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income-tax Officer, Quilon Vs. Miyya Pillai and Others. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKerala High Court
Decided On
Case NumberCivil Revision Petition No. 278 of 1961, Civil Miscellaneous Petition No. 1116 of 1963 and Civil Rev
Reported in[1965]55ITR84(Ker)
Appellantincome-tax Officer, Quilon
RespondentMiyya Pillai and Others.
Cases ReferredSuryanarayana Jagapathi Raju v. Gopala Surya Rao. In
Excerpt:
- - one of the legal representatives filed a return which was rejected by the income-tax officer, and he made a best judgment assessment. subramonia iyer, it is stated that if the court is satisfied of collusion or corrupt bargain, the court will not allow rateable distribution......in support of that order.a few facts which are not disputed may be stated : a person by name e. c. govindan asan died on 10th june, 1953. one of his legal representatives filed a return, which was rejected by the income-tax officer, and ultimately the income-tax officer passed an order of assessment on 14th august, 1953. in those proceedings notice was not issued to all the legal representatives of govindan asan either before or after the order of assessment.the bank filed o. s. no. 65 of 1957 on a mortgage against the legal representatives of govindan asan and that suit was ultimately compromised. in the compromise decree the 3rd defendant, who is a daughter of govindan asan, were also exonerated. the decree then recited that the plaintiff was entitled to realise the decree amount from.....
Judgment:

The first of these cases arises out of an application by the Income-tax Officer, Quilon, claiming priority and thus claiming the entire amount in court deposit towards arrears of income-tax. The decree-holders who attached some properties and got them sold was one of the respondents, the other being the legal representatives of the judgment-debtor. The lower court dismissed the claim of the revenue and hence and civil revision petition.

C. M. P. No. 1166 of 1963 is by the United Commercial Bank Ltd., Quilon, who obtained another decree on a mortgage against the same judgment-debtor. The bank claimed ratable distribution of the amount, which was also refused by the lower court; but the bank was hear in the petition filed by the Income-tax Officer. The bank filed the petition for leave to intervene and be heard in support of the order of the lower court against the revenue.

The other civil revision petition is also by the bank against the order of the lower court refusing rateable distribution of the amount brought to court in pursuance of the attachment and the sale effected by the decree holder in the other suit.

In the revision filed by the revenue two points have been urged by the learned counsel for the petitioner. The first is that the lower court erred in holding that the assessment order on which the application was made was invalid and void; and the second contention is that the lower court had no jurisdiction to consider the validity of the assessment, because of section 67 of the Indian Income-tax Act.

The point urged in the second case is that the lower court should have held that the decree in favour of the bank was one for payment of money and, therefore, the lower court should have allowed rateable distribution the assets.

As it appears that the bank was the bank was also heard in the lower court in the petition filed by the revenue, I allow C. M. P. No. 1166 of 1963 and the back to intervene and advance arguments in support of that order.

A few facts which are not disputed may be stated : A person by name E. C. Govindan Asan died on 10th June, 1953. One of his legal representatives filed a return, which was rejected by the Income-tax Officer, and ultimately the Income-tax Officer passed an order of assessment on 14th August, 1953. In those proceedings notice was not issued to all the legal representatives of Govindan Asan either before or after the order of assessment.

The bank filed O. S. No. 65 of 1957 on a mortgage against the legal representatives of Govindan Asan and that suit was ultimately compromised. In the compromise decree the 3rd defendant, who is a daughter of Govindan Asan, were also exonerated. The decree then recited that the plaintiff was entitled to realise the decree amount from the assets of the deceased, Govindan Asan, in the hands of defendants Nos. 3 to 5. It is in pursuance of that decree that the bank is now claiming rateable distribution of the amount in court.

O. S. No. 66 of 1957 was filed by another creditor of Govindan Asan based on promissory notes and he also obtained a decree. In that suit also the legal representatives of Govindan Asan were parties. In pursuance of that decree the decree-holder attached some properties, which were the subject-matter of the request in favour of the daughter and brought them to sale. The amounts in dispute are the proceeds of that sale and the question for decision is whether the revenue has priority over these amounts and whether the bank has a right to claim rateable distribution thereof.

Several decisions have been cited before me by the learned counsel on both sides. But it do not think it is necessary for me to refer to all of them. In the recent decision of the decision of the Division Bench of this court, to which I was also a party, in Suseela Sadanandan v. 1st Addl. Income-tax Officer, Kozhikode, this court held, reviewing several decision that the liability imposed by section 24B(2) of the Income-tax Act on the legal representative of a deceased attached itself to all the legal representatives on whom notices were served. It was also held in that case that all such legal representatives were liable to be served with notice under section 24B(2) and if the Income-tax department took proceedings by issuing notice only to one of the legal representatives, it would be invalid and the further orders of assessment based upon such an invalid notice would result in the assessment itself being considered illegal and void. In the present case notice was admittedly not issued to all the legal representative of Govindan Asan. One of the legal representatives filed a return which was rejected by the Income-tax Officer, and he made a best judgment assessment. It is in pursuance of that assessment the Income-tax Officer is now seeking to get at the amounts in courts deposit. The order of assessment is thus illegal and void and, therefore, the revenue is not entitled to claim the amount towards the assessment.

It is then argued by Mr. G. Rama Iyer, on behalf of the revenue, that the lower court had no jurisdiction to dispose of the matter because of section 67 of the Indian Income-tax Act. His contention is that the firm portion of section 67 bars a suit or proceeding in any civil court to set aside or modify any assessment made under the Income-tax Act. In support of this proposition also he cites some decisions. I do not think I need consider these decisions either. There is no suit or proceeding to set aside or modify the assessment in this case. In pursuance of an invalid or void assessment the Income-tax Officer is seeking to proceed against funds brought to court by an attaching creditor. The creditor was not a party to the assessment proceedings, not was the legal representative, namely, the daughter of Govindan Asan, to whom the properties attached and sold were bequeathed. Neither of them was given notice under section 24B(2) or a notice of demand after the assessment, so that neither of them got any opportunity of canvassing the correctness or impugning the validity of the assessment order through the channels and under the procedure provided by the Income-tax Act. The Properties belonging to Govindan Asan, bequeathed to the daughter, were attached by the decree-holder and sold; and the money realised from that sale is not in court. The Income-tax Officer, in pursuance of the invalid or void assessment, seeks proceeds against that amount; and the decree-holder and the legal representative, namely, the daughter, who had no notice of the assessment, point out to the court that the assessment, under which the revenue seeks to proceed, is invalid, illegal and not binding on them. This is not a suit or a proceedings to set aside or modify the assessment the section 67 of the Income-tax Act cannot be pressed into service by the revenue in this case.

Therefore Civil Revision Petition No. 278 of 1961 has to be dismissed. Though the bank was allowed to intervene, no separate argument has been advanced by the learned counsel of the bank in support of the order of the lower court.

The question to be considered in the other case is whether the bank is entitled to rateable distribution of the amounts in deposit. It may be noted that the amounts are the proceededs of the sale of the properties bequeathed to the daughter of Govindan Asan under his will. In the suit filled by the bank, issue No. 12 was :

Is the udampadi dated June 19, 1953, between defendants Nos. 1, 2 and 3 binding on the plaintiff bank Has the plaintiff accepted the arrangement under the said udampadi and released defendant No. 3 as contended by her ?'

This issue was answered in the affirmative in the suit, the udampadi referred to in the issue being exhibit XXI in the case. The compromise decree also exonerated the daughter and properties bequeathed to her by Govindan Asan. If so, the question whether the bank is entitled to claim rateable distribution of the amount brought in the sale of those properties bequeathed to the daughter does not arise, because the bank by the compromise decree had exonerated those properties from liability to pay the debts due to them. Moreover, it appears that the bank had released some of the properties charged under the mortgage in their favour. There is also no evidence, as pointed out by the lower court, that if all the mortgaged properties were sold the entire decree amount could not have been realised. It is also not established that all the mortgaged properties were actually sold. Therefore, on merits, there is no substance in the contention put forward by the bank that the bank is entitled to rateable distribution on the ground that the decree in their favour is a decree for payment of money.

Mr. T. N. Subramonia Iyer brings to my notice the Full Bench decision of the Madras High Court in Vaidhinadaswamy Ayyar v. Somasundaram Pillai. That decision laid down that a decree directing a sale of mortgaged properties in default of payment of money was a decree for money, whether there was a direction to pay personally or not and whether the remedy against the property was exhausted or not. The decision was later on considered by a Division Bench in Suryanarayana Jagapathi Raju v. Gopala Surya Rao. In this later decision the Division Bench observed that a mortgage decree for sale containing an express provision exempting the defendants from personal liability was in no sense a 'decree of money'. The effect of these two decision thus appears to be that fi a decree directed the sale of mortgage properties in default of payment of money without any express provision exempting the defendants from personal liability, that decree is a decree for money. On the side of the respondents a few decisions of other High Courts are also brought to my notice taking a different view. According to me, there is no need for expressing any opinion in the present case whether the decree herein is a decree for payment of money or not. The properties attached and sold in this case were specifically excluded or exonerated by the compromise decree and, therefore, the question whether the decree in favour of the bank is a decree for payment of money or not does not arise for consideration. Secondly, even in the Division Bench ruling of the Madras High Court cited by Mr. Subramonia Iyer, it is stated that if the court is satisfied of collusion or corrupt bargain, the court will not allow rateable distribution. In the case before me, admittedly some of the items mortgaged were released by the bank; and after such release the bank is now proceeding against moneys brought to court by other unsecured creditors by attaching other properties belonging to Govindan Asan. This is certainly collusion and unjust bargain, because the bank has already released a portion of its security; and after such release the bank cannot proceed against other properties and claim rateable distribution in such assets.

Thus, in any view of the matter, the bank is not entitled to claim rateable distribution of the amounts now in court deposit.

In the result, Civil revision petition No. 278 of 1961 is dismissed without costs and Civil petition No. 322 of 1961 is dismissed with costs.

Before I leave these cases, I would make one or two observation regarding some matters brought to my notice. Pending the proceedings before the lower court the Collector appears to have written a letter to the lower court stating the legal representatives of Govindan Asan raised objection before him, when notices were issued under the revenue Recovery Act, and those objections were overruled by him and that order was final. Whatever might have been legal effect of that order, it has to be stated that it was very irregular and improper for the Collector to have written such a letter. Mr. G. Rama Iyer, on behalf of the revenue, brings to my notice that the arrears claimed in this proceeding were for 1124-25 M. E., 1950-51, 1951-52, 1952-53, 953-54 and 1954-55 and the assessment for those years would not have been made after the death of Govindan Asan. Therefore, he contends that the assessments, which were completed during the life time of Govindan Asan, would be binding on his estate in the hands of his legal representatives. There is no evidence in support of this contention, because the entire proceedings appears to have proceeded on the admitted basis that the assessments were made after the death of Govindan Asan. At any rate, I make it clear that this decision will not be a bar for the revenue to raise this point, if there is any merits in it, in subsequent proceedings.


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