Full Judgment Text
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PETITIONER:
CHOGMAL BHANDARI & OTHERS
Vs.
RESPONDENT:
DEPUTY COMMERCIAL TAX OFFICER II DIVISIONKURNOOL
DATE OF JUDGMENT04/02/1976
BENCH:
FAZALALI, SYED MURTAZA
BENCH:
FAZALALI, SYED MURTAZA
SARKARIA, RANJIT SINGH
CITATION:
1976 AIR 656 1976 SCR (3) 325
1976 SCC (3)1749
ACT:
Andhra Pradesh General Sales Tax Act-Sec. 17(1)-Whether
sales tax dues of a settlor can be recovered from trustees-
Indian Trusts Act. 1882-Sec. 4-Unlawful Trust-Transfer of
Property Act-Sec. 53-Transfer with intent to defeat or delay
creditors-Liability to pay tax-Whether depends on assessment
and quantification-Whether authorities under Sales Tax Act
can decide complicated questions of title.
HEADNOTE:
Kollayya and Narasimaiah carried on business in
partnership. The firm incurred huge losses and was dissolved
in 1963. Kollayya’s son Bala and Bala’s son B.V.S. Rao
carried on joint Hindu Family business. B.V.S. Rao applied,
being a minor, through his father Bala, for registration
which was granted by the Sales Tax Authorities. There after,
Sales Tax Authorities continued to make assessment in the
name of B.V.S. Rao from the year 1966 to the year 1969.
Although B.V.S. Rao informed the Sales Tax Department that
the business was in fact carried on by the Joint Hindu
family yet no assessment was made in the name of Joint Hindu
family until 1971. Although B.V.S. Rao informed the Sales
Tax Department that his business had come to an end and that
the business was carried, on by his grand-father Kollayya,
yet the Sales Tax Department neither cancelled the
registration of B.V.S. Rao nor issued fresh notice to
Kollayya. In September, 1968, Kollayya and Narasimiah the
partners of the dissolved firm executed a registered deed of
Trust by which certain properties were vested in the
Trustees for the purpose of paying off the creditors
mentioned in the Trust Deed who had obtained decrees against
the settlors. In the year , 1971 assessments were made
against the Joint Hindu Family and penalties were also
imposed for not paying the sales tax. All the assessments
prior to the year 1971, were made in the name of B.V.S. Rao.
Since the Sales Tax Authorities could not recover the monies
from the assessees they issued noticed under s. 17(1?- of
the Andhra Pradesh General Sales Tax Act to the appellants
who were the trustees of the said trust on the ground that
the trust was void and fraudulent.
A writ petition filed by the appellants in the High
Court for quashing the said notices was dismissed by the
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High Court on the ground that the deed of trust was
fraudulent and had been executed. to defeat the sales tax
dues.
On an appeal by special leave it was contended by the
appellants:
(1) The moment the trust deed was executed by
Kollayya and Narasamaiah the title to those
properties vested in the trustees and thus it
was beyond tho reach of the Sales Tax
Department.
(2) When the impugned notice was issued in 1970,
tax had not been quantified since the
assessments were made subsequently.
lt was contended by the respondents that
(1) Kollayya must be deemed to have knowledge as
the Karta of the Joint Hindu Family that he
had incurred sales tax liability.
(2) Under s. 17(1) of the Act. the Sales Tax
Authorities could realise the sales tax dues
even from the trustees and the execution of
the trust deed would not stand in the way of
the recoveries.
(3) The trust is hit by s. 53 of the Transfer of
Property Act, being made with the intent to
defeat or delay the creditors.
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(4) The liability of the appellants arose as
early as in 1966-67 and the trust deed came
into existence in September, 1968. Kollayya
and trustees, therefore, could not be unaware
of the tax liability. The creation of the
trust subsequently was, therefore, a device
to evade the payment of arrears of sales tax.
Allowing the appeal by special leave,
^
HELD: (1) The Sales Tax Department as also the High
Court have held in a very summary fashion that the trust
deed was void and fraudulent without considering the real
point of law which arose on the admitted facts. [329 A]
(2) The moment the trust deed was executed the trustees
acquired an independent title under the Trust. The trust
deed clearly mentioned the names of the creditors to whom
the money was to be paid. Under the trust, the settlors did
not reserve any advantage or benefit for themselves. There
is no material to how that the decrees obtained by the
creditors were collusive and the trust deed was executed
before the assessment orders against the Joint Family were
made and, therefore. there was no real debt due from the
settlors when the trust was executed. [329A-D]
(3) The present trust cannot be said to be unlawful
within the meaning of s. 4 of the Indian Trust Act, 1882,
since the trust is neither forbidden by law nor does it
defeat any legal provision nor can it be said to be
fraudulent ex facie. [330D-E]
Whether the trust deed has been executed with the
intent to defeat or delay the creditors within the meaning
of s. 53(1) of the transfer of Property Act depends on the
intention of the settlors depending mainly on the facts and
circumstances of the case. The mere preference of one
creditor to another by itself does not lead to the
irresistible inference that the intention was to defeat the
other creditors. [331C-E]
Musahar Sahu and another v. Hakim Lal and another L.R.
43 I.A. l04: Ma Pwa May and another v. S. R. M. M. A.
Chettiar Firm AIR 1929 P.C. 279, 281 and Sampatrai
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Chhogalalji and others v. V. S. Patel, Sales Tax Officer and
others 17 S.T.C. 2r9, 34, approved.
(4) once the trust is held to be valid the department
cannot proceed against the trustees under s. 17(1). The
section does not empower the Sales Tax Department to follow
the money in the hands of a bonafide transferee from the
assessee even before the dues are accrued. The Sales Tax
Authorities under s. 17 can only determine the
jurisdictional. facts and cannot proceed beyond that. The
authorities cannot be a judge in its own cause and determine
or decide complicated questions of. title. [333C-E]
Katilkara Chintamani Dora & ors. v. Guntreddi
Annamanaidu & Ors. [1974] 2. S. C. R. 655 followed.
In the present case the Sales Tax Authorities cannot be
allowed to hold that the deed of trust executed by the
settlors was hit by s. 53 of the Transfer of Property Act.
Even if a transfer is made with intent to defeat or delay
the credit ors it is not void but only voidable under s. 53.
If the transfer is voidable the Sales Tax Authorities cannot
ignore or disregard it but have to get it set aside through
a properly instituted suit after impleading necessary
parties and praying for the desired relief. [333F-G]
Chutterput Singh & Ors. v. Maharaj Bahadoor and others
L.R. 32 I.A. I and Zafrul Hasan and others v. Farid-Ud-Din
and others A.I.R. 1945 P.C. 177, approved.
(5) 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
charg on the property at the date of the execution of the
Trust Deed did not arise.
[334E-F]
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1148 of
1975.
Appeal by special leave from the judgment and order
dated the 2-12-1974 of the Andhra Pradesh High Court in writ
petition No. 2250 of 1973.
327
M. C. Bhandare and Miss A. Subhashini for the
appellant.
P. Ram Reddy and P. P. Rao for the respondent.
The Judgment of the Court was delivered by
FAZAL ALI, J.-This is an appeal 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 partnership firm dealing in
foodgrains. The firm carried on the business in the name and
style of "Kovvuru Narasimhaiah and Ktikala 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 a minor had applied
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for the certificate through his guardian Bala Seshaiah.
Thereafter the Sales Tax Department continued to make
assessments in the name of B. V. S. Rao. Thus for the years
1966-67, 1967-68 and 1968-69 the provisional assessments
were made in the name of B. V. S. Rao the minor. It is not
disputed that during all these years the business was run in
the name of B. V. S. Rao the minor grandson of Kollayya.
There are also materials on the record to show that B. V. S.
Rao had informed the Sales Tax Department that the business
was in fact carried on by the Joint Hindu family and yet no
assessment was made in the name of the Joint Hindu family
until 1971. It is true that the High Court has held that B.
V. S. Rao was merely a benamidar for Kollayya who was the
real proprietor of the firm and therefore the real dealer
would be Kollayya and not B. V. S. Rao. The High Court also
relied on the circumstance that KollayYa did not appear
before the Sales Tax Department in obedience to the notices
issued to him and therefore the High Court thought it was
too late in the day for Kollayya to contend that he was not
a dealer within the meaning of the Andhra Pradesh General
Sales Tax Act. Mr. Ram Reddy learned counsel for the
respondent did not support this part of the reasoning of the
High Court because the Sales Tax Department having itself
issued the certificate of registration to B. V. S. Rao and
having recognised him as a dealer could not make a
somersault and start assessing tax in the name of Kollayya
who was not at all a registered dealer. Furthermore, it
would appear that B. V. S. Rao had himself informed the
Sales Tax Department that his business had come to an end
and that the business was carried on by his grandfather and
yet the Sales Tax Department did not choose to cancel the
registration of B. V. S. Rao or to issue fresh notice to
Kollayya. In these circumstances the ball was in the court
of the Sales Tax Department which appears to have taken
delayed action in the matter for assessing Kollayya as the
manager of the
328
joint Hindu family for the first time in 1971. Mr. Ram Reddy
confined his arguments only to the question that in view of
the circumstances of the case Kollayya must be deemed to
have knowledge as the karta of the joint Hindu family that
he had earned sales-tag liability and from this alone an
inference was sought 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 Tag officer while makeing 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 creditors
that the trust was executed. Subsequently it appears that
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the assessments were made against the joint Hindu family on
January 18, 19 and 24, 1971 and penalties were also imposed
on the assessees for not paying the sales tax. The sales tax
authorities, therefore, made the assessment in the name of
the joint Hindu family for the first time on January 18,
1971 and prior to that the assessments were made in the name
of the minor B. V. S. Rao. The Sales Tax Department having
found that the assessees had constituted a trust in respect
of the properties and as the amounts could not be realised
from the assessees notices were issued on the petitioners
who were the trustees for payment of the amounts due under
the various assessments made by the Sales Tax Department on
the joint Hindu family. The Sales Tax Department was of the
view that the deed of trust dated September 16, 1968 was
void and fraudulent and was brought about to defeat the
debts of the Sales Tax Department in the shape of the
assessments made against the joint Hindu family whose
business was carried on by its karta Bala Seshaiah. Demand
notices under s. 17(1) of the Andhra Pradesh General Sales
Tax Act were served on the petitioners who filed a writ
petition before the Andhra Pradesh High Court for quashing
the notices, on the basis of which the amounts were sought
to be recovered. The High Court held that the deed of trust
was fraudulent and had been executed to defeat the Sales Tax
Department of its dues and the petitioners were, therefore,
trustees of an invalid trust and being in possession of the
properties held the same on behalf of the debtor assessees
who were liable to pay the amounts. On this finding the writ
petition was dismissed by the High Court. The petitioners
moved the High Court for granting certificate of fitness for
leave to appeal to this Court which having been
329
refused they obtained special leave from this Court and
hence this appeal.
It is true that the Sales Tax Department as also the
High Court have held in a very summary fashion that the
trust deed was void and fraudulent and, therefore, it could
be ignored by the Sales Tax Department. Normally this should
have been a finding of fact which could have settled the
matter beyond any controversy. But on a perusal of the facts
and circumstances of the case we find that the real point of
law which arose on the 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 Sch. ’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,
however, submitted that the mere fact that the members of
the joint Hindu family were aware that they had incurred the
sales tax liability because they were dealers in foodgrains
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and had conducted a number of sales was sufficient to show
that the trust deed was fraudulent and unlawful. It was also
submitted that under s. 17(1) of the Andhra Pradesh General
Sales Tax Act, the sales tax authorities could realise the
sales tax dues even from the trustees and the execution of
the trust deed would not stand in the way of the recoveries
sought to be made against the petitioners.
We would first consider the question as to the nature
of the trust deed executed by the settlors. It is not
disputed that the trust deed was a registered instrument and
came into existence three years before the actual
assessments were made in favour of the joint Hindu family.
Furthermore it is clearly stipulated in the trust deed that
the object of the trust was to discharge the debts of the
previous creditors of the settlors who had obtained decrees
from the Courts. The names of those creditors are mentioned
in Schedule ’A’ arid there is no material before us to show
that the creditors mentioned in Schedule ’A’ are fictitious
persons. It is true that in the cow of the trust deed
printed in the paper book the names of the creditors are not
mentioned but from the certified copy of the original trust
deed it appears that the names are there which constitute of
the following persons:
1. Narendrakumar Manoharlal & Co.
2. Devraj Dhanumal.
330
3. Dhupaji Phoolchand.
4. Bhubutmal Chandumal.
5. Bhubutmal Bhoormal.
6. Kesarmal Mancharlal.
7. Taraohand Santilal.
8. Manrupji Nathumall.
9. Pokhraj Kantilal.
10. Pratapchand Kundanmal.
11. Ambapuram Bachu Pedda Subbiah & Sons.
12. Meda Krishnayya.
13. T. Nagalakshmidevamma Minor by guardian husband T.
Sanjeeva Rao.
It is well settled that it is open to the settlors to create
a trust for discharging the debts of their creditors. Such
an object cannot be said to be unlawful. Section 4 of the
Indian Trusts Act, 1882, runs thus:
"4. A trust may be created for any lawful purpose.
The purpose of a trust is lawful unless it is (a)
forbidden by law, or (b) is of such a nature that, if
permitted, it would defeat the provisions of any law,
or (c) is fraudulent, or (d) involves or implies injury
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 learned
counsel for the respondent was that the trust is hit by s.
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
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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 trust at the time when the
trust was executed;
331
(2) that the trust did not have for its object
any unlawful purpose;
(3) that the names of the creditors were clearly
mention ed in Schedule ’A’ of the trust as
also the properties some of which had already
been sold to liquidate debts of the settlors;
(4) that under the trust the executants did not
reserve any advantage or benefit for
themselves; and
(5) there is no material in the present case to
show that the creditors mentioned in Schedule
’A’ had obtained collusive decrees or that
they were aware of the - debts owed by one of
the executants to the Sales Tax Department
before the execution of the trust deed.
In the facts and circumstances of this appeal therefore it
cannot be said that the trust deed was executed to defraud
the creditors namely the Sales Tax Department. Under s. 53
of the Transfer of Property Act a person who challenges the
validity ‘of the transaction must prove two facts-(1) that a
document was executed by the settlor; and (2) that the said
document was executed with clear intention to defraud or
delay the creditors. How the intention is proved would be a
matter which would largely depend on the facts and
circumstances of each case. It is well settled that the mere
fact that a debtor. chooses to prefer one creditor to the
other, either because of the priority of the debt or
otherwise, by itself cannot lead to the irresistible
inference that the intention was to defeat the other
creditors. In Musahar Sahu and another v. Hakim Lal and
Anr.(l) where the Privy Council observed as follows:
"The transfer which defeats or delays creditors is
not an instrument which prefers one creditor to
another, but an instrument which removes property from
the creditors to the benefit of the debtor. The debtor
must not retain a benefit for himself. He may pay one
creditor and leave another unpaid: Middleton v.
Pollock-(1876)2 Ch.D. l04, l08. So soon as it is found
that the transfer here impeached was ‘ made for
adequate consideration in satisfaction of genuine
debts, and without reservation of any benefit to the
debtor ‘ it follows that no ground for impeaching it
lies in the fact that the plaintiff. who also was a
creditor was a loser by payment being make to this
preferred creditor-there being in the case no question
of bankruptcy."
This decision was endorsed by the Privy Council in Ma Pwa
May and another v. S. R. M. M. A. Chettiar Firm(2) 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 pre ference cannot in itself impeached as
falling within s. 53."
(1) L.R. 43 I.A. 104.
(2) A.l.R. 1929 P.C. 279, 281.
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332
The learned counsel for the appellants relied on a
decision of the Gujarat High Court in Sampatraj Chhogalalji
and others v. V. 5. Patel, Sales Tax officer, and others(l)
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 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 II to the deed of arrangement. It follows,
therefore, that the trustees were not holding the sale
proceeds which they deposited with the said bank in a
separate account in their names as agents of the said
firms or any one of them, nor were they the transferees
of or successors to those businesses. * It is
also not possible to say that the bank ’. I) was a
person from whom any amount of money was due ’ to any
one of the aforesaid firms who were the dealers in
respect of the arrears of tax. That being the position,
the very first condition necessary for the application
of section 39 is totally wanting in this case."
The facts of the present case appear to be on all fours with
the facts in the Gujarat case cited above. The High Court
clearly held that the fact of the assignment was to create a
valid title in the trustees and once the title passed to the
trustees on the registration of the trust deed, the trustees
could not be said to hold the properties which vested in
them either on behalf or on account of the settlors.
Mr. Ram Reddy relied on s. 17(1) of the Andhra Pradesh
General Sales Tax Act which runs thus:
"17. (1) The assessing authority, may at any time
or from time to time, by notice in writing (a copy of
which shall be forwarded to the dealer at his last
address known to the assessing authority) require any
person from whom money is due or may become due to the
dealer, or any person who holds or may subsequently
hold money for, or on account of the dealer, to pay to
the assessing authority either forthwith if the money
has become due or is so held within the time specified
in the notice (but not before the money becomes due or
is held) so much of the money as is sufficient to pay
the amount due by the dealer in respect of arrears of
tax, penalty or fee or the whole of the money when it
is equal to or less than that amount."
Particular reliance was placed on the words underlined in
the section in order to contend that even if the trust was a
valid document the
(1) 17 S.T.C. 29, 34.
333
trustees would be deemed by virtue of s. 17 to hold the
money for A or on account of the dealer. This contention is
clearly negatived by the decision of the Gujarat High Court
in Sampatrai Chhogaiaiji’s case (supra) which we have cited
above and which, in our opinion, lays down the correct law
on the subject. It is obvious that the object of s. 17 of
the Andhra Pradesh General Sales Tax Act is to follow up the
money due to the Sales Tax Department in the hands of either
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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 f- transferee from the assessee even
before the dues have accrued. There 1 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 S. ‘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 even before the assessment is made against . - the
transferor. The Sales Tax Authorities under s. 17 of the
Andhra Pradesh General Sales Tax Act can only determine the
jurisdictional facts and cannot proceed beyond that. In
Katikara Chintamani Dora & Os. v. Guntreddi Annamnaidu &
Ors(1) it was ruled by this Court that a Tribunal possesses
the power to determine a jurisdictional fact which gives the
jurisdiction or empowers the Tribunal to try a certain
issue. This, however, does not empower the Tribunal to be a
judg in its own cause and determine or decide complicated
questions of title.
In the special and peculiar facts of the present case
which have been catalogued above, in our opinion, this is
not a fit case In which the sales tax authorities can be
allowed to hold that the deed of trust executed by the
settlors was hit by s. 53 of the Transfer of Property Act.
It may be noted that under s. 53 of the Transfer of Property
Act if a transfer is made with intent to defeat or delay the
creditors it is not void but only voidable. If the transfer
is voidable, then the ’ sales tax authorities cannot ignore
or disregard it but have to get it set aside through a
properly constituted suit after impleading necessary parties
and praying for the desired relief. In Chutterput Singh &
ors. v. Maharaj Bahadoor and others,(2) the Privy Council
observed as follows:
"No issue was stated in this suit whether the
transfers were or were not liable to be set aside at
the instance of Dhunput under s. 53 of the Transfer for
Property Act, and no decree has been made for setting
them aside. Such an
(1) [1974] 2 S.C.R. 655. (2) L.R. 32 I.A. 1.
7-L522SCI/76
334
issue could be raised and such a decree could be made
only in a suit properly constituted either as to
parties or other wise."
To the same effect is the later decision of the Privy
Council in Safer Hasan and others v. Farid-Ud-Din and
others,(l) where Lord Thankerton made the following
observations:
"Further, under s. 53 the wakfnama would only be
voidable at the option of the "person so defrauded or
delayed"... Until so voided the deed remains valid."
Lastly it was contended by counsel for the respondent
that the liability of the appellant arose as early as 1966-
67 and the Trust Deed came into existence on September 16,
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1968. This being the case, it was stressed that Itikala
Kollayya and the trustees could not be unaware of the tax
liability or the amount due at that 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 v 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 qualified, 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 on this scone is, therefore,
overruled.
In this view of the matter, we feel that it cannot be
said in the present case that the trust deed executed by the
settlors is prima facie fraudulent or a colourable
transaction. It will, however, be open to the Sales Tax
Authorities to avoid the document by bringing a properly
constituted suit, if so advised. We could also like to make
it clear -. that any observation regarding the validity of
the document that has - l been made in this case by us will
be confined only to the materials that have been placed
before us and will not prejudice the merits of either party
in a suitable action which may be brought.
For these reasons the appeal is allowed, the judgment
of the High Court is set aside and the notices issued by the
respondent against the appellants are hereby quashed. We
would ,however, direct that the sum of Rs. 31,100/- which
has been deposited by the appellants in Union Bank. Kurnool,
under the directions of this Court, would not be refunded to
the appellants before the expiry of three months from to-
day’s date. In the circumstances of this case, we make no
order as to costs in this Court.
P.H.P. Appeal allowed.
(I) A.I.R.1946 P.C. 177.
335