1963 (4) TMI 64 - SC - Income Tax

Whether the partition by the deed dated March 14, 1947, between Nagappa and his sons, the plaintiffs, was a sham transaction? Held that - Appeal dismissed. 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.

Issues Involved:

1. Maintainability of the suit challenging income-tax assessment.
2. Validity of the partition deed dated March 14, 1947.
3. Liability of properties (items 46 to 51) to satisfy tax dues.
4. Enforcement of the pious obligation of Hindu sons to discharge father's debts post-partition.

Issue-wise Detailed Analysis:

1. Maintainability of the Suit Challenging Income-tax Assessment:

The plaintiffs filed a suit against the Union of India challenging the income-tax assessments for the years 1944-45, 1945-46, and 1946-47. The court held that the suit was not maintainable due to Section 67 of the Indian Income-tax Act, which bars any civil court from setting aside or modifying any assessment made under the Act. The court emphasized that any grievances regarding the assessment should be addressed through the statutory remedies provided within the Income-tax Act, such as filing an appeal under Section 30. The court stated, "The method of assessment and the procedure to be followed in that behalf are statutory, and any error or irregularity in the assessment may be rectified in the manner provided by the statute alone."

2. Validity of the Partition Deed Dated March 14, 1947:

The plaintiffs contended that the partition deed was genuine and intended to be operative. However, the court found that the partition was a sham transaction intended to defraud creditors, including the income-tax authorities. The court noted that the partition was executed within a week after a decree was passed against Nagappa and that the properties allotted to Nagappa were insufficient to satisfy his debts. The court observed, "The real purpose of the partition was to save as much property as possible and to preserve it for his children." The court concluded that the partition was nominal and not intended to be acted upon.

3. Liability of Properties (Items 46 to 51) to Satisfy Tax Dues:

The plaintiffs claimed that items 46 to 51 were acquired with funds provided by their maternal grandmother, Seshamma, and were not part of the joint family property. The court found that the evidence presented by the plaintiffs was unreliable and that the properties were purchased with joint family funds. The court stated, "It must, therefore, be held that the plaintiffs have failed to establish that the properties conveyed by the sale deed were purchased with the funds supplied by Seshamma." The court concluded that these properties were liable to be attached and sold to satisfy the tax liability of the joint family.

4. Enforcement of the Pious Obligation of Hindu Sons to Discharge Father's Debts Post-partition:

The court addressed the issue of whether the creditors could enforce the pious obligation of Hindu sons to discharge their father's debts in execution proceedings post-partition. The court noted the conflicting opinions of various High Courts on this matter but ultimately held that the partition was a sham transaction. Therefore, the plaintiffs' shares in the properties remained liable for the debts incurred by their father. The court stated, "The continued management of the property by Nagappa since the partition, and the interest shown by him in prosecuting the suits do clearly support the inference that the deed of partition was a nominal transaction."

Conclusion:

The court dismissed both appeals, upholding the validity of the tax assessments and the attachment and sale of the properties to satisfy the tax dues. The court also held that the partition deed was a sham transaction and that the properties remained liable for the debts incurred by Nagappa. The appeals were dismissed with costs.

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