TMI Blog1987 (8) TMI 11X X X X Extracts X X X X X X X X Extracts X X X X ..... at Coimbatore, in door No. 261/285 in the name and style of "K. R. Sons". Under a family arrangement, the said K. Ramakrishna Pillai settled the entire plaint scheduled property in favour of his son, K. R. Radhakrishnan, under a registered document dated March 27, 1957, on the distinct understanding that the business of K. R. Sons has to be carried on in this building and that in no event or circumstance should the building be alienated to any third party. In the event of sale, it shall be sold only to member or members of the family carrying on the jewellery business in the suit premises. The settlee, K. R. Radhakrishnan, left the family in furtherance of the family arrangement and started his own business in the name of "K. R. Radha and Company" in a different building in Raja Street, Coimbatore, while the settlor, Ramakrishna, Pillai, continued to occupy the scheduled building and carry on the business of K. R. Sons on payment of rent to the settlee, K. R. Radhakrishnan. The other three sons of K. Ramakrishna Pillai, who are the plaintiffs in these three suits became partners with their father in the business of K. R. Sons, and after the death of their father, these thr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e statutory notice under section 80, CPC. The defendants resisted the action. It is denied that the suit building is compulsorily required for the jewellery business of the plaintiffs or their father. If it were so, there was no necessity on the part of the plaintiffs' father to settle this property in favour of K. R. Radhakrishnan on March 27, 1957. It is, also not true that the suit building was the only one available to the plaintiffs to carry on the jewellery business. The plaintiffs are owners of a number of buildings in Coimbatore town. The building has been sold in January, 1969, at the time when the income-tax proceedings and the assessments for years 1964-1965 to 1968-1969 in the case of K. R. Radhakrishnan were at various stages of finalisation. In fact, the assessments for 1964-65 and 1965-66 were completed within a few months thereafter and in respect of these assessments, K. R. Radhakrishnan was found guilty by the Chief Magistrate under sections 193 and 196, IPC. The motive with which the property has been sold is to defraud the Revenue. The vendor of the property knowing fully Well his tax liability, consequent on the various proceedings taken against him for his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ideration and without notice ? 3. Whether on the date of sale, income-tax proceedings and assessments for 1964-65 to 1968-69 in the case of K. R. Radhakrishnan were at various stages of finalisation and were completed within a few months after the completion of the sale ? 4. Whether the sale deed dated January 22, 1969, is a sham and nominal document not intended to be acted upon ? 5. Whether the sale of attached property by three separate sale deeds each for Rs. 25,000 was executed to avoid getting an income-tax clearance certificate under section 230A of the Income-tax Act ? 6. Whether the sale is void under section 281 of the Income-tax Act ? 7. Whether the plaintiffs were the erstwhile partners along with the seller, K. R. Radhakrishnan in K. R. Sons from January 1, 1964, to December 31, 1968, and as such cannot plead ignorance of the assessment proceedings against K. R. Radhakrishnan ? 8. Whether, under section 281 of the Income -tax Act, an opportunity was given to the plaintiffs to make a representation on January 19, 1974 ? 9. To what relief, if any, is the plaintiff entitled ? O. S. No. 839 of 1974: 1. Whether the sale of the suit property on J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... executing deed of release under exhibit A-1 dated March 27, 1957. On the same day, the late Ramakrishnan settled the plaint scheduled property on K. R. Radhakrishnan by a registered deed. According to the plaintiffs, there was a family arrangement by and under which it was distinctly understood that the business of K. R. Sons should always be carried on in the scheduled building and that in no event the settlee, K. R. Radhakrishnan, should sell the property to any third party. In the event of any sale, it must be made only to the members of the family who are running the business of K. R. Sons. It may at once be pointed out that the deed of settlement executed by Ramakrishnan in favour of K. R. Radhakrishnan has not been produced. The further case of the plaintiffs is that Ramakrishnan continued to carry on the business of K. R. Sons in the scheduled premises and was paying a rent of Rs. 500 per month to the settlee, K. R. Radhakrishnan. After the death of Ramakrishnan, the plaintiffs in these three suits were carrying on business as a partnership firm. In 1964, Radhakrishnan joined the firm of K. R. Sons and became a partner thereof. But, in 1968, he retired from the partn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng that the sales in favour of the three plaintiffs were void and attachment of the suit property was ordered. The attachment was effected on July 25, 1974. Thereupon, the plaintiffs have come, forward with these suits after issuing the statutory notices under section 80, Civil Procedure Code. Section 281 of the Act, as it stood prior to the amendment introduced by the Taxation Laws (Amendment) Act of 1975, which applies to the proceedings in question as the sales in favour of the plaintiffs herein were in 1969, runs thus: "Transfers to defraud revenue void. -Where during the pendency of any proceeding under this Act, any assessee creates a charge on or parts with the possession by way of sale, mortgage, exchange or any other mode of transfer whatsoever, of any of his assets in favour of any other person, with the intention to defraud the revenue, 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 proceeding. Provided that such charge or transfer shall not be void if made for valuable consideration and without notice of the pendency of the proceeding under this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the Income-tax Officer, Central Circle-1, Coimbatore, issued exhibit B-33 notice to the assessee, K. R. Radhakrishnan, informing him that the assessment against him for the years 1964-65 and 1965-66 will be taken up for hearing on January 20, 1969, and calling upon him to produce the complete correspondence and proceedings that took place before the Collector of Customs and Central Excise in connection with the proceedings taken against the assessee for violation of the Gold Control Order and for being in possession of unauthorised gold. The assessee has also been asked to furnish the source for the purchase by his wife, Anandavalli Radhakrishnan, of some properties and for the credits in her name in his accounts. This is followed by another notice under exhibit B-34 dated January 16, 1969, inviting the assessee's objection as to why the several credits appearing in his books should not be treated as fictitious and as concealed income. The assessee, K. R. Radhakrishnan, must certainly have anticipated rough weather ahead and imposition of heavy assessment and penalty. Immediately, he has acted and on January 22, 1969, he has sold the suit property to his three brothers under exhi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red. The total consideration for which the property is purported to have been sold to his three brothers is Rs. 75,000. But, instead of executing a single deed of sale in favour of his three brothers for the total consideration of Rs. 75,000, the assessee has executed three deeds of sale in favour of each of his brothers in respect of his undivided 1/3rd share for a consideration of Rs. 25,000 each. It needs no shrewdness to discern that this is a subtle attempt to avoid the procuring of a no-objection certificate from the Income-tax Department under section 230A of the Income-tax Act, which enjoins the registering authority not to register any document purporting to transfer, assign, limit or extinguish the right, title or interest of any person to or in any property valued at more than Rs. 50,000 without a no-objection certificate from the Department. The assessee was conscious of the fact that if an application is made to the income-tax authorities for a no-objection certificate, the Department would come to know of the proposed sale during the pendency of the assessment proceedings and step in to prevent the sale. All the above factors clearly show that the intention of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nance Association. The cash payments are evidenced by the entries in exhibit A-2 ledger. Subsequent to the sale, the plaintiffs have made some improvements in the property at a cost of Rs. 25,510.93 as is evident from exhibits A-8 to A-10 entries in the ledger. have, therefore, no doubt that the consideration for these three deeds of sale has passed to the vendor and exhibits A-3 to A-5 are for valuable consideration. The further question is whether the plaintiffs had knowledge of the pending tax proceedings against the vendor at the time of the sales in their favour. As in the case of the intention of a person, the question of knowledge has also to be gathered from the surrounding circumstances. Let me first deal with the case of the plaintiffs that the sale of the scheduled property in favour of the plaintiffs was in pursuance of a family arrangement entered into at the time when K. R. Radhakrishnan left the family in 1957 and a deed of settlement was executed by the father, Ramakrishnan, in favour of K. R. Radhakrishnan on March 27, 1957, in respect of the suit property. According to the plaintiffs, one P. A. Raju Chettiar acted as mediator and it was understood that the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t deeds of sale is only to obviate the necessity of obtaining a clearance certificate from the Income-tax Department under section 230A of the Act and put the defendant on notice of the proposed sale. The vendor and the vendees have acted in concert and have resorted to this subterfuge with a view to keep the Department in the dark. The vendees have acted in collusion with their brother and have brought about these deeds of sale with full knowledge of the pending assessment proceedings against their brother. As pointed out by the Supreme Court in McDowell and Co. Ltd. v. CTO [1985] 154 ITR 148 (SC) (headnote) "The proper way to construe a taxing statute, while considering device to avoid tax, is not to ask whether the provisions should be construed literally or liberally nor whether the transaction is not unreal and not prohibited by the statute, but whether the transaction is a device to avoid tax and whether the transaction is such that the judicial process may accord its approval to it. It is neither fair nor desirable to expect the Legislature to intervene and take care of every device and scheme to avoid taxation. It is up to the court to take stock to determine the nature ..... X X X X Extracts X X X X X X X X Extracts X X X X
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