Chogmal Bhandari & Ors Vs. Deputy
Commercial Tax Officer II Division Kurnool  INSC 21 (4 February 1976)
FAZALALI, SYED MURTAZA FAZALALI, SYED MURTAZA
SARKARIA, RANJIT SINGH
CITATION: 1976 AIR 656 1976 SCR (3) 325 1976
Andhra Pradesh General Sales Tax Act-Sec.
17(1)-Whether sales tax dues of a settler 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.
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. Thereafter, 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
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
A writ petition filed by the appellants in
the High Court for quashing the said notices was dismissed by the 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.
326 (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 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. 
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.
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
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
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 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 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
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 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
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
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
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 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
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.
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,
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 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
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)  2 S.C.R. 655. (2) L.R. 32 I.A.
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 otherwise." 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, 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 score 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.