to the said form dated 04.01.2018 namely in the Property measuring about 33.43 cents Vacant land at Chinthamani Village Salai limit T.S.No.21-part, New Ward B, Block 19, Trichy-2 as illegal, arbitrary and violation of the principles of natural justice and consequently, to direct the 2[nd] respondent to strike the name of the 1[st] respondent from the EC with respect to the property measuring about 33.43 cents vacant land at Chinthamani Village Salai limit T.S.No.21-part, New Ward B, Block 19, Trichy-2. 2. The petitioner is M/s. City Union Bank Limited. The contention of the petitioner is that the M/s. Vasan Medical Centre (India) Private Limited which is the 3[rd] respondent herein had availed various credit facilities from the W.P.(MD).No.14573 of 2021 2. The petitioner is M/s. City Union Bank Limited. The contention of the petitioner is that the M/s. Vasan Medical Centre (India) Private Limited which is the 3[rd] respondent herein had availed various credit facilities from the W.P.(MD).No.14573 of 2021 petitioner bank during the year 2009 and the Director of the 3[rd] respondent had mortgaged various properties with the petitioner by way of memorandum of deposit of title deeds dated 02.04.2009 and extended equitable mortgage dated 17.04.2009. The said Director stood as a guarantor especially for the property admeasuring 33.43 cents vacant land at Chinthamani Village Salai limit T.S.No.21-part, New Ward B, Block 19, Trichy-2. However, the said Director died on 16.11.2020, hence, the legal heirs are arrayed as respondents 4 to 7. The 3[rd ]respondent failed to repay the loans, thereafter, the accounts were classified as non-performing assets on 24.10.2015. The petitioner being secured creditor had initiated proceedings under SARFAESI Act, 2002 for recovering the outstanding loan amount. The petitioner had approached the 2[nd] respondent Registration Department to enquire about the registration of sale certificate and to the shock and surprise of the petitioner, there was an attachment by the Income Tax Department towards the mortgage property. Hence, the petitioner bank approached the 2[nd] respondent, the petitioner was made to run from pillar to post, finally the 2[nd] respondent issued a letter stating that the 1[st] respondent W.P.(MD).No.14573 of 2021 had attached the mortgage property. 3. The petitioner further submits the mortgage by the memorandum of deposit of title deeds was executed on 02.04.2009 and the same was further extended. The 4[th] respondent executed a registered mortgage deed in favour of the petitioner bank on 17.04.2014. Whereas the attachment of the 1[st] respondent as per the Encumbrance Certificate in 3616 of 2017 was on 03.11.2015. It is pertinent to point out the deposit title deed was on 02.04.2009 whereas the 1[st ]respondent attached the property on 03.11.2015. Hence, the petitioner is entitled to have priority over the 1[st] respondent. The further contention of the petitioner is unless the order of attachment is raised by the 1[st] respondent, the petitioner will not be able to satisfy the bidders and to persuade them to purchasing the mortgaged property though public auction. Hence, the petitioner filed this writ petition to lift the attachment regarding the mentioned property. 4. The 1[st] respondent has filed a counter affidavit stating that the W.P.(MD).No.14573 of 2021 assessee namely A.M.Arun was subjected to scrutiny assessment initiated under section 143(3) of Income tax Act for the assessment year 2008-2009, 2010-2011, 2011-2012 and 2012-2013. And for assessment year 2009-2010 the assessment was reopened in 2015. Moreover, there was a search under section 132 of the Income tax Act in the case of M/s.Vasan Health Care Private Limited group of cases on 01.12.2015. Subsequently, search assessments under section 153A from assessment year 2010-2011 to assessment year 2016-2017 were initiated against the said Arun who was one of the Directors of the said group of cases. Pursuant to the assessment proceedings, an order of provisional attachment of his immovable property including the subject properties ware passed on 03.11.2015, 27.07.2016, 18.01.2017 and 14.07.2017. The case was referred to the Tax Recovery Officer and the properties were attached by the Tax Recovery Officer on 04.01.2018 following the recovery proceedings under Second Schedule of Income Tax Act. Demand raised in the order passed under section 143(3) read with 148 for assessment year 2009-2010 and that in order under section 153A for assessment years 2010-2011 to 2016-2017 are pending W.P.(MD).No.14573 of 2021 W.P.(MD).No.14573 of 2021 in appeal before Commissioner of Income Tax (Appeals). The primary contention of the bank is that the property was already mortgaged with the bank and hence under section 26-E the bank had priority as a secured creditor. In the demand notice dated 02.11.2017 indicates the subject property owned by Mr.A.M.Arun is shown as item I of the schedule “C”. In the demand notice reference had been made to various registered memorandum of deposit of title deeds of the year 2014 and subsequently, but does not contain any reference to the unregistered memorandum of deposit of title deeds dated 02.04.2009. The SARFEASI Act provides that only upon registration of security interest under chapter IV or under chapter IV-A, a secured creditor is entitled to exercise the rights of enforcement including the public auction sale of the property under chapter III. Further, the overriding provision of giving priority to the secured creditor can be given effect to only upon registration of the secured interest. When the security interest was registered only on 10.12.2014, the petitioner bank can claim priority only after 10.12.2014 and not prior to that. The Income Tax Act provides that any transfer by way of sale mortgage, gift, exchange or W.P.(MD).No.14573 of 2021 any other mode shall be void, if undertaken during the pendency of proceedings and section 281(1) declares the same as void. 5. The 1[st] respondent relied on the case of State Bank of India Vs. The Tax Recovery Officer, Coimbatore, in W.P.No.5857 of 2018, this Court vide order, dated 27.04.2021 has held that such transfers can be construed as fraudulent transfers. Therefore, mortgage in favour of the petitioner bank cannot be held valid in the eye of law. Applying the above principles to the present facts, it is evident that the proceedings under Income Tax Act was pending even before the creation of mortgage interest and the subsequent registration of security interest was on 10.12.2014, therefore, the said mortgage is void. Consequently, seeking the deletion of attachment or removing the name of the Income Tax Department from the encumbrance certificate does not arise. Moreover, the properties in the name of the deceased Arun were attached under section 281B of Income Tax Act on 03.11.2015, provisionally following the approval of Income Tax Department, vide proceedings dated 03.11.2015. W.P.(MD).No.14573 of 2021 Subsequently, there was a search in the group of cases on 01.12.2015. Approval of Principal CIT, Central-2, Chennai, was granted on 22.07.2016, for a list of 46 properties including the subject property. Subsequently, fresh approval was granted on 18.01.2017 for provisional attachment of immovable properties under section 281B and the same was extended for another 6 months vide proceedings dated 13.07.2017. After completion of proceedings in December 2017, the property at Trichy including the subject property was attached on 04.01.2018 by the tax recovery officer, after issuing tax recovery certificate on 14.09.2017. In the list of properties the 22[nd] property is the property in question and the petitioner bank claimed that the defaulter Mr.A.M.Arun had mortgaged to the bank on 02.04.2009, further claimed that it had been extended on 17.04.2014 and it has to be noted that there is no encumbrance in the records of Registration Department with regard to mortgage on 02.04.2009, hence the alleged deed was not registered. Further on the claimed date of mortgage on 17.04.2014, there was pending assessment proceedings for the assessment year 2012-2013 in the name of Mr.A.M.Arun W.P.(MD).No.14573 of 2021 W.P.(MD).No.14573 of 2021 and notice under section 143(2) was issued on 16.08.2013 for scrutiny assessment and the assessment was pending during April 2014. Hence, the respondents submitted that the 1[st] charge is that of the respondent Income Tax Department. Hence, the mortgage ought to be declared as null and void. Though the petitioner claims that he is entitled as priority mortgager, the mortgage has been made at the time of pending assessments and hence, it is void as per Section 281. Further, Rule 15 of Income Tax Certificate Proceedings Rules, 1962, provides that Tax Recovery Officer can attach even property with encumbrance, hence, the petitioner's statement that Tax Recovery Officer has exceeded jurisdiction is not correct. Moreover, there is no provision in the Income Tax Act to lift the attachment without realization and reduction of the outstanding demand. As per the amendment in SARFAESI Act, 2002 with effect from 24.01.2020, secured creditors shall be entitled to enforce securities under SARFAESI Act only if the security interest is filed with CERSAI. In the CERSAI report, there are no details found with regard to the attachment of the property. The petitioner claims that the Tax Recovery Officer had attached the W.P.(MD).No.14573 of 2021 property of the person who is not an assessee. Further the petitioner claims that the Tax Recovery Officer has to invoke section 179 to take action against Director of a company or invoke section 226 of Income Tax Act, but the respondents submitted that the owner of the property Mr.A.M.Arun is an assessee and a Tax Recovery Certificate under section 222 was drawn for a demand of Rs.565.34 crores plus interest for assessment years 2009-2010 to 2016-2017. The property was attached by Tax Recovery Officer on 04.01.2018, earlier during pending assessments, it was under provisional attachment under section 281B since 03.11.2015 with prior approval of the Principal Commissioner, Trichy and later Principal Commissioner, Chennai. Hence invoking section 179 or section 226 is not necessary in this case and it is not correct to state that the attachment by Tax Recovery Officer is ex-facie illegal and liable to be set aside. Hence, the 1[st] respondent prayed to dismiss the writ petition. W.P.(MD).No.14573 of 2021 6. Heard Mr.R.Sivaraman, learned Counsel appearing for the petitioner, Mr.N.Dilip Kumar, learned Senior Standing Counsel appearing for 1[st] respondent and Mr.R.Suresh Kumar, learned Additional Government Pleader appearing for the 2[nd] respondent and perused the records. 7. The petitioner bank had challenged the attachment order dated 04.01.2018 issued in ITCP No. 16 under Rule 48 of the Second Schedule of Income Tax Act. Also questioned the consequential entry made by the Sub Registrar, Woraiyur, which reflects in the Encumbrance Certificate. The contention of the petitioner bank is that the borrower had executed mortgage by deposit of title deeds on 02.04.2009 and subsequently executed the memorandum of extension of equitable mortgage dated 17.04.2014, hence the bank has priority over the IT department. But the contention of the respondent Income Tax Department is that the alleged deposit of title deeds dated 02.04.2009 was not registered and moreover the alleged mortgage was not referred in the demand notice dated 02.11.2017, hence the date of mortgage of W.P.(MD).No.14573 of 2021 W.P.(MD).No.14573 of 2021 deposit of title deeds cannot be taken as 02.04.2009. The date of registered mortgage is on 17.04.2014 and as on 17.04.2014 the assessment proceedings were initiated / pending before the authorities, hence any mortgage executed during that period is void as per Section 281 of the Income Tax Act. After hearing the rival submissions this Court is of the considered opinion that the mortgage of deposit of title deeds may be liable for registration, but the instrument written subsequently evidencing the agreement of deposit of title deeds was not liable for registration. In other words, registration was not compulsory where the instrument evidencing the agreement relating to deposit of title deeds until 30.11.2012 under the Registration Act. And the present deposit of title deeds dated 02.04.2009 falls under the category of “not compulsory”. Thereafter, under the Tamil Nadu Amendment Act 2012 with effect from 01.12.2012 the registration of instrument evidencing the agreement relating to the deposit of title deed was made compulsory under section 17(i) of the Registration Act. When subsequently the registration of mortgage of deposit of title deeds was made compulsory as stated supra, therefore, the contention of W.P.(MD).No.14573 of 2021 the respondent that the earlier mortgage is not registered cannot be accepted and the petitioner bank is in advantageous situation. Moreover, non-registration of the deposit of title deeds alone, would not determine the rights of the parties. As far as the allegation of not referring the deposit of title deeds dated 02.04.2009 in the demand notice dated 02.11.2017 is concerned, the petitioner bank had produced the copy of the deposit of title deeds and hence the doubt entertained by the Revenue is unnecessary. 8. The petitioner bank and the borrower had executed memorandum of extension of equitable mortgage by way of deposit of title deeds on 17.04.2014 and the same was registered. But the contention of the Revenue is that at the time of registered mortgage the assessment proceedings were pending, hence the revenue is protected under section 281. But under proviso to section 281 any bonafide purchaser, who had purchased the property without the knowledge of recovery proceedings pending against the assessee/seller, is protected. It protects the interest of the purchaser who has W.P.(MD).No.14573 of 2021 paid valuable consideration for the purchase of the property. Hence the rigorous of section 281 may be invoked by the Revenue when the transfer was to deceive or an arrangement to circumvent the demand by the Revenue. The section 281 is extracted hereunder: “281. Certain transfers to be void.—(1) Where, during the pendency of any proceeding under this Act or after the completion thereof, but before the service of notice under rule 2 of the Second Schedule, any assessee creates a charge on, or parts with the possession (by way of sale, mortgage, gift, exchange or any other mode of transfer whatsoever) of, any of his assets in favour of any other person, 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 or otherwise: Provided that such charge or transfer shall not be void if it is made— i) for adequate consideration and without notice of the pendency of such proceeding or, as the case may be, without notice of such tax or other sum payable by the assessee; or (ii) with the previous permission of the 2 [Assessing Officer].” W.P.(MD).No.14573 of 2021 Provided that such charge or transfer shall not be void if it is made— i) for adequate consideration and without notice of the pendency of such proceeding or, as the case may be, without notice of such tax or other sum payable by the assessee; or (ii) with the previous permission of the 2 [Assessing Officer].” W.P.(MD).No.14573 of 2021 Hence the proviso covers the situation if the mortgage is executed without notice of assessment proceedings. Further the Hon’ble Supreme Court in Tax Recovery Officer Vs. Gangadhar Vishwanath Ranade reported in (1998) 6 SCC 658 had held that the Assessing Officer or Tax Recovery Officer has no power to declare the transactions as void. The provisions of section 281 do not confer the power of adjudication upon the authorities, but merely the power to state the law. And the reason stated in the judgment is that the respondent Department is an interested party and no party can act as judge for his own cause. 9. An identical case was considered by another Learned Single Judge of this Court in W.P.Nos.27409 & 27411 of 2019 vide order dated 21.04.2021, wherein it held as under: “15. Let us first analyze the provisions of Section 281 read with the proviso thereunder, and the umbrella of protection it offers, as well as the case law on point. Section 281 has been enacted to protect the interests of a bonafide purchaser lured into the purchase of the property in question without the knowledge of recovery of 2019 proceedings pending as against the vendor. Thus, Section 281 may be invoked only in cases where the transfer was a devise or an arrangement to circumvent a subsisting or anticipated demand by the Income Tax Department and to protect the interests of an unsuspecting purchaser who has paid valuable consideration for the purchase of the property in question. 16. Since Section 281 would apply in cases where the transfer of the property has been made during the pendency of proceedings or after the completion thereof, one has to examine whether there were any proceedings pending in the case of the company for AY 2012-13 at the time when the MOD was registered, which is 10.02.2014. 17. The counter filed by the TRO refers to a notice issued in terms of Section 143(2) of the Act without setting out any details thereof. It is also silent as to when the returns of income were filed by the petitioners or when notices were issued thereafter to indicate commencement of proceedings. However, Mr.Srinivas states that he is in possession of the assessment files and produces a notice under Section 143(2) of the Act dated 08.08.2013 relating to AY 2012- 2013, that has been issued to the company in August 2013, prior to registration of mortgage. There is no reference to any notice issued as far as AY 2013-14 is concerned. 18. According to the revenue, the issuance of notice under Section 143(2) would create an automatic charge over the property by the petitioner and any subsequent alienation of the property by the petitioner would be liable to be set aside in light of the protection under Section 281. 19. The power to initiate coercive recovery in terms of the 2[nd] Schedule to the Act has been the subject matter of discussion in various decisions. In the case of Gangadhar Vishwanath Ranade (supra) the Supreme Court considered a challenge by the TRO to a decision of the Bombay High Court that had set aside an attachment under Rule 11 of the 2[nd ]Schedule to the Act on the ground that under Rule 11, the TRO had no power to declare a transfer void and one that had been effected with the intention of defrauding the revenue. The provisions of Section 281 do not confer the power of adjudication upon the authorities, but merely the power to declare the law, qua the aspect of attachment alone. 19. The power to initiate coercive recovery in terms of the 2[nd] Schedule to the Act has been the subject matter of discussion in various decisions. In the case of Gangadhar Vishwanath Ranade (supra) the Supreme Court considered a challenge by the TRO to a decision of the Bombay High Court that had set aside an attachment under Rule 11 of the 2[nd ]Schedule to the Act on the ground that under Rule 11, the TRO had no power to declare a transfer void and one that had been effected with the intention of defrauding the revenue. The provisions of Section 281 do not confer the power of adjudication upon the authorities, but merely the power to declare the law, qua the aspect of attachment alone. 20. Section 281 states that any transaction of transfer engaged in after the commencement of proceedings, with the intention of defrauding the revenue and circumventing proceedings for recovery, would be construed as void as against any claim of tax or other sum payable by that assessee. However, bona fide transactions that have been entered into for adequate consideration, with the parties being unaware of the pendency of proceedings before the Income Tax authorities/without being put to notice, shall stand excluded from the rigour of the provision. Transactions engaged in with the sanction of the Assessing Officer would also be excluded from the application of the provision. 21.The Supreme Court thus held that the TRO shall have the power to examine the alternate charge created by the assessee and attach the property if he came to the conclusion that the charge had been created only to circumvent the attachment by the income tax department. However, the power of the TRO shall not extend to declaration of title that may be made only by the Civil Courts in a Suit for declaration declaring the transaction void under Section 281 of the Act. This was for the reason that the TRO is himself an interested party and hence cannot sit himself in judgment in such a case. 22. Thus, while the attachment of the Income Tax Department over the subject property would be held to be valid, the power vested in the income tax authorities can extend no further than to effect an attachment. This is as per Rule 11(6) of the 2[nd] Schedule to the Act, reading thus: Investigation by Tax Recovery Officer..... 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. 23. In Sancheti Leasing Company Ltd (supra), Justice R.Jayasimha Babu says: 6. 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. 7. 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 6. 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. 7. 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. 8. 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. 24. I thus, find no merit in the submissions of the respondent to the effect that Section 281 constitutes a declaration of charge much less, one which is preferential to the revenue. The thrust of Section 281 is only a protection to a bona fide purchaser in cases where an errant assessee may seek to alienate property to circumvent anticipated recovery of outstanding arrears payable by him to the Income Tax Department. Nothing in Section 281 would support the submission that it, by itself creates a positive charge of property. The charge in this case was created by the Income Tax Department only after 27.03.2017 when the property was attached in terms of Rule 48 of the 2[nd] Schedule and duly communicated to the SRO. 25. Moreover, the aforesaid cases however do not take note of Section 26E of the SARFAESI that has been notified on 24.01.2020. Section 26E commences with a non-obstante clause and states that priority shall be accorded to the debts payable to secured creditors, notwithstanding anything in any other law for the time being in force, including the Income tax Act. The only exception, is as per the Explanation to Section 26E, cases pending under the Insolvency and Bankruptcy Code 2016. In the case of a secured creditor where a prior valid charge exists, as in the present case where the mortgage has been created on 10.02.2014, the provisions of Section 281 would not serve to disturb the same. 26. A matter similar to the present one came up for consideration before the Andhra Pradesh and Telangana High Court (prior to bifurcation) in the case of ICICI Bank Ltd (supra). Conflicting claims to the same property were set up by the ICICI Bank and the Tax Recovery Officer. After considering the interpretation of Section 281 and the power of recovery under the 2[nd] Schedule to the Income Tax Act, the Bench states that the attachment in that case was prior to the attachment by the Income Tax Department and thus, held priority over the subsequent attachment. Following the ratio of the judgment of the Supreme Court in the case of Gangadhar Vishwanath Ranade (supra), the claim of the Bank was allowed. 27. In this case the mortgage by the Bank is on 10.02.2014 and that by the Income tax Department, is post attachment, on 27.03.2017 only. The subsequent attachment thus fails in the light of Section 26E. 27. In this case the mortgage by the Bank is on 10.02.2014 and that by the Income tax Department, is post attachment, on 27.03.2017 only. The subsequent attachment thus fails in the light of Section 26E. 28. Incidentally, at the time when the above decision was rendered, Section 26E of the SARFAESI Act had not been notified, prompting the Bench to state at paragraph 6 of that decision (of the SCC online report) that the issue before them could have been resolved in a trice, had only the provisions of Section 26E been notified at the time when the decision was being rendered. The provisions of Section 26E have since been notified on 24.01.2020 and the benefit of the same is available for the present Writ Petitioners.” 10. In the present case as per the counter of the respondents the assessment was pending. But even as per the counter the assessee was subjected to scrutiny assessment initiated under section 143(3) of Income tax Act for the assessment year 2008-2009, 2010-2011, 2011-2012 and 2012-2013. And for assessment year 2009-2010 the assessment was reopened in the year 2015, which means as on the date of mortgage there was no pending assessment W.P.(MD).No.14573 of 2021 proceedings for the assessment year 2009-2010. For the assessment year 2012-2013, the respondents had issued notice dated 16.08.2013 under section 143(2) for scrutiny assessment. According to the revenue the issuance of notice under section 143(2) would create an automatic charge over the property and any subsequent alienation would be liable to be set aside under section 281. But as per the Hon’ble Supreme Court judgment in Gangadhar Vishwanath Ranade’s case under Rule 11 of Second Schedule the Tax Recovery Officer had no power to declare a transfer void. When the Revenue has no power under Rule 11(6) to declare as void, likewise the Revenue has no authority to claim section 281 as automatic. Following the aforesaid judgment, this Court is of the considered opinion that when the Tax Recovery Officer has no power to declare as void, likewise the Revenue has no authority to claim the charge or attachment over the property as automatic. 11. The above position would further be substantiated by section 281B, wherein the authority has to obtain prior permission from the Principal W.P.(MD).No.14573 of 2021 Commissioner for passing temporary attachment that too for six months and may be extended for another period of six months with prior approval of the Principal Commissioner of Income Tax. When the temporary attachment is restricted with time limit, then the power is not absolute. In the present case the Revenue had passed an order of provisional attachment on 03.11.2015 after approval of Principal Commissioner of Income Tax. Moreover, there was a search under section 132 of the Income tax Act in the case of M/s.Vasan Health Care Private Limited group of cases on 01.12.2015. And all other subsequent proceedings are on later dates, especially the approval of Principal CIT, Central-2, Chennai, was granted on 22.07.2016, for a list of 46 properties including the subject property and fresh approval was granted on 18.01.2017 for provisional attachment under section 281B and the same was extended for another 6 months vide proceedings dated 13.07.2017. Then Tax Recovery Certificate was issued on 14.09.2017 and the subject property was attached on 04.01.2018. The Revenue had created charge in this case on 04.01.2018. The respondents had reopened the assessment proceedings in the year 2015 for the W.P.(MD).No.14573 of 2021 W.P.(MD).No.14573 of 2021 assessment year 2009-2010 and the respondents had not stated the exact date of reopen in their counter. From the above narration of events, it is evident that the mortgage is on 17.04.2014 and the same is registered on 10.12.2014 which is prior to the reopen of assessment in the year 2015 and prior to attachment dated 04.01.2018, hence this Court is of the considered opinion that no assessment proceedings were pending when the petitioner bank has executed registered mortgage deed dated 10.12.2014, hence the petitioner bank’s debt has priority over the respondent’s crown debt. 12. The learned Senior Standing Counsel appearing for the Revenue submitted that the attachment is a statutory duty mandated on the Income Tax Department, therefore, there cannot be any positive direction for lifting the attachment. If the Hon’ble Court comes to the conclusion that the charge over the property is prior to the attachment of the Revenue, the Hon’ble Court may direct the Revenue to issue “no objection certificate”, but the W.P.(MD).No.14573 of 2021 petitioner cannot demand to lift the attachment. This contention of the Revenue was vehemently objected by the learned Counsel appearing for the petitioner bank stating that if the attachment is there, the property cannot be auctioned, it will not fetch higher value. And it is for the benefit of both the bank as well as the debtor, the attachment of the Revenue ought to be lifted. Further the petitioner bank submitted that the said issue was elaborately considered by the High Court of Andhra Pradesh and Telangana in the case of ICICI Bank Limited Vs. Tax Recovery Officer vide order dated 04.12.2018 reported in [2019] 105 Taxman.com 257. The challenge in the said judgment is an attachment order 14.03.2018, issued by the tax recovery officer under rule 48 of second schedule. After considering section 281 and rule 48, the Court has elaborately dealt with the issue and has held that there is no provision in the Income Tax Act by which a first charge is created automatically on the properties of the assesses. And also held it is now well settled that wherever the statute does not create a first charge over the property, the crown's debt does not take precedents over the claim of the secured creditor. The relevant portion of the judgment is extracted hereunder: “31. But the mortgage was created by the 3rd respondent in favour of the petitioner-bank on 11-07-2011, much before the order of assessment was passed under Section143(3) on 27-12-2011. In other words, the assessee was nowhere near the point of being declared as an assessee in default on the date of creation of the mortgage. Hence, the creation of the mortgage cannot be said to have automatically become void in terms of Section 281(1) merely because of the pendency of the proceedings under Section 143 and 142. It required something more to be done, but the same was not done in this case. As a matter of fact even an investigation under Rule 11 was not carried out in this case. Therefore, the order of attachment is clearly illegal. On the date on which the order of attachment was passed, the property had already been sold by the petitioner-bank, in exercise of the power conferred upon the bank under the Securitisation Act, 2002. 32. It is important to note one more aspect. Section 281(1), by its very nature operates only up to the stage of service of notice under Rule 2 of the Second Schedule. Therefore, Section 281(1) obviously deals with a situation, which can be compared to fraudulent preferences dealt with by the Insolvency Laws. Therefore, what is applied to an assessee (or an insolvent under the Insolvency Laws) cannot be applied to a secured creditor like the bank. 33. There appears to be no provision in the Income Tax Act, by which a first charge is created automatically on the properties of the assessee. There is no provision in the Income Tax Act similar to Section 16C of the Andhra Pradesh General Sales Tax Act, 1957. 32. It is important to note one more aspect. Section 281(1), by its very nature operates only up to the stage of service of notice under Rule 2 of the Second Schedule. Therefore, Section 281(1) obviously deals with a situation, which can be compared to fraudulent preferences dealt with by the Insolvency Laws. Therefore, what is applied to an assessee (or an insolvent under the Insolvency Laws) cannot be applied to a secured creditor like the bank. 33. There appears to be no provision in the Income Tax Act, by which a first charge is created automatically on the properties of the assessee. There is no provision in the Income Tax Act similar to Section 16C of the Andhra Pradesh General Sales Tax Act, 1957. 34. It is by now well settled that wherever the statute does not create a first charge over the property, the crown's debt does not take precedence over the claim of the secured creditor. A useful reference can be made in this regard to the decision of the Full Bench of the Madras High Court in U.T.I. Bank Ltd., V. Deputy Commissioner of Central Excise (2007) 75 SCL 20 (Mad.) (FB). 35. In Central Bank of India V. State of Kerala, a Three Member Bench of the Supreme Court had an occasion to consider two questions (i) whether Section 36 C of the Bombay Sales Tax Act, 1959 and Section 26 B of the Kerala General Sales Tax Act, 1963, by which a first charge was created on the property of the dealer, are inconsistent with the provisions of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDDB Act) and the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (Securitisation Act); and (ii) whether by virtue of the non- obstante clauses contained in RDDB Act and Securitisation Act, the two Central Legislations will have primacy over State Legislations. Eventually, the Court held (i) that the RDDB Act, 1993 and Securitisation Act, 2002 do not create a first charge in favour of the secured creditor, (ii) that the relevant provisions of the Sales Tax Laws AIR 2007 Madras 118 2009 21 VST 505 (SC) are not inconsistent with the provisions of the Central Legislations, so as to attract the non obstante clause and (iii) that the charge created under the relevant Sales Tax Laws would prevail over the charge created in favour of the Bank. 36. But in a more recent decision in the Stock Exchange V. V.S. Kandalgoankar (2014) 187 Comp. Cas. 143 (SC), a question arose as to whether a lien created by the operation of the Rules of the Stock Exchange, on the security provided by a member, would have precedence over the dues to the Income Tax Department. After quoting with approval the decision of the Supreme Court in Dena Bank V. Bhikabhai Prabhudas Pareks Co. (2000 (5) SCC 694), the Supreme Court came to the conclusion that the Income Tax Act does not provide for any paramountcy of dues by way of income tax and that the Government dues have priority only over unsecured debts. In its decision in Stock Exchange, the Supreme Court went to the extent of holding that the lien possessed by the Stock Exchange made it a secured creditor and that irrespective of whether the lien was a statutory lien or a lien arising out of an agreement, the same made the holder of the lien a secured creditor, who would have priority over Government dues. 37. Therefore, in the light of the fact that the mortgage was created by the assessee much before a demand was made under Rule 2 and even before an order of assessment was passed and in the light of the fact that before the stage of issue of a certificate of recovery, the voidity under Section281(1) is not automatic, the petitioner-bank deserves to succeed. 38. Accordingly, the writ petition is allowed and the impugned order of attachment is set aside. The Sub-Registrar may proceed to register the sale certificate issued by the Bank upon compliance with the necessary formalities. There shall be no order as to costs.” a lien arising out of an agreement, the same made the holder of the lien a secured creditor, who would have priority over Government dues. 37. Therefore, in the light of the fact that the mortgage was created by the assessee much before a demand was made under Rule 2 and even before an order of assessment was passed and in the light of the fact that before the stage of issue of a certificate of recovery, the voidity under Section281(1) is not automatic, the petitioner-bank deserves to succeed. 38. Accordingly, the writ petition is allowed and the impugned order of attachment is set aside. The Sub-Registrar may proceed to register the sale certificate issued by the Bank upon compliance with the necessary formalities. There shall be no order as to costs.” 13. The said judgment is followed by Hon’ble Division Bench of Madras High Court in W.P.(MD)Nos.1251 of 2018 and batch. Vide judgment dated 01.09.2022, the Hon'ble Division Bench has held that the section 281 of Income Tax Act and section 26E of SARFAESI Act and 31B of the Recovery of Debts and Bankruptcy Act cannot operate simultaneously and there arises conflict and hence the attachment ought to be lifted whenever the challenge is made and whenever the mortgage by bank is prior to the attachment under Income Tax Act. The relevant portion of the judgment is extracted hereunder: “24. Keeping the above background in mind, it does not seem that section 281 of the Income Tax Act and sections 26E of the SARFAESI Act and 31B of the Recovery of Debts and Bankruptcy Act can operate simultaneously without conflict. In other words, the conflict is inevitable. Application of section 281 could result in two possible outcome: (i)the transfer / charge can either be saved under the proviso (or) (ii)transfer / charge could come under the mischief of section 281 and its declaration of voidity. In the first case, if the transfer / charge falls under the proviso, Section 281 of the Income Tax Act would not get attracted and the secured creditor will be entitled to enforce in view of its priority. If the transfer / charge falls within the mischief of Section 281 of the Income Tax Act as discussed supra, it would suffer from the declaration of voidity. ‘Void’ as explained by the Hon’ble Supreme Court in Kalawati v. Bisheshwar and State of Kerala v. M.K.Kunhikannan Nambiar Manjeri Manikoth [(1996) 1 SCC 435 : AIR 1996 SC 906], would mean ‘non-existent from its very inception’ and ‘nullity’. Sections 26E and 31B presuppose an existence of a valid charge / mortgage and if the declaration of voidity in section 281 of the Income Tax Act destroys the very foundation on which sections 26E and 31B exists, it appears doubtful that a banker or a financial institution can take advantage of the priority provided therein. In this regard, it may be necessary to bear in mind the Maxim sublato fundamento, cadit opus, meaning, “if the foundation is removed, the superstructure falls” [See: Kalabharati Advertising v. Hemant Vimalnath Narichania and others, (2010) 9 SCC 437 : 2010 SCC Online SC 970 at page 447] the very foundation on which sections 26E and 31B exists, it appears doubtful that a banker or a financial institution can take advantage of the priority provided therein. In this regard, it may be necessary to bear in mind the Maxim sublato fundamento, cadit opus, meaning, “if the foundation is removed, the superstructure falls” [See: Kalabharati Advertising v. Hemant Vimalnath Narichania and others, (2010) 9 SCC 437 : 2010 SCC Online SC 970 at page 447] “25. Thus, once the security interest is declared a nullity, it will be non-est and there is no question of applying SARFAESI or Recovery of Debts and Bankruptcy Act and consequentially, no question of priority. This would essentially lead to a conflict, as in the present case, primacy to section 281 will render the priority accorded to secured creditors nugatory. We must thus examine, whether section 281 of the Income Tax Act or sections 26E and 31B of the SARFAESI and Recovery of Debts and Bankruptcy Act would prevail. It appears that the non-obstante clause in Sections 26E and 31B of the SARFAESI Act and Recovery of Debts and Bankruptcy Act would prevail over the declaration of voidity contained in Section 281 of the Income Tax Act, for unless it is nullified, the primacy contained in the provisions of Sections 26E and 31B of the SARFAESI Act and Recovery of Debts and Bankruptcy Act would stand nullified, thereby defeating the object of Sections 26E and 31B of the SARFAESI Act and Recovery of Debts and Bankruptcy Act. 26. While interpreting the scope of the non-obstante clause contained in Sections 26E and 31B of the SARFAESI Act and Recovery of Debts and Bankruptcy Act, we may take guidance from the Heydon's Rule, commonly known as "Purposive Construction", which provides that when the material words are capable of bearing two or more constructions, the most firmly established rule for construction of such words of all statutes in general (be they penal or beneficial, restrictive or enlarging of the common law) is the rule laid down in Heydon's case which has now attained the status of a "classic". The rule which is also known as "purposive c