Section 34 Of UP Trade Tax Act Would Only Be Applicable When Transfer Is Made With Intention To Defraud Revenue- SC
The Supreme Court while interpreting Section 34 of the UP Trade Tax Act has held that the said provision shall only be applicable in cases where the assessee has transferred the immovable property with the intent of defrauding the revenue.
*Section 34 of the Act: Transfer to defraud revenue void- "(1) Where, during the pendency of any proceedings under this Act, any person liable to pay any tax or other dues creates a charge on, or transfers any 1[movable or immovable] property belonging to him in favour of any other person with the intention of defrauding any such tax or other dues, such charge or transfer shall be void as against any claim in respect of any tax or other dues payable by such person as a result of the completion of the said proceedings;
Provided that nothing in this section shall impair the rights of a transferee in good faith and for consideration.
(2) Nothing in sub-section (1) shall apply to a charge or transfer in favour of a banking company as defined in the Banking Regulation Act, 1949, or any other financial institution specified by the State Government by notification in this behalf."
The Bench of Justice MR Shah and Justice Krishna Murari observed –
"The power of Section 34 can be exercised only in a case where the transfer of immoveable property belonging to the original assessee is made during the pendency of any proceedings under the Act and such transfer is found to be with the intention to defraud any such tax and other dues."
An appeal was preferred by the Revenue before the Supreme Court assailing the judgment of the Allahabad High Court which had confirmed the orders of the Trade Tax Tribunal which had held that recovery certificate issued in the name of original assessee could not be proceeded against the purchaser.
In this case, the assessee was in arrear f Rs. 11,28,877/ and Rs. 53,89,035/ of trade tax for the year 1980-81 and 1981-82, respectively. The recovery proceedings were initiated against the original assessee. The recovery certificate was issued. The plant, machinery and the goods belonging to the original assessee came to be purchased by respondent-purchaser for a total consideration Rs. 12,12,000/-.
The AO found that the transfer of aforesaid property was affected by the original assessee at the time when the assessment proceedings were pending and the Assessing Officer found that the said transactions in favour of the purchaser were for the purpose to defraud the Revenue.
Therefore, in exercise of powers under Section 34 of the U.P. Trade Tax Act the recovery certificate issued in the name of original assessee was endorsed by the Assessing Officer treating the aforesaid transfers void to be recovered the amount from the purchaser in same way as it had to be recovered from the original assessee.
The Apex Court noted, "Section 34 of the Act shall be applicable only in a case where there is a transfer of immovable property belonging to the original assesee, during the pendency of any proceedings under the Act with the intention of defrauding any such tax or other dues. As per proviso to Section 34, nothing in Section 34 shall impair the rights of a transferee in good faith and for consideration."
Further it was also held, "As observed hereinabove, the assessment proceedings were concluded in the year 1984 and the same was reopened in the year 1988. The recovery certificate was issued against the original assessee on 15.04.1990. Thus, at the time of transfer of immoveable property of the assessee which was for value/consideration, no proceedings under the Act were pending, Section 34 of the Act shall not be applicable."
Thus, the Bench held that no error was committed by High Court in dismissing the revision applications confirming the orders passed by the Trade Tax Tribunal setting aside the endorsement of recovery certificate issued in favour of original assessee against the purchaser.
Accordingly, the Court dismissed the appeals
Cause Title - The Commissioner, Trade Tax, U.P. v. M/s Radico Khetan Ltd.