TMI Blog1963 (4) TMI 64X X X X Extracts X X X X X X X X Extracts X X X X ..... sident of Nandyal, carried on business in yarn, drugs and forward contracts. He acquired in that business a considerable estate which was treated by him as property of the joint family of himself and his sons. Nagappa and his sons were assessed by the incometax authorities to pay income-tax and super-tax in the status of a Hindu undivided family as set out in the following table : Year of account order Year of assessment Date of ending Income-tax and super-tax assessed. A. 24-3-44 1944-45 25-2-48 51,116 14-3-45 1945-46 25-2-48 21,452 2-4-46 1946-47 31-3-48 21,012 Besides this amount of income-tax and super-tax, he was assessed to pay penalty and excess profits tax aggregating to Rs. 26,602. The total amount of tax due for the three years of assessment 1944-45, 1945-46 and 1946-47 aggregated to Rs. 1,23,233-5-0. Nagappa did not pay the tax. The revenue authorities of the Province of Madras, at the instance of the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... defendants 5 to 28) contended that there was no invalidity in the proceedings for assessment of tax and that they having purchased those properties for the full amounts for which they were sold, sales in their favour though not confirmed were binding upon the plaintiffs. Suit No. 52 of 1950 was tried with another suit being Suit No. 54 of 1949 of the same court in which also the validity of the partition dated March 14, 1947, fell to be determined, between the sons of Nagappa and the firm of Kumaji Sare Mal who were creditors under a money decree against Nagappa. The facts which gave rise to that suit are these : Kumaji Sare Mal filed Suit No. 7 of 1944 in the Court of the Subordinate Judge, Anantpur, against Nagappa for a decree for Rs. 10,022-10-6 due at the foot of certain transactions in yarn. This suit was dismissed by the trial court on the ground that the contracts for the supply of yarn were wagering contracts, but in Appeal No. 174 of 1945 the High Court of Madras decreed the suit on March 5, 1947, holding that the contracts giving rise to the liability though speculative were not of a wagering character. The High Court passed a decree for Rs. 10,000 with interest at 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he joint family property of the plaintiffs and Nagappa. In Suit No. 54 of 1949, the learned judge held following Schwebo K. S. R. M. Firm v. Subbiah alias Shanmugham Chettiar I. L. R. [1945] Mad. 138, that after a partition between members of the joint Hindu family the sons' share in the joint family property cannot be proceeded against in execution so as to enforce the pious obligation of the sons to satisfy their father's debts under a decree passed against the father alone. The learned judge accordingly decreed Suit No. 54 of 1949 holding that the only remedy of the firm, Kumaji Sare Mal, was to proceed by a suit to enforce the pious obligation of the plaintiffs to discharge the pre-partition debts. The plaintiffs appealed against the decree in Suit No. 52 of 1950 to the High Court of Madras and the Union filed cross-objections to the decree appealed from. Firm Kumaji Sare Mal also appealed against the decree dismissing their Suit No. 54 of 1949. The High Court of Andhra Pradesh to which the appeals stood transferred for hearing under the States Reorganization Act, 1956, held agreeing with the trial court that a suit to set aside the assessment of income-tax was not maintainab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... harge in respect of the income of the year of assessment as measured by the income of the previous year. Second, the rate of tax for the year of assessment may be fixed after the close of the previous year and the assessment will necessarily be made after the close of that year. But the liability to tax arises by virtue of the charging section alone, and it arises not later than the close of the previous year, though quantification of the amount payable is postponed. " Liability of the Hindu undivided family of Nagappa and his sons, therefore, arose not later than the close of each account year and account period for which the tax was assessed and it is not the case of the plaintiffs that the family estate was partitioned before the liability of the undivided family to pay tax arose. There is no dispute in the suit filed by the plaintiffs against the Union that the business carried on by Nagappa was the business of the joint family. It is on the footing that the business carried on by Nagappa was of the joint family, and the income earned in the conduct of the business and the property was joint family income, that the plaintiffs have filed this suit. Under section 25A of the I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the year of account but was no longer in existence as such at the time of assessment. The difficulty was the more acute by reason of the provision-an important principle of the Act-contained in section 14(1) : ' The tax shall not be payable by an assessee in respect of any sum which he receives as a member of a Hindu undivided family '. Section 25A deals with the difficulty in two ways, which are explained by the rule, applicable to families governed by the Mitakshara, that by a mere claim of partition a division of interest may be effected among coparceners so as to disrupt the family and put an end to all right of succession by survivorship. It is trite law that the filing of a suit for partition may have this effect though it may take years before the shares of the various parties are determined or partition made by metes and bounds. Meanwhile the family property will belong to the members as it does in a Dayabhaga family-in effect as tenants in common. Section 25A provides that if it be found that the family property has been partitioned in definite portions, assessment may be made, notwithstanding section 14(1), on each individual or group in respect of his or its share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommittee observed : "the only remedies open to the taxpayer, whether in regard to appeal against assessment or to claim for refund, are to be found within the four corners of the Act. This view of his rights harmonises with the provision of section 67, that no suit shall be brought in any civil court to set aside or modify any assessment made under the Act. It is the Act which prescribes both the remedy and the manner in which it may be enforced. " The suit filed by the plaintiffs against the Union must, therefore, fail on three independent grounds, each of which is sufficient to non-suit them. (1) The suit which was in substance one for setting aside an assessment was in law not maintainable because of section 67 of the Indian Income-tax Act ; (2) That in the absence of an order under section 25A(1) assessment of the Hindu joint family was properly made ; and (3) Even if an order recording partition was made the liability of the plaintiffs to pay income-tax assessed on the family could still be enforced against them jointly and severally under section 25A(2), proviso. The plea of irregularity in holding the sale proceedings set up in the trial court was negatived by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... intiffs' mother-deposed that the properties had been purchased for the plaintiffs by her mother, Seshamma, " with the money given to Seshamma " by her husband. This money according to Narayanamma was given to Nagappa and Nagappa paid it to the vendors in the presence of the Sub-Registrar. But this story stands wholly discredited by her admission that Seshamma's husband and his brothers were joint in business and estate till the former's death. Again there is on the record a statement made by Seshamma, before the income-tax authorities, wherein she had stated that when her husband died, she might have had with her about Rs. 4,000 to Rs. 5,000 which she gave to her daughter. Nagappa was questioned in regard to this statement and he suggested that the statement was obtained by coercion from Seshamma by the income-tax authorities. The story that Seshamma owned a large amount of cash is not supported by any documentary evidence and it is difficult to believe that a trading family would not have invested the amount, if it was in truth devised to Seshamma by her husband. In crossexamination Narayanamma altered her version. She stated that Seshamma's uncle had left everything to her as he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o versions-one by the plaintiffs who alleged that the consideration for the sale deed was supplied by Seshamma. That version, for reasons already stated, cannot be accepted. On the other hand there is the version that the funds belonged to the joint family of which Nagappa was the manager and that Nagappa paid the consideration. No documentary evidence in support of either version is forthcoming ; even Nagappa's accounts have not been produced. But if the monies were actually paid by Nagappa and the story about Seshamma having provided the amount be disbelieved, it would be a legitimate inference consistent with probability that Nagappa had for purchasing the property provided the funds out of the joint family earnings. It appears that Kumaji Sare Mal, who are the respondents in Appeal No. 642 of 1961, had in the suit filed by them in 1942 obtained an order for attachment before judgment over the immovable property of the joint family in the hands of Nagappa. This attachment before judgment was outstanding at the date of the sale deed, exhibit A-230. This order for attachment before judgment was vacated when the suit was dismissed by the trial court on August 31, 1944. This circums ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 138, held that the son's share in the property cannot be proceeded against in execution, as the division of status brought about by the partition will stand, notwithstanding the avoidance of the partition as a fraudulent transfer. This was reaffirmed in a Full Bench judgment of the Madras High Court in Katragadda China Ramayya v. Chiruvella Venkanraju A. I. R. 1954 Mad. 864, where the court held : " A son under the Hindu law is undoubtedly liable for the pre-partition debts of the father which are not immoral or illegal. If a decree, however, is obtained against the father alone, and there is a partition of the family properties, in execution of such a decree, the son's share cannot be seized by the creditor as by reason of the partition the disposing power of the father possessed by him over the son's share under the pious obligation of the son to discharge the father's debts can no longer be exercised. With the partition, the power comes to an end. The liability thereafter can be enforced only in a suit. After partition, the son's share can no longer be treated as property over which the father had a disposing power within the meaning of section 60, Civil Procedure Code. " On ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upon a large number of circumstances in support of its view that the partition was nominal. The deed was executed within a week after the decree was passed by the High Court in Kumaji Sare Mal's suit. Nagappa had acquired an extensive property which was on acquisition treated as joint family property and there was nothing to show that Nagappa was ill-disposed towards his sons or was actuated by any desire to harm their interest. The real purpose of the partition was to save as much property as possible and to preserve it for his children. The deed of partition showed apparently an equal distribution of property valued at Rs. 1,24,600 into four shares each of the value of Rs. 31,150, but the properties allotted to the share of Nagappa were in reality not worth that amount. Nagappa had also to discharge a debt for Rs. 12,236-4-9 for which he was rendered liable under the deed and that debt could not be satisfied out of the property allotted to him. Again immediately after the deed of partition, Nagappa settled upon his wife, Narayanamma, a major fraction of that share and sold away one of the houses. The intention of Nagappa to make it appear to the income-tax department that no use ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the evidence of Singari Seshanna, D. W. 1, that it was Nagappa who continued to remain in management. It is true that the plaintiffs have led evidence of two witnesses, P. W. 6 and P. W. 7, who have deposed that they had assisted in making the partition. The deed of partition was undoubtedly executed and was registered, but the mere execution of the deed is not decisive of the question whether it was intended to be effective. The circumstances disclosed by the evidence clearly shows that there was no reason for arriving at a partition. Counsel for the plaintiffs practically conceded that fact, and submitted that Nagappa's desire to defeat his creditors, and to save the property for his sons, was the real cause for bringing the deed of partition into existence. Counsel claimed however that Nagappa had adopted the expedient of effecting a partition with the object of putting the property out of the reach of his creditors, and the genuineness of that partition should not be permitted to be blurred by the unmeritorious object of Nagappa. But the continued management of the property by Nagappa since the partition, and the interest shown by him in prosecuting the suits do clearly suppo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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