The Tax Recovery Officer, Income Tax Department, Tro-1/Coimbatore v. The Sub Registrar

W.A. Nos.1512 of 2021, 60, 1249 and 1385 of 2022 IN THE HIGH COURT OF JUDICATURE AT MADRAS Reserved On : 29.08.2022 Pronounced on : 01.09.2022 CORAM THE HONOURABLE MR. JUSTICE R. MAHADEVAN AND THE HONOURABLE MR. JUSTICE MOHAMMED SHAFFIQ W.A. Nos.1512 of 2021, 60, 1249 and 1385 of 2022andC.M.P.Nos.9630 of 2021, 6242 and 8950 of 2022 W.A. No.1512 of 2021State Bank of India,RACPC, OMR,New No.4/952, 4/952A, III Floor,Rajiv Gandhi Salai, Perungudi,Chennai – 96,represented by its Chief Manager. .. Appellant 1.The Tax Recovery Officer, Income Tax Department, TRO-1/Coimbatore. Vs 2.The Sub Registrar, Selaiyur, Kanchipuram District. 3.The Sub Registrar, Joint-I, South Chennai, Saidapet, Chennai – 15. 4.V.Balasubramaniam 5.J.Swetha https://www.mhc.tn.gov.in/judis .. Respondents W.A. Nos.1512 of 2021, 60, 1249 and 1385 of 2022 PRAYER:Writ Appeal filed under Section 15 of Letter Patent praying to set aside the order dated 27.04.2021 passed in W.P.No.5857 of 2018. For Appellant: Mr.M.L.Ganesh For R-1: Mr.A.P.Srinivas W.A. No.60 of 2022Aditya Birla Finance Limited,Having its registered office atIndian Rayon Compound, Veraval,Gujarat – 362 266 and a branch atSai Sadhan, Ground Floor, TS 125 (North Phase),SIDCO Estate, Ekkaduthankal, Chennai – 600032,Represented by its Regional Manager Legal and authorisedOfficer, V.Thiyagarajan. .. Appellant (Cause title accepted vide Court order dated 04.01.2021 made in C.M.P.No.21738 of 2021 in W.A.SR.No.115143 of 2021) Vs 1.The Deputy Commissioner of Income Tax, Circle 3(1) No.44, William Cantonment, Tiruchirapalli. Circle 3(1) No.44, William Cantonment, Tiruchirapalli. 2.The Assistant Commissioner of Income Tax, Central Circle 11(1), Room No.122, 1[st] Floor, Investigation Wing, 46, Nungambakkam High Road, Chennai – 600 034. 1[st] Floor, Investigation Wing, 46, Nungambakkam High Road, Chennai – 600 034. 3.The Joint Sub-Registrar, Chennai Central Joint-I, Sub Registrar Office, Mylapore, Chennai – 600 004. 4.Dr.A.M.Arun (Died) 5.A.Meera https://www.mhc.tn.gov.in/judis W.A. Nos.1512 of 2021, 60, 1249 and 1385 of 2022 6.A.M.Rajeshwari7.Bala Yudhis Murugaiah 8.Tharana Arun .. Respondents (R-6 to R-8 brought into record as LRs of the deceased 4[th] Respondent (Dr.A.M.Arun) vide Court order dated 09.03.2022 made in C.M.P.No.3715 of 2022 in W.A.No.60 of 2022) PRAYER:Writ Appeal filed under Section 15 of Letter Patent praying to set aside the common order dated 31.08.2021 passed in W.P.No.25325 of 2017. For Appellant For Respondents : Mr.Vijay Narayan, Senior Counsel for Mr.Rahul Unnikrishnan: Mr.A.P.Srinivas Senior Panel Counsel for R-1 and R-2 Mr.S.Ravikumar, Special Government Pleader for R-3 R-4 – died M/s.Tanya Kapoor for R-5 to R-8 W.A. No.1249 of 2022Janata Sahakari Bank Limited,Represented by its authorized signatory,Bhushan Govind Kulkarni,1444, Shukrawar Peth,Thorale Bajirao Road, Pune 411 002. .. Appellant Vs Tax Recovery Officer VII,Income Tax Department,Company Range IV,121, MG Road, Chennai – 600034. .. Respondent PRAYER:Writ Appeal filed under Section 15 of Letter Patent praying to set aside the order dated 19.07.2021 passed in W.P.No.15437 of 2014. https://www.mhc.tn.gov.in/judis W.A. Nos.1512 of 2021, 60, 1249 and 1385 of 2022 For Appellant : Mr.Sathish Parasaran, senior counsel, for Mr.B.N.Suchindran For Respondent: Mr.A.P.Srinivas W.A. No.1385 of 2022 Tax Recovery Officer,Income Tax Department,Room No.35, 1[st] Floor,Main Building,63, Race Course Road,Coimbatore – 641 018. .. Appellant Vs 1.Union Bank of India, Regional Office, 649/650, Represented by Chief Manager, Oppanakara Street, Coimbatore – 641 001. 2.Sub Registrar, Sub-Registrar Office No.02, Tirupur, Tirupur District. 3.M/s.Beetle Exports No.17, SRP Nagar, 2[nd] Cross, Bharathi Park, Saibaba Colony, Coimbatore – 641 011. 4.V.Balasubramaniam 5.J.Swetha .. Respondents https://www.mhc.tn.gov.in/judis W.A. Nos.1512 of 2021, 60, 1249 and 1385 of 2022 For Appellant : Mr.Sathish Parasaran, senior counsel, for Mr.B.N.Suchindran For Respondent: Mr.A.P.Srinivas W.A. No.1385 of 2022 Tax Recovery Officer,Income Tax Department,Room No.35, 1[st] Floor,Main Building,63, Race Course Road,Coimbatore – 641 018. .. Appellant Vs 1.Union Bank of India, Regional Office, 649/650, Represented by Chief Manager, Oppanakara Street, Coimbatore – 641 001. 2.Sub Registrar, Sub-Registrar Office No.02, Tirupur, Tirupur District. 3.M/s.Beetle Exports No.17, SRP Nagar, 2[nd] Cross, Bharathi Park, Saibaba Colony, Coimbatore – 641 011. 4.V.Balasubramaniam 5.J.Swetha .. Respondents PRAYER:Writ Appeal filed under Section 15 of Letter Patent praying to set aside the order of the learned Judge made in W.P.No.1251 of 2018 dated 21.04.2021. W.A. Nos.1512 of 2021, 60, 1249 and 1385 of 2022 For Appellant: Mr.A.P.SrinivasFor Respondents: Mr.Srinath Sridevan for R-1 Mr.S.Ravikumar, Special Government Pleader for R-2 COMMON JUDGMENT MOHAMMED SHAFFIQ, J. The common question that arises for consideration in the batch of writ appeals, relates to the scope and ambit of Section 281 of the Income Tax Act, 1961 (hereinafter shortly referred to as “the Income Tax Act”) vis-a-vis, Section 26E of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (in short, “the SARFAESI Act”) and Section 31B of the Recovery of Debts and Bankruptcy Act, 1993. 2. There are four writ appeals viz., W.A.Nos.1512 of 2021, 60 of 2022, 1249 of 2022 and 1385 of 2022, out of which, W.A.Nos. 60 of 2022, 1249 of 2022 and 1512 of 2021 are filed by the Bankers/Financial institutions challenging the orders of a learned Judge in W.P.Nos.25325 of 2017, 15437 of 2014 and 5857 of 2018, wherein it was held that the dues of the Income Tax Department would take precedence over the dues of the secured creditor, though Section 26 E of the SARFAESI Act and Section 31 B of the Recovery of Debts and Bankruptcy Act, expressly provides/grants priority in payment of debts due https://www.mhc.tn.gov.in/judis W.A. Nos.1512 of 2021, 60, 1249 and 1385 of 2022to a secured creditor over all other debts including revenues, taxes, cesses, etc. The learned Judge proceeded on the basis that tax being an attribute of sovereignty and a necessity for attaining the constitutional goals and objectives, tax dues would prevail and take precedence over the rights of the secured creditors. To arrive at the said conclusion, reliance was placed upon the “doctrine of constitutional priority”. 3. On the other hand, it is the Tax Recovery Officer who has come up with W.A.No.1385 of 2022, challenging the order of another learned Judge in W.P.No.1251 of 2018, wherein, it was held that Section 281 of the Income Tax Act does not create a charge much less one preferential to the revenue overriding/prevailing over Section 26 E of the SARFAESI Act and Section 31 B of the Recovery of Debts and Bankruptcy Act. The learned Judge proceeded on the premise that the charge was created only when the property was attached by the Revenue / Income Tax Department and when a valid charge exists prior to the attachment, reliance on Section 281 of the Income Tax Act would not serve to disturb the right of the secured creditor under Section 26E of the SARFAESI Act and Section 31 B of the Recovery of Debts and Bankruptcy Act. W.A. Nos.1512 of 2021, 60, 1249 and 1385 of 20224. There are conflicting views expressed by two learned Judges of this Court, while the first view being that the Revenue would have precedence over W.A. Nos.1512 of 2021, 60, 1249 and 1385 of 20224. There are conflicting views expressed by two learned Judges of this Court, while the first view being that the Revenue would have precedence over all other dues on the basis of the “Doctrine of constitutional priority”, (for the sake of ease of reference, we shall refer to this order as the “first view”), the other learned Judge has taken a view, which appears to be diametrically opposite (for the sake of ease of reference, we shall refer to this order as the “second view”) holding that Section 281 of the Income Tax Act by itself does not create a charge, in any view Section 26 E of the SARFAESI Act and Section 31 B of the Recovery of Debts and Bankruptcy Act, puts the issue of priority of charge beyond the pale of any doubt in favour of the secured creditors even where the competing claim is that of taxes, revenues etc. It may be relevant to note that the entitlement of the Bankers/ Financial Institutions in these four Writ Appeals to the benefit of priority in payment over other debts in terms of Section 31 B of Recovery of Debt and Bankruptcy Act and under Chapter IV A and more particularly, Section 26 E of the SARFAESI Act, remains undisputed. The only issue that has been raised for consideration is the impact of Section 281 of the Income Tax Act, 1961, vis-a-vis Section 31B of Recovery of Debt and Bankruptcy Act and Section 26 E of the SARFAESI Act. 5. Before proceeding further, we may narrate the facts and submissions https://www.mhc.tn.gov.in/judismade by the learned counsel appearing for all the parties, which run thus: W.A. Nos.1512 of 2021, 60, 1249 and 1385 of 20225.1.1.Mr.Vijay Narayan, learned Senior counsel for the appellant in WA.No.60 of 2022 contended that the appellant, which is a non-banking financial company, had extended financial assistance to the respondents 4 and 5 on the basis of the mortgage created over the properties in their favour by executing mortgage deeds dated 23.04.2013, 18.08.2014 and 22.10.2015, but the borrowers defaulted in payment of loan amount, as a result of which, arbitration proceedings were initiated and during the course of the said proceedings, the borrowers admitted their liability and expressed their willingness to sell the mortgaged properties for realisation of the dues to the appellant. At that time, the appellant came to know about the provisional order of attachment passed by the second respondent on 03.11.2015 over the mortgaged properties for the tax dues payable by the borrowers and their group entities/companies. Due to the attachment of the mortgaged properties, the appellant being unable to recover the dues payable by the borrowers, preferred WP.No.25325 of 2017, which was dismissed by the learned Judge. Therefore, this writ appeal viz., WA.No.60 of 2022. 5.1.2.Elaborating further, the learned senior counsel appearing for the appellant submitted that Section 26E of the SARFAESI Act provides that the debts due to any secured creditor shall be paid in priority over all other debts and all revenues, taxes, cesses and other rates payable to the Central Government or https://www.mhc.tn.gov.in/judis W.A. Nos.1512 of 2021, 60, 1249 and 1385 of 2022State Government or local authority. While so, the observation of the learned Judge that at the time of mortgaging the properties by the borrowers in favour of W.A. Nos.1512 of 2021, 60, 1249 and 1385 of 2022State Government or local authority. While so, the observation of the learned Judge that at the time of mortgaging the properties by the borrowers in favour of the appellant, the assessment proceedings for the assessment years 2009-10, 2010-11 and 2011-12 were pending and therefore, the mortgages becomes null and void by virtue of section 281 of the Income Tax Act, is contrary to section 26E of the SARFAESI Act. Adding further, the learned senior counsel submitted that the learned Judge having observed that the department has a priority over the debts of the Bank, has directed the appellant to approach the competent Authority under the Income Tax Act, which is nothing but an exercise of futility/ empty formality. It is also submitted that the properties belonging to the borrowers were mortgaged with the appellant prior to the order of attachment passed by the second respondent on 03.11.2015 and hence, the said attachment is non-est / invalid. In such event, the learned Judge ought to have held that the appellant has a priority over taxes / dues under the Income Tax Act. In this context, the learned counsel placed reliance on the decision of the Andhra Pradesh High Court in ICICI Bank Limited v. Tax Recovery Officer and others [2019 411 ITR 518 (T&AP)] wherein it was held that the Income Tax Act does not provide for any primacy to income tax dues over that of the Government dues and priority of crown debts is only over unsecured debts. W.A. Nos.1512 of 2021, 60, 1249 and 1385 of 20225.1.3.The learned Senior counsel appearing for the appellant further contended that the learned Judge, in his order, has invoked the "constitutional priority doctrine" which does not exist. According to the learned Senior counsel, invoking a non-existing doctrine to reject the claim of the appellant is not proper. In this connection, the learned Senior counsel placed reliance on the decision in Dena Bank v. Bhikabhai Prabhudas Parekh & Co. and others [(2000) 5 Supreme Court Cases 694]in which the Hon'ble Supreme Court expressly provided that the interest / priority of secured creditors would prevail over the doctrine of priority of crown debts. 5.1.4.The learned Senior counsel for the appellant also contended that secured creditors always have priority over government debts. To lend support to this submission, he placed reliance on the decision of the Full Bench of this Court in Assistant Commissioner of Commercial Tax and others v. Indian Overseas Bank and others [2016 (6) CTC 769] wherein it was held that in view of Section 31 B of the Recovery of Debts and Bankruptcy Act, introduced by Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016, the right of the secured creditors to realise the debts by way of sale of assets will have priority over all debts and government dues including revenues, taxes, cesses and rates due to the Central Government, State Government or Local Authority. The learned Senior https://www.mhc.tn.gov.in/judis W.A. Nos.1512 of 2021, 60, 1249 and 1385 of 2022counsel further referred to another order of the Full Bench of this Court in UTI Bank Limited v. Deputy Commissioner of Central Excise and another [(2007) 135 CC 329 (Mad)].In the light of the said decisions, the order of attachment passed by the Tax Recovery Officer subsequent to the mortgage deeds executed in favour of the appellant is not a bar for the appellant to proceed with the sale of the mortgaged properties in the light of section 26E of the SARFAESI Act. Therefore, the learned senior counsel sought to allow this writ appeal by setting aside the order of the learned Judge. W.A. Nos.1512 of 2021, 60, 1249 and 1385 of 2022counsel further referred to another order of the Full Bench of this Court in UTI Bank Limited v. Deputy Commissioner of Central Excise and another [(2007) 135 CC 329 (Mad)].In the light of the said decisions, the order of attachment passed by the Tax Recovery Officer subsequent to the mortgage deeds executed in favour of the appellant is not a bar for the appellant to proceed with the sale of the mortgaged properties in the light of section 26E of the SARFAESI Act. Therefore, the learned senior counsel sought to allow this writ appeal by setting aside the order of the learned Judge. 5.1.5.Per contra, Mr.A.P.Srinivas, learned Standing Counsel for the respondents 1 and 2 in WA.No.60 of 2022 would contend that the question of validity of mortgage to the secured creditor will depend on whether such mortgage in favour of the secured creditor was created during the pendency of any proceeding under the Income Tax Act, 1961. Therefore, the determining factor, according to the learned counsel, is whether any proceedings were pending when the mortgage was created in favour of the secured creditor. In this context, the learned counsel placed reliance on the decision of the Honourable Supreme Court in Central Bank of India v. State of Kerala and others) [2009 (4) Supreme Court Cases 94]wherein, it was held that statutory first charge created in favour of the State under Section 26 B of the Kerala Act has primacy over the rights of the Bank to recover its dues. https://www.mhc.tn.gov.in/judis W.A. Nos.1512 of 2021, 60, 1249 and 1385 of 20225.1.6. The learned Senior Standing Counsel for the respondents 1 and 2 submitted that as per Section 281 of the Income Tax Act, whether proceedings are pending before the Department or not, is the determinative factor in deciding the priority. The question of validity of mortgage to the secured creditor will depend on whether such mortgage in favour of the secured creditor was created during the pendency of any proceedings under the Income Tax Act or not. The learned Judge, taking note of the fact that at the time of mortgage, the income tax proceedings relating to the Assessment Years 2009 - 10, 2010 - 11 and 2011 - 12 were pending, has rightly declared the mortgage as null and void, in view of Section 281 of the Income Tax Act. Stating so, the learned Senior Standing Counsel prayed this Court for dismissal of the writ appeal. 5.1.7.Ms.Tanya Kapoor, learned counsel for the respondents 5 to 8 would submit that Section 26E of the SARFAESI Act came into force only on 24.01.2020; and there was no law before these amendments to give priority to the secured creditor over other debts. In this context, the learned counsel placed reliance on the decision of the Chattisgarh State Co-operative Marketing Federation Limited v. Bank of Baroda [2020 SCC ONLINE Chh 1271] and contended that the Central Government issued notification dated 26.12.2019 and Sections 17 to 19 of the SARFAESI Act came into effect. Therefore, there was no law before these amendments giving priority to the debts of the secured https://www.mhc.tn.gov.in/judis W.A. Nos.1512 of 2021, 60, 1249 and 1385 of 2022creditor. The learned counsel further submitted that the appellant's right to enforce the secured debt accrues only upon default by the borrowers and after realisation of the dues by the Income Tax Department. Thus, the appellant has no right to enforce the secured debt and that the Income Tax Department alone has a priority to do so. Therefore, the learned counsel prayed for dismissal of this appeal. W.A. Nos.1512 of 2021, 60, 1249 and 1385 of 2022creditor. The learned counsel further submitted that the appellant's right to enforce the secured debt accrues only upon default by the borrowers and after realisation of the dues by the Income Tax Department. Thus, the appellant has no right to enforce the secured debt and that the Income Tax Department alone has a priority to do so. Therefore, the learned counsel prayed for dismissal of this appeal. 5.2.1.Mr.Satish Parasaran, learned senior counsel for the appellant in WA.No.1249 of 2022 submitted that the appellant had sanctioned loan to M/s.NEPC Agro Foods Ltd after executing a mortgage deed dated 11.12.1998 in respect of the property at Ambattur, in which, M/s.NEPC India Ltd (formerly known as NEPC Micon Ltd) stood as corporate guarantor. Both companies failed to repay the loan amount, which compelled the appellant to initiate the SARFAESI proceedings. After taking possession of the subject property, the appellant received a letter dated 27.12.2007 from the respondent / Tax Recovery Officer -VII that the subject property was purportedly attached by the Income Tax Department on 18.06.2003 towards the alleged outstanding tax arrears payable by M/s.NEPC Agro Foods Ltd. It is submitted by the learned senior counsel that the said attachment started reflecting on the encumbrance certificate only with effect from 31.12.2007 after the appellant took possession of the property.https://www.mhc.tn.gov.in/judis W.A. Nos.1512 of 2021, 60, 1249 and 1385 of 20225.2.2.Continuing further, the learned senior counsel for the appellant submitted that the respondent has erroneously proceeded on the basis that the assessee in default is NEPC Agro Foods Ltd. However, from the assessment orders, it can be seen that all the proceedings under the Income Tax Act, 1961 were initiated against the corporate guarantor / NEPC India Ltd, which was earlier known as NEPC Micon Ltd. The assessment orders viz., dated 29.03.1996 for the AY 1993-94, dated 27.03.1997 for the AY 1994-95, dated 25.09.1998 for the AY 1995-96 and dated 30.03.1999 for the AY 1996-97 were all issued to NEPC Micon Ltd. The appellant bank has taken possession of the property owned by NEPC Agro Foods Ltd, which is a distinct and separate legal entity from NEPC India Ltd. In the absence of any proceedings against NEPC Agro Foods Ltd and/or claim by the respondent over its property, the order of attachment passed by the respondent asserting rights over the subject property, is illegal and unlawful and the same ought to have been set aside. However, the learned Judge erroneously dismissed the writ petition bearing No.15437 of 2014 filed by the appellant, by holding that the crown debts will have priority over the debts of the appellant, who is a secured creditor, by order dated 19.07.2021 impugned herein, which is liable to be set aside, according to the learned senior counsel. W.A. Nos.1512 of 2021, 60, 1249 and 1385 of 20225.2.3.On the other hand, the learned senior standing counsel appearing for the respondent department in WA.No.1249 of 2022 submitted that W.A. Nos.1512 of 2021, 60, 1249 and 1385 of 20225.2.3.On the other hand, the learned senior standing counsel appearing for the respondent department in WA.No.1249 of 2022 submitted that all the assessment orders pertain to the NEPC Group and the properties belong to the Directors of NEPC and the Directors are same in all the entities. Hence, it is incorrect to state that in respect of the proceedings initiated against NEPC India Ltd, the properties of NEPC Agro, cannot be attached. It is also contended that the dates of mortgage and other things are factual and hence, the appellant can go before the TRO under rule 11, Second Schedule, to decide the facts, as rightly held by the learned Judge. The learned counsel further submitted that Section 281 merely declares the mortgage to be invalid and reliance placed on the decision of the Andhra Pradesh High Court in ICICI Bank case may not be proper, as it never considered the judgment of the Madras High Court in Abdul Jamil & Ors v. The Secretary, Income Tax [1998 (1) CTC 547]. Therefore, according to the learned counsel, the order of the learned Judge does not require any interference at the hands of this court. 5.3.1.Mr.A.P.Srinivas, the learned standing counsel for the appellant in WA.No.1385 of 2022 submitted that the assessment notice under section 143(2) was issued on 08.08.2013; demand was raised by the department through assessment order dated 31.03.2015; after issuance of several demand notices to https://www.mhc.tn.gov.in/judis W.A. Nos.1512 of 2021, 60, 1249 and 1385 of 2022the assessee / defaulters, the subject properties were attached by the Tax Recovery Officer on 27.03.2017; and section 281 of the Income Tax Act declares as void any transfer made by the assessee during the pendency of proceedings under the Act. Therefore, the attachment of the immovable property made by the Tax Recovery Officer to secure the dues of the department is legal, lawful and not perverse. It is also submitted that the overriding powers in terms of section 35 of the SARFAESI Act, can be applied by the bank only if it has valid mortage on the properties. It is further submitted that the priority provision under the SARFAESI Act has no relevance to this case and on the other hand, the question is whether the mortage in favour of the bank during the pendency of the assessment proceedings is void as per section 281 of the Income Tax Act. Therefore, the learned counsel submitted that the order of the learned Judge in holding that in view of section 26E of the SARFAESI Act, the mortgage created in favour of the respondent bank, will not be hit by the rigour of section 281 of the Income Tax Act, warrants interference by this court. 5.3.2.Per contra, according to Mr. Srinath Sridevan, learned counsel for the respondent bank in WA.No.1385 of 2022, section 281 does not obstruct the case of the respondent bank. The learned counsel further submitted that the assessment proceedings were pending with respect to M/s. Betel Exports, whereas the mortgage was executed by the different individual assessees. In https://www.mhc.tn.gov.in/judis W.A. Nos.1512 of 2021, 60, 1249 and 1385 of 2022support of the same, reliance was placed on the decision of the Hon'ble Supreme W.A. Nos.1512 of 2021, 60, 1249 and 1385 of 2022support of the same, reliance was placed on the decision of the Hon'ble Supreme Court in CIT v. A.W.Piggies Messrs & Co. and others , in support of the proposition that the firm and its partners are independent assessees. It is also submitted that there is no provision under the Income Tax Act, which creates charge over the property of the defaulter. Thus, the learned counsel submitted that Section 26E will save the assessee’s case, as it was notified on 26.12.2019 with effect from 24.01.2020. The learned counsel also referred to the judgment in State Bank of India v. State of Maharastra [2020 SCC OnLine Bom 4190], in which, the Bombay High court, relying on the judgment of the Madras High Court in Assistant Commissioner of Commercial Tax & Ors v Indian Overseas Bank & Ors [(2016) 6 CTC 769] held that secured creditor gets priority over the tax dues. Therefore, the learned counsel prayed for dismissal of this writ appeal. 5.4.1.Mr.M.L.Ganesh, learned counsel for the appellant in WA.No.1512 of 2021 submitted that the respondents 4 and 5 viz., Balasubramaniam and Swetha had availed housing loan facility to purchase the secured property and accordingly created equitable mortgage in favour of the appellant Bank on 07.02.2016 and 28.01.2016. However, they failed to repay the loan, which compelled the appellant to issue demand notice under Section 13(2) https://www.mhc.tn.gov.in/judis W.A. Nos.1512 of 2021, 60, 1249 and 1385 of 2022of the SARFAESI Act and thereafter, possession notice under section 13(4), but the sale notice issued by the appellant bank to bring the secured property for auction, could not succeed, since the first respondent / ITO had attached the property with the office of the respondents 2 and 3 for income tax dues on 16.06.2017. Feeling aggrieved, the appellant preferred WP.No.5857 of 2018, which was dismissed by the learned Judge, by holding that the mortgage created in favour of the appellant by the respondents 4 and 5 was void in view of section 281 of the Income Tax Act. Therefore, this writ appeal. 5.4.2.According to the learned counsel for the appellant, though the demand notice was issued on 31.03.2015, the first respondent has chosen to attach the security asset only on 16.06.2017, i.e., subsequent to the purchase of the secured asset by the respondents 4 and 5 on 22.09.2015 and 23.10.2015 and hence, there is no intent on the part of the respondents 4 and 5 to defraud the revenue and there is no illegal transfer or mortgage and the said equitable mortgage in favour of the appellant bank is for valuable consideration covered under proviso to sub section (1) of section 281 of the Income Tax Act. Adding further, the learned counsel submitted that the loan was availed by the respondents 4 and 5, whereas, the assessee in question is a different entity viz., M/s. Beetle Exports in which the respondents 4 and 5 are partners. Admittedly, the property was bought out of loan and thus, the borrowers were not the owners https://www.mhc.tn.gov.in/judis W.A. Nos.1512 of 2021, 60, 1249 and 1385 of 2022of the property as on the date of attachment. Therefore, section 281, which stipulates that any mortgage or transfer is made in any manner, then all such transfers, mortgage, gift, etc, became void, does not apply to this case. Referring to the decision of the Gujarat High Court in TRO v. Industrial Finance Corporation of India and others , the learned counsel submitted that the appellant holds the first charge over the property in view of section 26E of the SARFAESI Act. W.A. Nos.1512 of 2021, 60, 1249 and 1385 of 2022of the property as on the date of attachment. Therefore, section 281, which stipulates that any mortgage or transfer is made in any manner, then all such transfers, mortgage, gift, etc, became void, does not apply to this case. Referring to the decision of the Gujarat High Court in TRO v. Industrial Finance Corporation of India and others , the learned counsel submitted that the appellant holds the first charge over the property in view of section 26E of the SARFAESI Act. 5.4.3.Per contra, the learned standing counsel appearing for the first respondent submitted that the mortgage in favour of the appellant in WA.No.1512 of 2021 was subsequent to notice and thus, it is covered by section 281 of the Income Tax Act. It is also submitted that the judgment of the Gujarat High Court relied on by the appellant has been dissented by a learned Judge of this court in D.S.Sakthivel v. Tax Recovery Officer which referred to its earlier judgments in Palani Gounder (Dead) & Ors v Income Tax Revenue Department [(1998) 229 ITR 59] and Abdul Jamil & Ors v. The Secretary, Income Tax [1998 (1) CTC 547] to hold that mortgage will be invalid when the proceeding is pending. Stating so, the learned counsel prayed for dismissal of this writ appeal. 6. In the above background, the following questions arise for consideration in these appeals: W.A. Nos.1512 of 2021, 60, 1249 and 1385 of 2022 a) What is the nature of taxes and the right of the State to recover the same? b) Whether fiscal/tax legislations provide for a charge in respect of the taxes/revenues that are due; and if so, what are the kind/nature of charges created in fiscal/tax legislations and its status? c) Whether Section 281 of the Income Tax Act only contains a declaration of voidity in respect of transactions falling within its mischief or does it create a charge in respect of any sum payable under the Income Tax Act in favour of the Revenue and what is the scope of operation of Section 281 of the Income Tax Act and its input vis-a-vis Section 26 E of the SARFAESI Act and Section 31 B of the Recovery of Debts and Bankruptcy Actand whether the priority of charge created in favour of the secured creditors under the SARFAESI Act and the Recovery of Debts and Bankruptcy Act would prevail over the declaration of voidity contained in Section 281 of the Income Tax Act or any other recovery proceedings including attachment under the Income Tax Act? 7. We shall now proceed to answer the above questions in seriatim. a)What is the nature of taxes and the right of the State to recover the same? 8.1.The above question has been the subject matter of consideration on numerous occasions including Constitution Benches of the Hon'ble Supreme https://www.mhc.tn.gov.in/judis W.A. Nos.1512 of 2021, 60, 1249 and 1385 of 2022 Court. We do not intend to multiply case laws as the legal position insofar as the above question is well settled. It is axiomatic that power to collect tax is an inherent attribute and an incident of sovereignty. The legislature of every State will possess the power to tax under the general grant of legislative power. Importantly, but for the limitation imposed under the Articles of the Constitution, the power to tax would be unfettered. In other words, the Articles under the Constitution are not the source of power to tax, but serve as limitation on the power to tax which would otherwise be unfettered. W.A. Nos.1512 of 2021, 60, 1249 and 1385 of 2022 Court. We do not intend to multiply case laws as the legal position insofar as the above question is well settled. It is axiomatic that power to collect tax is an inherent attribute and an incident of sovereignty. The legislature of every State will possess the power to tax under the general grant of legislative power. Importantly, but for the limitation imposed under the Articles of the Constitution, the power to tax would be unfettered. In other words, the Articles under the Constitution are not the source of power to tax, but serve as limitation on the power to tax which would otherwise be unfettered. 8.2. Taxes are collected for public good and meant for being used by the Government in discharging its constitutional obligation for public welfare and common public good and to further the directive principles enshrined under the Constitution as held in Srinivasa Theatre and others v. Government of Tamil Nadu and others [1992(2) SCC 643]. In this regard, it may be relevant to refer to the following judgments to appreciate the status and purpose of tax under the Constitution. The relevance and importance of power to tax was examined by the Constitution Bench of 9 Judges in the recent case in Jindal Stainless Ltd v. State of Haryana [(2017) 12 SCC 1] while examining the validity of the Entry Tax and it was held as under: “67.1.………………… A tax is a compulsory exaction of moneyfor general public good and is defined as under byThomas M.https://www.mhc.tn.gov.in/judis W.A. Nos.1512 of 2021, 60, 1249 and 1385 of 2022 Cooleyin his bookThe Law of Taxation at p. 61 (Clark A. Nichols ed., 4th Edn. 1924) as: “Taxes are the enforced proportional contributions from persons and property, levied by the State by virtue of its sovereignty for the support of Government and for all public needs…………….” *** ……………….The power of taxation is said to be an incident of sovereignty, and co-extensive with that of which it is incident.” “112.2. Secondly, because levy of taxes is both an attribute of sovereignty and an unavoidable necessity. No responsibleGovernment can do without levying and collecting taxes for it isonly through taxes that Governments are run and objectives of general public good achieved. Dealing with power of taxation, Cooley says: “Taxes are defined to be burdens or charges imposed by the legislative power upon persons or property, to raise money for public purposes. The power to tax rests upon necessity, and is inherent in every sovereignty. The legislature of every free State will possess it under the general grant of legislative power, whether particularly specified in the Constitution among the powers to be exercised by it or not. No constitutionalgovernment can exist without it, and no arbitraryGovernment without regular and steady taxation couldbe anything but an oppressive and vexatious despotism,since the only alternative to taxation would be a forcedextortion for the needs of Government from suchpersons or objects as the men in power might select as”victims. 8.3.The above extract would clearly show that the power to tax is an inherent part and an attribute of sovereignty and is meant for being used for public welfare. Without taxes, the Government cannot run nor discharge its constitutional obligations set out in the form of Directive Principles of State https://www.mhc.tn.gov.in/judis W.A. Nos.1512 of 2021, 60, 1249 and 1385 of 2022 Policy under Article 39 of the Constitution. In other words, taxes are collected in public interest and the taxes so collected cannot be used for any purpose other than common public good. 9.1. Having dealt with the status and purpose of tax under the Constitution, it may be relevant to examine the priority of collection of taxes. Doctrine of priority of Crown Debts Tax dues are normally referred to as “Crown Debt”. The position insofar as priority of Crown Debt could be summarised as under: public welfare. Without taxes, the Government cannot run nor discharge its constitutional obligations set out in the form of Directive Principles of State https://www.mhc.tn.gov.in/judis W.A. Nos.1512 of 2021, 60, 1249 and 1385 of 2022 Policy under Article 39 of the Constitution. In other words, taxes are collected in public interest and the taxes so collected cannot be used for any purpose other than common public good. 9.1. Having dealt with the status and purpose of tax under the Constitution, it may be relevant to examine the priority of collection of taxes. Doctrine of priority of Crown Debts Tax dues are normally referred to as “Crown Debt”. The position insofar as priority of Crown Debt could be summarised as under: a. The principle of priority of Government debts is founded on the rule of necessity and public policy. b. Between an unsecured creditor and crown debt, it is the crown debt which would prevail as held by the Constitution Bench in the case of Builders Supply Corporation reported in AIR (1965) SC 1061. c. Between a secured creditor and a crown debt, the secured creditor would have priority over the crown debt in the absence of any provision which provides for priority in favour of the State’s claim. d. If the legislation provides for a charge or a priority, then, if the crown debt and the private secured creditor concurs in point of time, the crown debt would prevail. If the private secured creditor is prior in time that would prevail. If the State’s charge is prior in time, then the State’s charge would prevail. https://www.mhc.tn.gov.in/judis W.A. Nos.1512 of 2021, 60, 1249 and 1385 of 2022 e. If a “first charge” or a “priority” is provided/granted under the provisions of the Act or if it is expressly provided to override other claims including that of secured creditors, then it appears that it would be the State which would be entitled to preference even over secured creditors. 9.2. In this regard, it may be relevant to refer to the judgment of the Hon'ble Supreme Court in Dena Bank Vs. Bhikhabhai Prabhudas Parekh and Co. and others [(2000) 5 SCC 694], wherein the Crown's preferential right to recovery of debts over other creditors was explained as under: ''10.However, the Crown's preferential right to recovery ofdebts over other creditors is confined to ordinary or unsecuredcreditors.The common law of England or the principles of equity and good conscience (as applicable to India) do not accord the Crown a preferential right for recovery of its debts over a mortgagee or pledgee of goods or a secured creditor. It is only in cases where the Crown's right and that of the subject meet at one and the same time that the Crown is in general preferred. Where the right of the subject is complete and perfect before that of the King commences, the rule does not apply, for there is no point of time at which the two rights are at conflict, nor can there be a question which of the two ought to prevail in a case where one, that of the subject, has prevailed already. In Giles v. Grover [(1832) 131 ER 563 : 9 Bing 128] it has been held that the Crown has no precedence over a pledgee of goods. In Bank of Bihar v. State of Bihar [(1972) 3 SCC 196 : AIR 1971 SC 1210] the principle has been recognised by this Court holding that the rights of the pawnee who has parted with money in favour of the pawnor on the security of the goods cannot be extinguished even by lawful seizure of goods by making money available to other creditors of the pawnor without the claim of the pawnee being first fully satisfied. Rashbehary Ghose states in Law of Mortgage (TLL, 7th Edn., p. 386) — “It seems a government debt in India is not entitledto precedence over a prior secured debt.” '' https://www.mhc.tn.gov.in/judis (emphasis supplied) W.A. Nos.1512 of 2021, 60, 1249 and 1385 of 2022 9.3. The above position has been reiterated by the Hon’ble Supreme Court https://www.mhc.tn.gov.in/judis (emphasis supplied) W.A. Nos.1512 of 2021, 60, 1249 and 1385 of 2022 9.3. The above position has been reiterated by the Hon’ble Supreme Court time and again and we do not intend to burden the judgment by multiplying case laws except to state that the above view has not been doubted much less a contrary view having been expressed. b) Whether fiscal/tax legislations provide for a charge in respect of the taxes/revenues that are due and if so, what are the kind/nature of charges created in fiscal/tax legislations and its status? 10. Under common law, priority of crown debts would prevail only over unsecured creditors and would not have precedence over a secured debt. It appears that the legislature being conscious of the above limitation, while framing fiscal/taxing statutes, had incorporated provisions providing for a charge over the property of the defaulter, while also declaring that it shall have priority/preferential right for recovery through legislations, which has taken different forms. Barring a few tax legislations, the majority of fiscal/tax legislations have incorporated provisions providing for priority or creating a charge in respect of dues under the said enactment. In this regard, it may be relevant to refer to some of the provisions under the fiscal/tax laws which provide for charges in different forms. However, before that, it may be relevant to note that the provisions of the Central Excise Act, 1944 and the Customs Act, 1962 originally did not contain any provision creating a charge in respect of dues https://www.mhc.tn.gov.in/judis W.A. Nos.1512 of 2021, 60, 1249 and 1385 of 2022 under the said enactments. A Full Bench of this Court in UTI Bank Ltd v. Deputy Commissioner Central Excise [(2006) 5 CTC 801] held that in the absence of any provision creating a charge, the Revenue's right to recovery, must yield to the right of a secured creditor to recover his dues. The relevant portion of the said Full Bench judgment reads as under: “26.In the light of the above discussion, we conclude, (i)Generally, the dues to Government, i.e., tax, duties, etc., (Crown's debts) get priority over ordinary debts. (ii)Only when there is a specific provision in the statute claiming “first charge” over the property, the Crown's debt is entitled to have priority over the claim of others. (iii)Since there is no specific provision claiming “first charge” in the Central Excise Act and the Customs Act, the claim of the Central Excise Department cannot have precedence over the claim of secured creditor, viz., the petitioner Bank. (iv)In the absence of such specific provision in the Central Excise Act as well as in Customs Act, we hold that the claim of secured creditor will prevail over Crown's debts.” In view of our above conclusion, the petitioner UTI Bank, being a secured creditor is entitled to have preference over the claim of the Deputy Commissioner of Central Excise, first respondent herein.” 11. At this juncture, it may be relevant to note that a specific provision creating a first charge in respect of the dues under the Central Excise Act, 1944 and the Customs Act, 1962, was inserted after the above order of the Full Bench of this Court. The said provision under the Customs Act reads as under, similar https://www.mhc.tn.gov.in/judis W.A. Nos.1512 of 2021, 60, 1249 and 1385 of 2022 provision introduced under the Central Excise Act is not extracted to avoid being repetitive as the provision under the Central Excise Act is identical. In view of our above conclusion, the petitioner UTI Bank, being a secured creditor is entitled to have preference over the claim of the Deputy Commissioner of Central Excise, first respondent herein.” 11. At this juncture, it may be relevant to note that a specific provision creating a first charge in respect of the dues under the Central Excise Act, 1944 and the Customs Act, 1962, was inserted after the above order of the Full Bench of this Court. The said provision under the Customs Act reads as under, similar https://www.mhc.tn.gov.in/judis W.A. Nos.1512 of 2021, 60, 1249 and 1385 of 2022 provision introduced under the Central Excise Act is not extracted to avoid being repetitive as the provision under the Central Excise Act is identical. “142A. Liability under Act to be first charge.—Notwithstanding anything to the contrary contained in any Central Act or State Act, any amount of duty, penalty, interest or any other sum payable by an assessee or any other person under this Act, shall, save as otherwise provided in section 529A of the Companies Act, 1956 (1 of 1956), the Recovery of Debts Due to Banks and the Financial Institutions Act, 1993 (51 of 1993) and 2 [the Securitisation and Reconstruction of Financial Assets and the Enforcement of Security Interest Act, 2002 (54 of 2002) and the Insolvency and Bankruptcy Code, 2016 (31 of 2016).] 12.1. It may also be relevant to take note of some of the other tax legislations, wherein, a statutory charge has been created in respect of the tax dues under the respective enactment, which are as follows: Madhya Pradesh General Sales Tax Act, 1958: “33-C. Tax to be first charge.— Notwithstanding anything to the contrary contained in any law for the time being in force, any amount of tax and/or penalty, if any, payable by a dealer or other person under this Act shall be a first charge on the property of the dealer or such person.” Section 11-AAAA was introduced in the Rajasthan Sales Tax Act, 1954 b