Case: Kalwa Devadattam And Two Others Vs. The Union Of India And Others

1. Nagappa son of Pullanna resident of Nandyal carried on business in yarn, drugs and forward contracts. He acquired in that business a considerable estate which was treated by him as property of the joint family of himself and his sons. Nagappa and his sons were assessed by the Income-tax authorities to pay income-tax and super-tax in the status of a Hindu undivided family as set out in the following table:Year of account ending: Year of assessment Date of order. Income-tax and super-tax assessed24-3-44 1944-45 25-2-48 Rs. 51,116-7-014-3-45 1945-46 25-2-48 Rs. 21,452-1-02-4-46 1946-47 31-3-48 Rs. 21,012-13-02. Besides this amount of income-tax and super-tax he was assessed to pay penalty and excess profits tax aggregating to Rs. 26,602/- The total amount of tax due for the three years of assessment 1944-45, 1945-46 and 1946-47 aggregated to Rs. 1,23,233/5/- Nagappa did not pay the tax. The revenue authorities of the Province of Madras, at the instance of the Income-tax Department attached 51 items of immovable property as belonging to the joint family of Nagappa and his sons and put up the same for sale under the Madras Revenue Recovery Act II of 1864. Out of these 38 item were sold and were purchased by certain persons.3. Kalwa Devadattam, Kalwa Devarayulu and Kalwa Nandi Sankarappa (sons of Nagappa) - hereinafter called collectively the plaintiffs - through their mother acing as their next friend commenced suit No. 52 of 1950 in the Court of the Subordinate Judge, Kurnool, against the Union of India the revenue authorities of the State of Madras, the purchasers of the properties at the auction and Nagappa, claiming a decree declaring that the assessment orders made by the Income-tax Officer, Kurnool, for the years 1944-45, 1945-46 and 1946-47 were unenforceable against 51 items of property of the plaintiffs described in the schedule and sale of their property by the revenue authorities was "without jurisdiction, void and illegal", and an order restraining the Union of India and the authorities of the State of Madras from selling the "scheduled properties" or confirming the sale already held or that may be held after the institution of the suit. It was the case of the plaintiffs that items 46 to 51 did not at any time belong to the joint family, having been acquired by them with funds provided by their maternal grandmother Seshamma, and that the remaining items of property were not liable to be attached and sold since these had been allotted to them on a partition of the joint family estate before the order of assessment was made by the Income-tax authorities.4. The suit was resisted by the Union of India and also by the purchasers on diverse grounds. The Union contended, inter alia, that the plaintiffs were not entitled to question the correctness of the assessment of tax in a Civil Court because the jurisdiction of the Court in that behalf was excluded by S. 67 of the Indian Income-tax Act, that the plaintiffs were in any event precluded from setting up the plea of a partition between them and Nagappa as a defence to the enforcement of liability for payment of tax in view of the provisions of S. 25A(3) that the partition was sham and not intended to be operative and that items 46 to 51 were not the separate estate of the plaintiffs as contended by them. The purchasers (who were impleaded as defendants 5 to 28) contended that there was no invalidity in the proceedings for assessment of tax and that they having purchased those properties for the full amounts for which they were sold, sales in their favour though not confirmed were binding upon the plaintiffs.5. Suit No. 52 of 1950 was tried with another suit being suit No 54 of 1949 of the same Court in which also the validity of the partition dated March 14, 1947 fell to be determined, between the sons of Nagappa and the firm of Kumaji Sare Mal who were creditors under a money decree against Nagappa. The facts which gave rise to that suit are these : Kumaji Sare Mal filed suit No. 7 of 1944 in the Court of the Subordinate Judge, Anantpur against Nagappa for a decree for Rs. 10,022-10-6 due at the foot of certain transactions in yarn. This suit was dismissed by the Trial Court on the ground that the contracts for the supply of yarn were wagering contracts, but in Appeal No. 174 of 1945 the High Court of Madras decreed the suit on March 5, 1947 holding that the contracts giving rise to the liability though speculative were not of a wagering character. The High Court passed a decree for Rs. 10,000/- with interest at 6 per cent from the date of suit and costs. This decree was soon followed by the execution of the deed of partition dated March 14, 1947, between Nagappa and the plaintiffs by which the joint family estate valued approximately at Rs. 1,25,000/- was divided into four shares. To Nagappa was allotted under that partition property of the value of Rs. 31,150/- and he stood liable to satisfy debts of the value of Rs. 12,236-4-9. In execution of the decree in suit No. 7 of 1944 Kumaji Sare Mal attached some of the properties that fell to the share of the plaintiffs under the deed of partition dated March 14, 1947. Objections to the attachment preferred under O. 21 R. 58 Code of Civil Procedure by the plaintiffs were dismissed by the executing Court on July 12, 1948. The plaintiffs then filed suit No. 54 of 1949 for a decree setting aside the summary order passed in the execution proceeding claiming that the debt incurred by Nagappa being avyavaharika, the plaintiffs were not liable to satisfy the debt and that the firm of Kumaji Sare Mal was incompetent to bring to sale in execution of the decree obtained against Nagappa in his individual capacity, the interest of the plaintiffs in the joint family property after the joint family status was severed and the properties of the family were partitioned. Common evidence was recorded in the two suits.6. The Trial Judge held that the properties items 1 to 45 belonged in the relevant years of assessment to the joint family of Nagappa and his sons, and in the absence of an order recording partition under S. 25A(1) of the Indian Income-tax Act, the Income-tax Officer was bound to assess the undivided family even after partition on the footing that the family still continued to be joint. He further held that by virtue of S. 67 of the Indian Income-tax Act no action questioning the assessment could be entertained by the Courts, and that there was no irregularity in the proceedings for sale. But the Court held that on March 14, 1947 division of property of the undivided family was in fact made between Nagappa and the plaintiffs; that the partition was effected with the object of defeating the claims of the creditors including the Income-tax authorities, but it was nevertheless partition which was intended to be operative. The Court further held that items 46 to 51 were not proved by the defendants to be the joint family property of the plaintiffs and Nagappa. In suit No. 54 of 1949 the learned Judge held following Schewebo K. S. R. M. Firm v. Subbiah, ILR (1945) Mad 138 : (AIR 1944 Mad 381   ) that after a partition between members of the joint Hindu family the sons share in the joint family property cannot be proceeded against in execution so as to enforce the pious obligation of the sons to satisfy their fathers debts under a decree passed against the father alone. The learned Judge accordingly decreed suit No 54 of 1949 holding that the only remedy of the firm Kumaji Sare Mal was to proceed by a suit to enforce the pious obligation of the plaintiffs to discharge the prepartition debts.7. The plaintiffs appealed against the decree in suit No. 52 of 1950 to the High Court of Madras and the Union filed cross -objections to the decree appealed from. Firm Kumaji Sare Mal also appealed against the decree dismissing their suit No. 54 of 1949. The High Court of Andhra Pradesh to which the appeals stood transferred for hearing under the State Reorganization Act 1956 held agreeing with the Trial Court that a suit to set aside the assessment of income-tax was not maintainable against the Union and that in any event in the absence of an order under S. 25A(1) of the Indian Income tax Act, recording a partition the Income-tax authorities were bound to asses tax on the Hindu undivided family as if that status continued. The High Court also held that the partition set up by the plaintiffs was a transaction which was nominal and sham, and that the evidence established that items 46 to 51 were purchased with the aid of joint family funds and not with the funds supplied by Seshamma and therefore all the properties items 1 to 51 were liable to satisfy the tax liability of the joint family.The High court also held that the firm Kumaji Sare Mal was entitled to recover the debt due to them in execution proceeding, there being no real partition between Nagappa and the plaintiffs prior to the date of attachment. The High Court accordingly dismissed both the suits.Civil Appeal No. 642 of 1961 one of the questions being common in Appeals Nos. 641 and 642 of 1961. Suit No. 7 of 1944 was filed by the firm Kumaji Sare Mal for damages for breach of contract.

Court's reasoning:
In the present case no order under S. 25A(1) wasIt is common ground that the plaintiffs had no other source of income. As admitted by Nagappa and his clerk Venkatsami, Nagappa made large profits in his business and Rs. 18481/- out of the consideration payable under Ext. A-230 were actually paid to the vendors by Nagappa. There were before the Court two versions-one by the plaintiffs who alleged that the consideration for the sale-deed was supplied by Seshamma. That version, for reasons already stated, cannot be accepted. On the other hand there is the version that the funds belonged to the joint family of which Nagappa was the Manager and that Nagappa paid the consideration. No documentary evidence in support of either version is forthcoming : even Nagappas accounts have not been produced. But if the monies were actually paid by Nagappa and the story about Seshamma having provided the amount be disbelieved it would be a legitimate inference consistent with probability that Nagappa had for purchasing the property provided the funds out of the joint family earnings. It appears that Kumaji Sare mal who are the respondents in Appeal No. 642 of 1961 had in the suit filed by them in 1942 obtained an order for attachment before judgment over the immovable property of the joint family in the hands of Nagappa. This attachment before judgment was outstanding at the date of the sale-deed Ext. A-230. This order for attachment before judgment was vacated when the suit was dismissed by the Trial Court on August 31, 1944. This circumstance in the context of the other evidence strongly supports the contention of the Union that with a view to protect the properties from his creditors Nagappa thought of purchasing the properties in the names of his sons the plaintiffs and the consideration was advanced by him. The High Court was therefore right in holding that the properties Items 46 to 51 were of the joint family and liable to be attached and sold in enforcement of the liability for payment of income-tax. Civil Appeal No. 641 of 1961 must therefordo not think it necessary to express our opinion on the question whether the remedy of the creditor is to file a separate suit to enforce the pious obligation of a Hindu son to discharge the debts of his father, where since the decree against the father on a debt there has been a severance of the joint family status, or whether he can proceed to execute the decree against the sons interest in the property, after impleading him as a party to the execution proceeding, for we are definitely of the opinion that the High Court was right in holding that the partition was a sham transaction which was not intended to be operative.14. On March 14, 1947 the deed of partition was executed and registered. The object of this partition it is alleged was to protect the interest of his minor sons against their father who was acting to the detriment of his sons and was not even living with the family. The High Court relied upon a large number of circumstances in support of its view that the partition was nominal. The deed was executed within a week after the decree was passed by the High Court in Kumaji Sare Mals suit. Nagappa had acquired an extensive property which was on acquisition treated as joint family property and there was nothing to show that Nagappa was illdisposed towards his sons or was actuated by any desire to harm their interest. The real purpose of the partition was to save as much property as possible and to preserve it for his children. The deed of partition showed apparently an equal distribution of property valued at Rs. 1,24,600/- into four shares each of the value of Rs. 31,150/- but the properties allotted to the share of Nagappa were in reality not worth that amount. Nagappa had also to discharge a debt for Rs. 12,236/4/9 for which he was rendered liable under the deed and that debt could not be satisfied out of the property allotted to him. Again immediately after the deed of partition, Nagappa settled upon his wife Narayanamma a major fraction of that share and sold away one of houses. The intention of Nagappa to make it appear to the Income-tax Department that no useful purpose would be served by taking coercive steps as the property allotted to him and remaining after disposal of a good part of it as indicated above was wholly insufficient to meet the demands of the Department, is indeed clear. It was Nagappa who had instigated and prosecuted the suit. Narayanamma was illiterate and ignorant woman., who knew nothing about Nagappas transactions, and dealings. She did not even know what property had fallen to the share of her sons. Admissions made by her disclose that she did not manage the property though apparently she was treated as the guardian of her sons in the partition deed. The story that Nagappa was living with a mistress, and was not looking after the education and welfare of his minor sons does not appear to be supported by any reliable evidence. The eldest son was at the date of the alleged partition 14 years of age, and the youngest was three years old, and in the absence of any serious cause for the differences between Nagappa and Narayanamma partition of the estate could not have been thought of. Witness Singari Seshanna D. W. 1, has deposed that Nagappa, his wife and children were living together in the family house even at the date of the suit and that Nagappa was collecting rents from all the houses. This statement does not appear to have been challenged in cross-examination P. W. 5 Venkatsami the clerk of Narayanamma, who claimed to be looking after management of the properties on behalf of Narayanamma, admitted that he could not say which of the houses were leases and to whom; he was unable to give any particulars with regard to some of the houses. This ignorance on the part of the alleged manager lends support to the testimony of Singari Seshanna D. W. 1 that it was Nagappa who remained in management of the property, and that the family lived together and in fact there was no disruption of the joint family. It is true that many documents were produced to show that the properties were entered in the names of the sons after the deed of partition. It also appears that taxes were paid separately in respect of the houses to the local Municipality and receipts were issued in the names of persons in whose names they stood in the municipal records. But these receipts do no show the names of the persons by whom the amounts acknowledged in the receipts were paid. The High Court has believed the evidence of Singari Seshanna D. W. 1 that it was Nagappa who continued to remain in management. It is true that the plaintiffs have led evidence of two witnesses P. W. 6 and P. W. 7 who have deposed that they had assisted in making the partition. 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 show that there was no reason for arriving at athe continued management or 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 which was never intended to be acted upon and was not given effect to. If it be held that the partition was a sham transaction the plaintiffs suit for setting aside the summary order passed in execution proceeding on the application filed by the plaintiffs for setting aside the attachment must fail. The Appeal No. 624 of 1961 must therefore also fail.