1972 (8) TMI 36 - HC - Income Tax

Transfer Of Property Act, 1882 - When the assessee sells all property to defeat anticipated claim of Income-tax and discharges all other creditors whether it can be said that sale is voidable and it was effected with the intention to defeat or delay creditors and also whether the suit to impugn the sale lies - The only question that arises for determination in this appeal filed by defendants Nos. 2 to 13 is whether the sales of the suit properties by the first defendant, which is a public limited company, in favour of the second defendant-firm, of which the partners are defendants Nos. 3 to 13, were effected with intent to defeat or delay the Union of India and other creditors of the first defendant-company held that Union of India was not entitled to any relief under section 53 of Transfer of Property Act

Summary

Issues Involved:
1. Validity of sales under Section 53 of the Transfer of Property Act.
2. Allegations of intent to defeat or delay creditors.
3. Adequacy of consideration for the sales.
4. Payment of creditors by the first defendant-company.
5. Applicability of Section 53 of the Transfer of Property Act.
6. Court-fee determination.

Issue-wise Detailed Analysis:

1. Validity of Sales under Section 53 of the Transfer of Property Act:
The central question in the appeal was whether the sales of the suit properties by the first defendant-company to the second defendant-firm were intended to defeat or delay the Union of India and other creditors. The Union of India, represented by the Commissioner of Income-tax, Madras, sought a declaration under Section 53 of the Transfer of Property Act that the sales were invalid and not binding on the creditors.

2. Allegations of Intent to Defeat or Delay Creditors:
The trial court found that the sales were made with the intent to defeat the claims of the plaintiff and other creditors. The court observed that the transfers were effected foreseeing and anticipating additional income-tax levies and with a view to keep the assets out of the reach of the plaintiff. The trial judge concluded that the sales were made in a hurried manner anticipating an order of assessment of income-tax, which was likely to be substantial.

3. Adequacy of Consideration for the Sales:
The plaintiff contended that the properties were sold for inadequate consideration. The trial court noted that the properties, which were valued at Rs. 1,51,000 in June 1960, were sold for Rs. 1,30,000 in February 1961. The court found that the properties were sold for under-value. Additionally, the second defendant-firm did not have sufficient means to advance the cash consideration on the date of the sales.

4. Payment of Creditors by the First Defendant-Company:
The evidence showed that all the creditors of the first defendant-company were paid off using the sale proceeds. The trial court acknowledged that the sales were partly intended to pay off the debts of the first defendant-company. However, it was also found that the sales were made with the intention of defeating the anticipated claim of the Union of India.

5. Applicability of Section 53 of the Transfer of Property Act:
The court examined whether the impugned transfers fell within the scope of Section 53(1) of the Transfer of Property Act. The court referred to precedents and concluded that a debtor can prefer one creditor over another and that such a preference does not necessarily constitute a fraudulent transfer under Section 53. The court noted that the transfers were made for adequate consideration and without any benefit being retained by the transferor.

6. Court-Fee Determination:
The appeal was admitted subject to the determination of the correct amount of court-fee payable. The court held that the court-fee paid on the appeal memorandum was correct, as decided in Union of India v. Arunachalam.

Conclusion:
The court concluded that the Union of India was not entitled to any relief under Section 53 of the Transfer of Property Act. The decree of the trial court was set aside, and the suit was dismissed. The parties were directed to bear their respective costs in both courts.