V.P Mohan Kumar, J.:—

The dispute in this Writ Petition centers on the scope of Section 281 of the Income Tax Act (for short ‘the Act’, 1961). The petitioner alleges that they have secured a tender for the execution of a work of 99.72 million U.S Dollars magnitude and the same is to be financed by Foreign and Domestic debt and in that behalf, the petitioner approached two financial institutions, namely, Industrial Development Bank of India, IDBI and the State Bank of India. It is further alleged by the petitioner that when approached, as there was certain Income Tax raid in the premises of a concern of which some of the Directors of the petitioner concern and they were common, these institutions required the petitioner to submit a No Objection Centrificate (NOC for short), issued by the Income Tax Department permitting the petitioner to hypothicate/pledge the properties. Accordingly, the petitioner submitted Annexure A application on 20.8.1998 under Section 281 of the Act, before the assessing officer after filing a nil return, on the same day. On the basis of the return and the application, a certificate Annexure B dated 21.8.1998 was issued to the petitioner. Later, Annexure C was issued by the Officer on 7.9.1998 revoking the certificate without assigning any reasons. The said action of the authority is subject matter of challenge in this proceedings. The petitioner alleges that similar certificates had been issued earlier to the petitioner and that the same had not been revoked as in the instant case. He alleges that the action is vitiated by malafides and the circumstances that the cancellation order Annexure C was communicated to the IDBI and SBI is cited as an instance to demonstrate the malafide intention, on the part of the respondent.

2. The facts are not in controversy. The defence contention, inter alia, is that the certificate issued is vitiated by mistake, that the respondent has inherent power to rectify the mistake, that under Section 21 of the General Clauses Act the respondent has power to revoke the certificate when it is noticed that there is an error vitiating the exercise of the power, that all relevant facts were not placed before the authorities while applying for the certificate, that there was suppression of material and relevant facts, that the petitioner should have disclosed the details of the raid in the application itself that on merits the petitioner is ineligible to get the certificate under Section 281 of the Act.

3. I have heard Mr. M.R Naik, Learned Counsel for the petitioner and Mr. Indra Kumar for the Department at length.

4. Section 281 of the Act, reads as follows:

“281. (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 proceedings 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 proceedings 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 Officer.

(2) This section applies to cases where the amounts of tax or other sum payable or likely to the payable exceeds five thousand rupees and the asserts charged or transferred exceed ten thousand rupees in valued.

Explanation: In this section, “assets” means land, building, machinery, plant, shares, securities and fixed deposits in banks, to the extent to which any of the assets aforesaid does not form part of the stock-in-trade of the business of the assessee.

5. The section if recast, with reference to the permission being secured as contemplated under proviso (ii) of the Section would be as hereunder:

“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, without the previous permission of the assessing authority, 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 proceedings or otherwise.

6. The main ingredient of the section, shorn of the details, is that any transfer of the kind referred to therein affected by an assessee while a proceeding is pending under the Act or before issuance of Rule 2 notice would be void as against the Department except in two circumstances provided for in the provisos. Once such exception, with reference to which we are concerned, is the circumstance when the alienation is effected with prior permission of the assessing officer. Therefore, by statutory operation, it declares that if an assessee deals with his property in any of the manner referred to in the section, it would be void as against the Department; but this eventuality can be warded of only if he secures prior permission from the Department. In other words, the section operates as a statutory injunction against the assessee restraining him from alienating any of his properties and in the absence of the conditions mentioned in the provisos existing, the alienation would not convey any title. The implication of Section 281 is that, an assessee owning several items of properties transfers one of them which transfer is otherwise not protected by the provisos to the Section such transaction is rendered void regardless of the circumstance that there are other items of properties held by him to indemnify the Department. Thus a person dealing with the property of such an assessee in any manner would be protected only if the assessee has been permitted to do so or that person is a bonafide transferee without notice of the liability to pay tax or the proceeding under the Act or the Rule. In other words, when such an NOC is issued, the property would stand removed outside the reach of the Department and the statutory protection enjoyed by the Department would stand withdrawn.

7. This takes us to the next stage of inquiry. A need for such a certificate would be insisted only if the transferor discloses to the transferee that either he is an assessee or that a proceeding against him is pending under the Act. A person who is not an assessee or a person against whom no proceedings are pending against him under the Act, cannot be called upon to produce NOC from the Department. Such a person would not be entitled to receive a certificate either. Hence, the applicant is bound to disclose all materials relating to him vis-a-vis the Income Tax Department to the financing institutions, it is stated in the Writ Petition that the financing institution demanded the NOC from the petitioner only when they became aware of the alleged search. In other words, they demanded the NOC when they suspected that certain proceedings under the Income Tax Act were pending against the petitioner. Admittedly, at the relevant time the petitioner was not an assessee and the petitioner could not have represented to them that he is an assessee. Therefore, the circumstance of the search alone alerted the financing institutions to insist on the need for NOC. If that be so, was there not a requirement on the part of the petitioner to have disclosed the alleged raid as well to the respondent while making the application under the Section 281 of the Act? Annexure A is the application made by the petitioner and the same is totally silent in regard to these details. The respondent has to take into account various consideration to decide objectively whether a permission be granted, to the applicant under Section 281 of the Act to deal with the property in any manner he likes. Such information may also include the financial liquidity of the assessee to off set any subsisting or future demand of the Department. As such, all information needed and would be relevant to facilitate to take decision by the Assessing Officer are relevant materials to be disclosed by the applicant. Whether the disclosure of the search would have made any difference, (in view of the allegation that the petitioner is no way connected with the institution raided) is a different issue. If disclosed, that circumstance would be dealt with by the Officer independently on the merits of the allegations. All that, that has to be noted is that a material fact was concealed by the petitioner from the notice of the Assessing Officer. Mr. Naik submitted that as the details of all raids would be communicated to the Assessing Officer, such information of the raid would be within the knowledge of the Department. But, the learned Counsel, is forgetting the basic fact that the information would have been thus conveyed only if the person raided is an assessee on the file of any particular officer and not otherwise. In this case, the petitioner was not an assessee at all on the date of the search even if it is assumed that the petitioner had anything to do with the search. Thus there was no disclosure of material facts while the petitioner submitted Annexure A application.

8. Mr. Naik raised an alternative contention that since the petitioner has filed a ‘nil’ declaration as contemplated under Section 142 of the Act, the assessment proceedings is set in motion and therefore the petitioner has attained the status of an assessee and therefore in view of Section 158(BD) the factum of search should be deemed to be within the knowledge of the assessing officer. He hence contends that, in such a circumstance, it cannot be inferred that there was any material suppression. But factually, this principle cannot apply in this case as, as could be seen here, the filing of the return and issuance of the certificate Annexure A were almost simultaneous.

9. Mr. Naik submitted that the order is vitiated by malafides in that the Department had issued similar certificate shortly before the impugned proceedings and therefore the cancellation of the later certificates lacks in bonafides. Besides, according to him, want of good faith, is further demonstrated from the circumstance that the cancellation was intimated to the financial institutions from where the petitioner intends to borrow as well. This, according to the counsel demonstrate the malafide intention behind the action. I do not think that this contention can be accepted. In the first place, the earlier certificate was issued long before the search and besides, subsequent thereto there can be change of situation as well. The Department has to keep in mind this fact. Secondly, the conduct of the Department in communicating the cancellation of Annexure A to the financial institutions is also proper, because the earlier certificate was intended to be produced before them; if so, it is necessary that the revocation of the certificate is communicated to all persons who would have otherwise relied and acted on Annexure A certificate. These factors do not spell out any malafides as attempted to be made out.

10. The question then is whether the Assessing Officer has a right to decline the issuance of a certificate or permission sought for by an assessee or a person against whom a proceedings is pending under Section 281 of the Act. We have seen that the Section declares all transaction coming within the purview of that section to be void. In this context, we may advert to Section 53 of the Transfer of Property act which is also a comparable section in regard to the object desired to be achieved. Section 53 of the T.P Act was also intended to achieve similar end. But the cardinal distinction is that, therein the Section merely declares that the infringing transaction would be only voidable at the instance of the creditor so defeated by the Trasfer. It means, the creditor can elect not to invalidate the transfer and if so, desired, proceed against other properties of the transferor. That brings in a sea of change in the consequence that be falls in each case. After the amendment to Section 53 of the T.P Act in 1929, as it now stands, the following paragraphs in Section 53 was delated.

“Where the effect of any transfer of immovable property is to defraud, defeat or delay any such person, and such transfer is made gratuitously or for a grossly inadequate consideration, the transfer may be presumed to have been made with such intent as aforesaid.”

The effect of the deletion is that the presumption that the transaction mas intended to defraud the creditors is absent; it has become necessary now to the creditor to prove that such was the intention of the transferor. Under general law, the burden to prove the fradulent nature of the transaction vests in he who asserts that animus i.e, on the creditor. By the 1929 amendment to Section 53 that positions restored. But, Section 281 departs from this rule and dispenses with burden of proof and statutorily declares that any such transaction affected to be void while proceedings under the Act is pending or when tax has fallen due. In other words, the paragraph omitted from Section 53 of the T.P Act is engrafted in Section 281 of the Income Tax Act. The result is that the said provision has a drastic and far reaching effect crippling the right of an individual with respect to the enjoyment of his property. Unlike Section 53 as it stand now, if the transferor has other properties to safeguard the interest of the creditor, then any particular transaction can be saved; but such a saving do not exist in the case of Section 281 of the Act. It has thus a sweeping operation. The transferor is not put to notice specifically of this total invalidation of his transfer and the consequence be falls on him by operation of law. If so, the authority who is bestowed with the power to grant or refuse permission should do so with great circumscription. The said power cannot be exercised in a cavalier manner. Clear and convincing reasons should exist as to why the permission sought for cannot be granted. It may be noticed, that as per proviso (i) to Section 281 any bonafide transfer without notice of the pendency of proceedings or without notice of demand to pay tax and effected for valuable consideration is saved. If so, the statute itself postulates a situation where an alienation can be saved. Hence, while dealing with an application for permission the Assessing officer can consider whether a permission can be granted in the event the applicant makes sufficient safeguard to indemnify all or any liability that might fall due to the Department from the assessee. An application for permission sought for under Section 281 of the Act cannot be summarily rejected merely because a proceeding under the Act is pending against the applicant or any tax liability is due from the applicant. If the Assessing Officer is satisfied that the applicant can take care of the existing liability or the future liability that may arise, then, the application for permission cannot be turned down for those reasons. Hence, granting the permission is the rule, while refusal is an exception. Hence, keeping the above parameters in mind the Assessing Officer may deal with the application of the applicant who is entitled to a fair consideration of his application for permission under Section 281 of the Act.

11. The next question is regarding power of the respondent to cancel the certificate already granted. Any authority in whom a power is vested, exercises the said power on insufficient information, has an inherent power to rectify the defect. To deny such power to the authority would be recognizing the right of the grantee to take advantage of his own wrong. Nunllus cornmodium capers potest de njuria sua propria (no man can take advantage of his own wrong), there is no need to refer to Section 21 of the General Clauses Act to trace the power, and as rightly contended by the learned Counsel for the petitioner Mr. Naik, that section would not save the right of the respondent to cancel Annexure A as well. In this case, we may notice that, what is now being sought to be enforced by the petitioner 3 Annexure A; but that certificate was secured by the petitioner on urnishing insufficient information. If so, since no right of action can be founded on ones own wrong this Court cannot, in exercise of its jurisdiction under Article 226 of the Constitution come to aid of the petitioner. If so, if once it is noticed that the respondent has exercised he powers vested in him improperly, then the respondent has inherent power to set right that illegality. Such inherent powers vest with every authority exercising such powers. In such circumstances, has to be held that the right of the department exists to set right ts own errors committed by it due to withholding of material information by the applicant.

12. The learned Counsel for the petitioner has pointed out that he Department has not prescribed any format to make the application to secure the NOC under Section 281 nor have they framed any rules in that behalf to indicate what all details have to be furnished by an applicant to secure a NOC under Section 281. As such it is contended that the petitioner cannot be blamed of withholding any information. No doubt, this is so; but that does not excuse the applicant from disclosing all information relevant and material for he Officer to form an opinion on the requests of the petitioner to ??? the protection enjoyed by the Department under Section 281 of the Act. In short, the application for a certificate under Section 81 of the Act should neither be vitiated by suppressio veri nor uggestio falsi.

13. The question then is, whether the Department has a unilateral ght to cancel the certificate thus already issued. We have seen that the scope of Section 281 in a given circumstance is to interdict, he right of an individual to deal with his property as its full owner. The statute itself recognizes his right to do so subject to securing prior permission. The seeking of such a permission is hence a statutory right enjoyed by the applicant. If so, any such application should be dealt with transparency. The same cannot be declined for undisclosed reasons. The applicant should be made aware of the materials against him which the Department considers relevant while dealing with his request for the certificate. And when it comes to the question of revocation of a certificate already issued, he has a right to show cause and it necessary, to be heard as well as to why such certificate should be granted or if granted, not revoked. There cannot be an arbitrary denial of the said certificate on a subjective formation of the opinion. Any order being issued in that behalf declining the certificate, should be on ascertainable grounds and not by a cryptic one line order as in the instant case. The simple result of the refusal of the certificate is that the individual looses his civil right to deal with his own property and he cannot arrange his own affairs and he cannot convey any indefeasible title to his alienee. This is a very serious consequence that befalls on any owner any immovable property. As such, such property right of an individual cannot be lightly dealt with by the Department in a cavalier manner.

14. In this case, the statement of objection of the respondent shows that according to them, Annexure A is an ultra vires exercise of an intravires power; but it is yet to be demonstrated as such. The respondent cannot supplement the reason for the revoking of the certificate for the first time in the statement of objections. Those reasons should find a place in the impugned order itself. Therefore, as the respondent has not heard the petitioner before issuing Annexure C order and the materials proposed to be relied on against the petitioner were not disclosed to them, there is an infraction of the rule of audi alterm partem. As such it is demonstrated that Annexure C is an ultravires exercise of an intravires power. The civil right of the petitioner cannot be arbitrarily taken away even without him being heard. Annexure C is therefore liable to be quashed. I do so.

15. Now as the respondent has set out certain circumstances in the statement of objections, which needs investigation the respondent will issue a show cause notice to the petitioner disclosing the circumstances in detail proposed to be relied on to vary Annexure B certificate and after granting the petitioner an opportunity to submit objections if any, and after hearing the petitioner pass a speaking order in the event it intended to cancel the certificate. Till a final order is passed by the respondent, the operation of Annexure B shall stand suspended.

16. Now, as the incumbent officer who issued Annexure C has already taken a view in the matter, the authorities will designate another officer of corresponding rank to deal with the case of the petitioner.

17. The writ petition stands disposed of as above.