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Umar Sait and ors. Vs. Union of India and anr. - Court Judgment

LegalCrystal Citation
SubjectProperty
CourtChennai High Court
Decided On
Case NumberAppeal No. 183 of 1960
Judge
Reported inAIR1965Mad395; [1967]63ITR122(Mad); (1965)1MLJ59
ActsIndian Income-tax Act - Sections 34 and 46(2); Transfer of Property Act - Sections 53
AppellantUmar Sait and ors.
RespondentUnion of India and anr.
Cases ReferredIn Md. Ishaq v. Md. Yusuf
Excerpt:
.....then easily be assumed that his intention was to defeat his creditors in the business to be started by him; such a transfer could be avoided by his creditors. in the instant case, the transferor had no debts at the time when he executed the gift deed. hence on the date of execution of the gift deed he could not have had any intention to defeat or delay his future creditors as he could not have anticipated such claims. - - .....9 settling the grange coffee estate on the appellants. the reason given for the execution of this gift deed dies not, however, appear to be correct. for, if that were so, one would have expected a similar document in favour of his first wife and the children born through her. but, no such document ever came into existence.(3) the second respondent declared in the deed of gift that possession of the coffee estate settled thereunder had been given over to the donees. subsequent to the gift, the patta for the property was changed in favour of the donees and they have also been registered as the owners of the coffee estate with the coffee marketing board.(4) on 30-4-1947, the second respondent sold the kichilipalayam lands for an amount which later on was found, in proceedings relating to.....
Judgment:
(1) The only point that arises for consideration in this appeal against the decree of the Subordinate Judge, Salem, in O. S. No. 21 of 1958 is, whether the deed of gift, Ex. A. 9 executed by the second respondent in favour of the appellants, his children by the second wife is one intended to defeat and delay creditors and as such voidable at the instance of his creditors.

(2) The facts which have given rise to this appeal are these. Abu Bucker Sait, the second respondent, is a resident of Yercaud in Salem Dt. He was running a business in cloth at Madurai since 20-6-1945, under the name of A. B. H. Hussain and Co. Besides that, he possessed about 290 acres of coffee plantation in Yercaud. On 9-8-1945, he purchased for a sum of Rs. 35,500 on extent of 9 acres of land in Kichilipalayam village, adjoining Salem town. Besides, he had substantial balances in his bank accounts during the period material to the present case. There was also a terraced house owned by him in Guthiana in the State of Kutch. Abu Bucker had two wives and children by them. The senior wife was living at Guthiana, while the junior wife and children born of her were with him (the second respondent) at Yercaud. The objects of his affection were only his wives and children, as is evident from the fact that under a registered will dated 29-11-1945, he disposed of his entire properties in their favour. It is claimed on behalf of the appellants that soon after the execution of the will, the second respondent realised that under the Mohammadan law its provisions could not stand to the extent of two-thirds of the properties disposed of and that, therefore, he wanted to execute a deed of gift in favour of his minor children by his second wife, namely, the appellants. In pursuance of that object he is said to have executed Ex. A. 9 settling the Grange coffee estate on the appellants. The reason given for the execution of this gift deed dies not, however, appear to be correct. For, if that were so, one would have expected a similar document in favour of his first wife and the children born through her. But, no such document ever came into existence.

(3) The second respondent declared in the deed of gift that possession of the coffee estate settled thereunder had been given over to the donees. Subsequent to the gift, the patta for the property was changed in favour of the donees and they have also been registered as the owners of the coffee estate with the coffee marketing board.

(4) On 30-4-1947, the second respondent sold the Kichilipalayam lands for an amount which later on was found, in proceedings relating to assessment of income, to have brought him a net profit of Rs. 66,640. This amount was included in his income for the purpose of assessment of income-tax for the year 1948-49. As a result, the total amount of tax payable by the second respondent for that year came to Rs. 47,110-10-0. Although this assessment was confirmed on appeal by the Appellate Assistant Commissioner, and on further appeal by the Appellate Tribunal, this court, by its judgement dated 19-7-1961 in R. C. No. 1 of 1957, held that the profit earned by the second respondent in the sale of Kichilipalayam lands could not be brought any adventure in the nature of trade. But this judgement of this court was not rendered when the proceedings leading up to the present suit for the realisation of income-tax were initiated.

(5) There was another assessment to tax to the extent of Rs. 44096-14-0 for the year 1950-51 on the second respondent. It is said that the validity of this assessment is the subject-matter of a reference to this court, which is now pending. As the assessee did not pay the two sums referred to above, the Income-tax officer issued certificate under S. 46(2) of the Indian Income-tax Act. In pursuance of these certificates the Collector of Salem passed an order of attachment of the Grange coffee estate, that order is dated 19-9-1956. The appellants then came forward with a claim before the Collector stating that they and not the second respondent, their father, were the owners of the estate and that they were also in possession of the same. The collector, though he had his own misgivings to the gift under Ex. A. 9, released the properties from attachment. Thereupon, the suit, out of which this appeal arises, was instituted by the first respondent for setting aside that summary order:

(6) The gift deed was attacked on the ground that it was a sham document and that, even otherwise, possession not having been delivered, no title passed to the donees. There was also a further contention that it could not avail against the first respondent, as it was conceived for the purpose of defeating and delaying the creditors of the donor. The learned Subordinate Judge found that the gift deed was a real transaction and that it was sufficient for the purpose of its validity that the was a declaration on the part of the donor that he had made over possessions to his minor sons. The correctness of this finding has not been challenged before us. The learned Subordinate Judge, however, found on the other question, that the gift deed was executed with a view to defraud the creditors of the donor. On this view, he set aside the order made in the claim proceedings.

(7) The gift deed was undoubtedly a voluntary transaction. The question that falls for consideration, is whether it was executed with the intent of defeating and delaying the creditors of the transferor. In ascertaining such an intention, it will be necessary for us to consider the circumstances surrounding the execution of the deed of gift. We have already indicated that the explanation given by the appellants that the gift deed was executed because the transfer or apprehended that his will would not be operative, is not a valid one. But, at the same time, it is a matter of admission in the present case, that apart form a notice of re-assessment issued under S. 34 of the Income-tax Act in respect of escaped assessment for the year 1944-45, the second respondent had no debts at the time when he executed the gift deed. On the other hand, he had then substantial interest in the Javuli business carried on at Madurai, a house in Guthiana and 9 acres of land in Kichilipalayam purchased for about Rupees 35,000. He had bank accounts with the Imperial Bank of India as well as the Central Bank of India. The various orders of the Income-tax Officer show that more than a lakh of rupees must have been in deposit with those banks.

It is no doubt true, that the Kichilipalayam lands were sold within a few months of the execution of the gift deed. It was by then, the second respondent had practically denuded himself of the substantial immovable properties, which he had owned till then. But the important point to be noted in the present case is that at those times he never had any debts to pay, the notice of re-assessment, to which we have just now made reference, in a sum of Rs. 332-32. The tax so assessed had been paid. It is not pretended that the assessee, in making the gift in favour of his second wife's children, intended to defeat that claim. The assessment to income-tax for the year 1948-49 was made on 31-3-1953, more than six years after the date of Ex. A. 9. That assessment, as we said, stood modified by reason of the judgement of this court in R. C. No. 1 of 1957. The result of it was that the tax liability for the year 1948-49 stood reduced to Rs. 10,062. The other properties which the second respondent had, namely, his interest in the Javuli business and the bank deposits, which were augmented by the sale of the Kuchilipalayam lands were more than sufficient to pay this liability.

(8) The case for the first respondent is that although at the time when the deed of gift was executed there were no creditors, the second respondent must have intended to defeat his future creditors. It is now well-settled that, for the purpose of avoiding a transfer by a debtor under S. 53 of the Transfer of Property Act, it is not necessary that the transferor should have been actually indebted at the time he makes the transfer. A transfer intended to cheat future creditors would be equally voidable at their instance. For example, if a man were to settle all his properties on others, with a view to entering into hazardous business, it can easily be assumed that his intention was to defeat his creditors in the business to be started by him; such a transfer could be avoided by his creditors. The law on this subject is stated in Halsbury's Laws of England, 3rd Edn. Vol. 17 at page 660 thus.

"With the above exceptions, all creditors who have been prejudiced by the alienation made with intent to defraud them, whether their debts were owing at the date it was made or were incurred subsequently, may avoid the alienation and share in the distribution of the property comprised therein. Although subsequent creditors have the same right to set aside an alienation made with intent to defraud them as creditors whose debts were due at the date of the alienation, they have a more difficult task than the latter class of creditors in proving a fraudulent intent on the part of the grantor in the case of a voluntary settlement. In such case they must prove either an express intent to defraud creditors, that, immediately after the settlement, the grantor had no sufficient means or reasonable expectation of being able to pay his then existing debts. In the absence of an express intent to defraud, a voluntary deed will not be set aside at the instance of a subsequent creditor if all creditors existing at the date of the deed have been paid off". The general principle is that a voluntary settlement made bona fide by a person, who had ample means, outside the property covered by it, to pay his then existing debts, will not be void merely because it happens that subsequently the transferor became indebted and he could not pay his creditors. An illustration of this principle is found in Ebrahim v. Foolbai, ILR 26 Bom 577 where a man of extravagant and dissolute habits was persuaded to reform and make a settlement of his property on his form and make a settlement of his property on his wife and children. He subsequently reverted to his original habits and began to incur debts. The settlement was held not voidable at the instance of his subsequent creditors. As has been observed in Sadashiv v. Trimbak, ILR 23 Bom 146 when a person is involved in debts and he makes a settlement, mala fides can be presumed; where however there is no such indebtedness, no mala fides can be presumed merely from the possibility that the settlement might prejudice the claims of subsequent creditors. But, we would however like to add that where at the time of making the settlement, the transferor intends in future to incur debts and, with a view to save the properties from the reach of those creditors, he makes a transfer, mala fides can undoubtedly be presumed. In Md. Ishaq v. Md. Yusuf, AIR 1927 Lah 420 Tek Chand J., after referring to the above principle, gives the following illustration:

"But where there are no debts due at the time and the transferor runs into indebtedness subsequently, the presumption will be regulated by the peculiar circumstances of each particular case. If, for instance, the transfer was made to ward off the effects of a threatened litigation or in anticipation of the transfer or embarking upon a commercial venture or on the event of his going into trade, the intent to defeat or delay future creditors will be presumed. But in other circumstances the transaction will be presumed to be bona fide and it will lie on the future creditors to prove that the transfer was made with an intent to defeat or delay them".

In Ex part Mercer; In re Wise (1886) 17 QBD 290 Cave J. (as he then was) observe at page 293:

"In most of the cases which have been cited the settlor was a trader, and undoubtedly when a trader makes a settlement, more especially if he does so when he is just about to commence a course of trade which may turn out to be disastrous, it is difficult to come to any other conclusion than that he contemplates the possibility of his trade being unfortunate and wishes to put his property out of the reach of his creditors."

We have, therefore, to find whether in executing the gift deed Ex. A. 9 the second respondent had any express intent to defeat his creditors either because be could not pay his existing debts or he wanted to defraud the future creditors. That he had no debts at the time when he executed the gift deed, is accepted. That the proceedings for re-assessment, which were then pending for the year 1944-45, could not have resulted in any substantial claim for tax, can be assumed, as the assessee was the best person to know how much of his income had escaped assessment. Actually, the demand was for only about Rs. 332 which was promptly paid.

(9) Can it be said that he anticipated a large claim for income-tax in the next year, to defeat which he could be said to have conceived the idea of making a gift to the appellant? The substantial basis for an assessment of nearly Rs. 47,000 in the next year was the profit realised by him by the sale of the Kichilipalayam lands. It is not proved that at the time of execution of Ex. A. 9 the second respondent had the idea of settling those lands and that he knew that if he were to sell he would be assessed to tax in respect of the profits earned thereby. This court has held that the profit made in that transaction was not made in the adventure in the nature of a trade. The assessee would therefore be presumed to have been aware of this fact and he would not have anticipated the high assessment that was made on him. The assessment for the year 1948-49 cold not have been in his mind at the time when he executed the gift deed. Further, the assessee had large sums to his credit in the two banks. Those amounts would certainly be available to his creditors, if there were going to be any, in the succeeding years.

The learned Subordinate Judge held that as the second respondent had conveyed all his immovable properties subsequent to the date of the gift, by the sale of the Kichilipalayam lands, he must be presumed to have intended to defeat his future creditors. We are unable to see how a mere alienation of immovable properties owned by the transfer or could be taken as providing an intent to defeat the future creditors. Admittedly, the second respondent had a Javuli business at Madurai and he had also a large cash balance in the banks. No interference of intention to defraud future creditors can therefore be drawn because the second respondent disposed of his lands shortly after making the gift. The sale of the Kichilipalayam lands might perhaps be due to the fact that he second respondent was making a large profit out of that transaction; that might not have been conceived as a means of denuding himself of the property to cheat his creditors.

(10) The evidence in the case shows that on 30-9-1947 the second respondent withdrew a sum of a lakh of rupees with a view to take that sum to Pakistan. Presumably, he had at that time mad up his mind to migrate to that country. It was perhaps, because of that intention he wanted to settle properties on his minor sons, himself taking away the cash to the extent aforesaid to Pakistan. The business at Madurai was managed by his brother and he was, perhaps, content to allow it to be so done. These facts make it probable that the execution of the gift deed was part of the arrangement conceived by the second respondent to facilitate his migration to Pakistan. If he were to go and settle at Pakistan, there could be no creditors after he left India. The transfer could not therefore be one to defeat or delay any creditor, though, in the events that have happened, we find that on future creditor, namely, the Income-tax department was defeated. It was said that even now there are assets belonging to the second respondent, which can be belonging to the second respondent, which can be proceeded against for the realisation of arrears of income-tax. But we have no satisfactory evidence in regard to the same. Even so, we are unable to say that on the date when the gift deed Ex. A. 9 was executed, the second respondent could have had any intention to defeat or delay his future creditors, as he could not have anticipate such claims. He was not embarking on any trade; on the other hand, his intention appears to have been to leave this country and proceed to Pakistan.

(11) We are, therefore, unable to agree with the conclusion reached by the learned Subordinate Judge. We allow this appeal. There will be no order as to costs.

(12) Appeal allowed.


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