TMI Blog1976 (2) TMI 146X X X X Extracts X X X X X X X X Extracts X X X X ..... -------------------------------------------------- The judgment of the Court was delivered by FAZAL ALI, J.- This is an appeal by special leave against the judgment of the Andhra Pradesh High Court dated December 2, 1974, and arises under the following circumstances: Itikala Kollayya and his brother-in-law Kovvuru Narasimhaiah constituted a partnership firm dealing in foodgrains. The firm carried on the business in the name and style of "Kovvuru Narasimhaiah and Itikala Kollayya". The firm, however, stood dissolved in 1963. The firm appears to have been in serious financial difficulties and incurred debts to the tune of about Rs. 70,000. The creditors filed an insolvency petition but the petition was ultimately dismissed because it was held that the firm had no means to discharge the debts. Subsequently, the business was started in the name of B. V. S. Rao, son of Bala Seshaiah. After the death of Itikala Kollayya his son Bala Seshaiah and his son B. V. S. Rao carried on joint Hindu family business. In fact B. V. S. Rao applied on May 8, 1966, for a certificate of registration to the sales tax department of the State and was given the same. B. V. S. Rao who was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be raised that the trust was a fraudulent transaction. We are, however, unable to press this inference too far in view of the reasons which we shall give hereafter. It appears that on May 26, 1969, B.V.S. Rao informed the sales tax department that he had stopped the business with effect from August 1, 1968, and despite this fact the sales tax department went on making assessment orders in the name of B. V. S. Rao. Further on January 17, 1968, the Deputy Commercial Tax Officer while making the assessment order had stated that the business was being carried on as joint family business by Bala Seshaiah the father of B. V. S. Rao. It appears that on September 16, 1968, Itikala Kollayya and Kovvuru Narasimhaiah, i.e., the partners of the dissolved firm, executed a registered deed of trust by which the properties mentioned in Schedule B were vested in the trustees for the purpose of paying off the creditors who were named in Schedule A of the trust deed. Thirteen persons were named in Schedule A. According to the assessees, the creditors mentioned in Schedule A had obtained decrees against the settlors and it was for the purpose of discharging the previous debts of those credit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... admitted facts does not appear to have been considered either by the sales tax authorities or even by the High Court. Merely because the joint Hindu family had earned liability to pay sales tax it had been inferred by the High Court as also by the sales tax authorities that the registered deed of trust executed on September 16, 1968, about three years before the actual assessments were made in the name of the joint Hindu family was a colourable transaction. Learned counsel for the appellants, Mr. M. C. Bhandare submitted that the petitioners were merely trustees who were to discharge the debts of the creditors mentioned in Schedule A. The moment the trust deed was executed by Kollayya and Narasimhaiah the title to those properties vested in the trustees and thus put beyond the reach of the sales tax department. It cannot be said in the circumstances that the trustees were holding the properties either on account of or on behalf of the joint Hindu family, because they had acquired an independent title under the trust. In our opinion, the contention put forward by the learned counsel for the appellants is sound and must prevail. The learned counsel appearing for the respondent, how ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the person or property of another, or (e) the court regards it as immoral or opposed to public policy.........." The object of the trust is neither forbidden by law, nor does it defeat any legal provision, nor it can be said to be fraudulent ex facie. In these circumstances the view taken by the High Court or the sales tax authorities that the trust executed in favour of the petitioners was fraudulent or unlawful cannot be accepted. The other question raised by Mr. Ram Reddy, the learned counsel for the respondent, was that the trust is hit by section 53 of the Transfer of Property Act, 1882, the relevant portion of which runs thus: "53. (1) Every transfer of immovable property made with intent to defeat or delay the creditors of the transferor shall be voidable at the option of any creditor so defeated or delayed." Before analysing the ingredients of the section mentioned above, it may be necessary to state the admitted facts: (1) that at the time when the trust was executed no assessment order against the joint Hindu family which was managed by one of the executants of the trust had been passed. Thus there was no real debt due from one of the executants of the trus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Pwa May v. S. R. M. M. A. Chettiar Firm A.I.R. 1929 P.C. 279 at 281., where the Judicial Committee observed as follows: "A debtor is entitled to prefer a creditor, unless the transaction can be challenged in bankruptcy, and such a preference cannot in itself be impeached as failing within section 53." The learned counsel for the appellants relied on a decision of the Gujarat High Court in Sampatraj Chhogalalji v. V. S. Patel, Sales Tax Officer[1966] 17 S.T.C. 29 at 34., where a Division Bench of the High Court observed as follows: "The effect of the assignment is to create a valid title in the trustees and a valid and enforceable trust for the benefit of the creditors as soon as the deed has been executed and the creditors have assented to it. It is thus clear that under the said deed of arrangement, the petitioners as trustees became the legal owners of the properties assigned to them, holding the trust premises upon trust to collect them in the first instance and after selling them to distribute the sale proceeds thereof rateably amongst the various creditors, a list of whom was annexed to Schedule 11 to the deed of arrangement. It follows, therefore, that the trustees we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Tax Act is to follow up the money due to the sales tax department in the hands of either the assessee or any person who may be holding the money on behalf of the assessee. The section, however, does not empower the sales tax department to follow the money in the hands of a bona fide transferee from the assessee even before the dues have accrued. There can be no doubt that the sales tax authorities had the power to determine in a summary fashion as to whether or not the petitioners were holding the monies on behalf of the assessee, but the enquiry would be limited to this question only and cannot be projected further. Where a transfer is made by the assessee after the assessment order has been passed against him in favour of persons who are either relatives or friends of the assessee and the said transfer prima facie appears to be colourable or fraudulent, it is open to the sales tax department to ignore such a transaction and proceed against the transferee on the basis that the transaction is a sham one and no title has in fact passed under the transfer. But this is quite different from proceeding against a transferee who has acquired an independent title under the transfer eve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the trustees could not be unaware of the tax liability or the amount due at the time when the trust deed was executed. This tax liability was the first charge on the property and its sale proceeds. Therefore, the creation of the deed and subsequent sale of the property on January 10, 1971, for liquidation of the supposed debts of the trustees and other creditors was merely a device to evade the payment of arrears of sales tax due to the Government. Our attention has been invited in this connection to the order dated November 13, 1972, of the Deputy Commercial Tax Officer. The contention is devoid of force. As rightly pointed out by Mr. Bhandare, when the impugned notice dated July 20,1970, was issued to M/s. Uma Traders with copy to Itikala Kollayya Setty by the respondent, the tax had not been quantified; the assessments were made subsequently. So long as the tax had not been assessed and quantified, it could not be said that any specific debt due to the revenue from the assessee had come into existence. The question of such a non-existent debt, being a first charge on the property at the date of the execution of the trust deed, did not arise. The contention of the respondent o ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
