Calcutta High Court
Anandilal Goenka And Ors. vs Tax Recovery Officer And Ors. on 30 July, 1992
Equivalent citations: [1994]208ITR46(CAL)
JUDGMENT Ajit Kumar Sengupta, J.
1. In this writ application, the petitioners, who are the trustees of a public charitable trust known as the Birla Seva Trust (in short "the Trust"), have challenged an order of attachment dated June 7, 1977, under Rule 26(1)(ii) of the Second Schedule to the Income-tax Act, 1961 '(in short "the Act"), issued by the Tax Recovery Officer-II (Income-tax), Jaipur (in short "the TRO"), on the trust in respect of an alleged demand bt tax against a private trust, known as Raja Baldeodas Birla Santatikosh Trust (in short "the private trust"). The petitioners have also challenged an order dated June 22/27, 1977, passed by the said Tax Recovery Officer rejecting the claim of the trust that the said shares were not liable to be attached for the alleged tax dues of the said private trust. The petitioners have also challenged a notice of attachment dated February 15/17, 1977, under rule 31, and a letter dated November 9, 1977, of the Tax Recovery Officer in respect of the said shares and/or dividend accruing thereon.
2. The facts of the case are that the Birla Seva Trust was created under a deed of trust dated June 15, 1977. The office of the trust is situated at Calcutta. The trust is the owner of, inter alia, 2,01,875 ordinary shares of Pilani Investment Corporation Ltd. (in short the "said shares"). The shares were received by the trust from another public charitable trust called Birla Jankalyan Trust which in its turn had received the same from a private discretionary trust known as Raja Baldeodas Birla Santatikosh (in short the "private trust"). In respect of the said shares owned by the trust a declaration under Section 153B(1) of the Companies Act, 1956, was duly filed with the public trustee on August 14, 1972. The income from the said shares has been received by the trust and utilised for public charitable purposes in accordance with the objects of the valid trust.
3. The facts and circumstances giving rise to the alleged tax demand against the said private trust are, inter alia, as under :
(a) The said private trust was created by a deed dated May 20, 1943, by the late Jugal Kishore Birla for the benefit of the male descendants of Raja Baldeodas Birla, their wives, widows and daughters. The said private trust, in May 1943, had received from a limited company diverse shares for being held for useful objects. The settlor and the major beneficiaries of the said private trust and the said limited company which had given the said shares decided that the said shares should be made over to a public charitable trust and, accordingly, the same were made over to the said Birla Jankalyan Trust on March 30, 1964.
(b) After the said shares were transferred by the said private trust to Birla Jankalyan Trust the income and/or wealth relating to the said shares were not assessed in the hands of the private trust for the assessment years 1964-65 to 1969-70.
(c) For the first time in the assessment year 1970-71, the Income-tax Officer assessing the said private trust took the view'that the trustees of the said private trust could not donate the said shares to the said Birla Jankalyan Trust and the said donation was void ab initio. He, accordingly, assessed the income in respect of the said shares in the hands of the said private trust and raised a demand. Similar assessments were made by him for the assessment years 1971-72 to 1974-75. For the assessment year 1970-71, the appeal of the said private trust against the said order of assessment was allowed by the Appellate Assistant Commissioner of Income-tax, but on further appeal by the Income-tax Officer, the Jaipur Bench of the Income-tax Appellate Tribunal (in short "the Tribunal") upheld the order of the Income-tax Officer and held that the transfer of the said shares by the said private trust was void and the income was liable to be assessed in the hands of the said private trust. Against the said order of the Tribunal, Jaipur Bench, a reference is pending before the Rajasthan High Court.
(d) For the assessment years 1971-72 to 1974-75, the Appellate Assistant Commissioner dismissed the appeals of the said private trust against the said orders of assessments of the Income-tax Officer following the said decision of the Tribunal, Jaipur Bench, for the assessment year 1970-71. The said private trust preferred appeals against the said orders of the Appellate Assistant Commissioner for the said assessment years 1971-72 to 1974-75 to the Tribunal, Jaipur Bench. During the pendency of the said appeals before the Tribunal, Jaipur Bench, the Central Board of Direct Taxes transferred the income-tax cases of the said private trust to Calcutta and the said appeals before the Tribunal, Jaipur Bench, were transferred to the Calcutta Bench.
(e) The said appeals of the private trust for the assessment years 1971-72 to 1974-75 were heard by the Calcutta Bench of the Tribunal which differed from the view taken by the Jaipur Bench of the Tribunal in the appeal for the assessment year 1970-71 and held that the transfer of the said shares to the said Birla Jankalyan Trust by the said private trust was not void but was at best voidable and that the income in respect of the said shares was not the real income of the said private trust and could not be assessed in its hands. The appeals of the said private trust for the said assessment years 1971-72 to 1974-75 were accordingly allowed. At the instance of the Department, the Tribunal referred to this court questions of law arising out of its said order which, inter alia, were (i) whether the transfer of the said shares by the said private trust to Birla Jankalyan Trust was valid or void or voidable and (ii) whether the income in respect of the said shares was the real income of the said private trust assuming that the said transfer was void. The said reference was numbered as Income-tax Reference No. 313 of 1980 (see , in this court.
(f) The Income-tax Officer, Calcutta, gave effect to the said orders of the Jaipur and Calcutta Benches of the Tribunal for the assessment years 1970-71 to 1974-75 and the demands raised against the said private trust for the assessment years 1971-72, 1972-73, 1973-74 and 1974-75 were set aside. The purported demand against which the purported order of attachment was passed by the Tax Recovery Officer now stands restricted to the assessment year 1970-71 in view of the contrary decision of the Jaipur Bench of the Tribunal.
4. The said reference at the instance of the Department for the assessment years 1971-72 to 1974-75 against the orders of the Tribunal, Calcutta Bench, came up for final hearing before this court and by a judgment delivered on June 29, 1990, this court held that the transfer of the said shares by the said private trust was not void and was valid and binding so long as they were not questioned by any beneficiary of the said private trust and was set aside. It was further held that the Income-tax Department is not entitled to question the validity of the said transfer since it was not a beneficiary and was a stranger. It was further held that the income in respect of the said shares was not, the real income of the said private trust and could not be assessed in its hands. The said decision of this court is in Raja Baldeodas Birla Santatikosh v. CIT .
5. At page 581, the two questions of law as to whether the transfer of the said shares is valid or void or voidable and whether the income in respect of the said shares could be considered as the real income of the said private trust are set out. At pages 585 and 586, the facts regarding the assessment proceedings for the assessment years 1970-71 to 1974-75 leading to the reference to this court have been mentioned. At pages 590 and 591, this court held that the transfer was not void but was only voidable. After discussion at pages 591 to 595 of the various legal aspects, at page 596 this court held that the transfer was not void and the Income-tax Department being a stranger could not hold the said transfer void. At page 598, the distinction between a void and voidable transfer was noticed. At page 602, it was held that the donation of the said shares by the said private trust must take its'full legal effect and was not void ab initio and until it was lawfully avoided or set aside the donee-trust has a perfect legal title to the said shares and dividends, if any, thereon.
6. It is submitted by Mr. Bajoria, learned advocate for the petitioner, that in view of the said decision of the Division Bench of this court in the case of the said private trust in Raja Baldeodas Birla Santatikosh , this writ application should be allowed and the notice of attachment dated February 15/17, 1977, the order of attachment dated June 7, 1977, the order dated June 22/27, 1977, of the Tax Recovery Officer rejecting the claim of the petitioners arid his letter dated November 9, 1977, should be set aside.
7. In my view, this contention has substance. The said decision of this court is binding on the income-tax authorities who were parties to it. As held by this court, the said shares are not the property of the said private trust and the income in respect thereof could not also be assessed in the hands of the said private trust. The Tax Recovery Officer rejected the claim of the petitioners that the said shares were not liable to attachment solely on the basis of the said decision of the Jaipur Bench of the Tribunal which is no longer sustainable in view of the said Division Bench judgment of this court.
8. As a result of the said decision of the Calcutta Bench of the Tribunal and the said decision of the Division Bench of this court the demand in respect of which the said order of attachment was made stands wiped out, save and except for the assessment year 1970-71 which remains outstanding in view of the pending reference before the Rajasthan High Court. Even then the parties are bound by the decision of the court for the subsequent years. As held by the Division Bench of this court the shares in question are not the property of the said private trust and, therefore, the same cannot be attached in respect of any alleged demand against the said private trust.
9. There is another fundamental question involved. The question is whether the Tax Recovery Officer has any jurisdiction to go into the question of title while considering whether the said shares could be attached or not. In my view, the powers of the Tax Recovery Officer were limited to finding out in whose custody and possession the said shares were and he had no jurisdiction to embark upon the question of title to the said shares which only a civil court could do. In the instant case, there is no dispute that the said shares are registered in the names of the trustees of the petitioner trust and are in their custody and possession as owner thereof. The powers of the Tax Recovery Officer are analogous to those of the civil court under Order 21, Rule 58, of the Code of Civil Procedure, 1908.
10. My attention has been drawn to the decision of the Allahabad High Court in Bachu Lal v. Ram Din, . In that case, the applicant preferred an objection under Order 21, Rule 58, of the Code of Civil Procedure to the attachment of a house in execution of a decree. The said objection was rejected by the learned Munsif solely on the ground that the applicant had no title to the house in dispute because in a previous suit it was found against him that he was not a bona fide purchaser for valuable consideration. The learned Munsif ignored the question as to whether the applicant was in actual possession of the house in dispute and, if so, whether he was in possession on behalf of the judgment debtor. He has based his order rejecting the applicant's objection solely on the ground of want of title. The applicant then filed an application in revision under Section 115 of the Code of Civil Procedure. There, the learned single judge, after considering the provisions of Order 31, rules 58 and 60, observed as follows (at page 119) :
"From these two rules, it is perfectly clear that the court's duty in dealing with an objection under Order 21, Rule 58, is to concentrate on the question of possession and to decide whether the judgment-debtor is in possession of the property on his own behalf or on account of or in trust for some other person. If the court finds that the property is in the actual possession of some person other than the judgment-debtor, then it has to decide whether that possession is in trust for or on behalf of the judgment-debtor. The court is not concerned with the question of title to the property and is in fact incompetent to consider and decide that question. The order of release or otherwise must be based entirely upon the finding on the question of possession."
11. A similar view has been taken by a learned single judge of the Bombay High Court in Dudharam Janardan Chimurkar v. Balaji Raghobaji Band, . There the Bombay High Court after considering, inter alia, the decision of the Allahabad High Court in Bachu Lal v. Ram, Din and the decision of this court in Hindusthan Commercial Bank Ltd. v. Laxmi Narayan Saha, , held that the inquiry under Order 21, Rule 58, should necessarily be of a summary nature and the objection should be decided principally on the basis of possession. If complicated questions of title or other facts are involved, then the party has to establish its right by filing a suit. The question of title is required to be gone into only so far as it may be necessary to determine whether the person in possession holds such possession as agent or as trustee for another and if it be found that the judgment-debtor is in possession of the attached property the further issue whether his apparent possession is his real possession will not be gone into.
12. My attention has also been drawn to a decision of the Bombay High Court (Nagpur Bench) in Gangadhar Vishwanath Ranade (No. 2) v. Tax Recovery Officer .
13. In that case, the court was concerned with the ambit of the power of the Tax Recovery Officer under Rule 11 of the Second Schedule. In that case, the assessee executed a mortgage of an immovable property in favour of a bank after he received a certificate from the tax authorities under Section 230A. In 1969, he executed a trust deed which was registered in favour of his wife and daughter in respect of the property. The assessee's wife agreed to take over the mortgage liability. On February 27, 1969, the assessee conveyed the property to his wife and daughter by a registered deed. In October 1972, the property was attached in recovery of the assessee's tax dues and the Income-tax Officer passed an order on May 9, 1974, under Section 281 wherein he held that the transfer of property was void. A writ petition against the order dated May 9, 1974, was dismissed on the ground that what was represented to be an order was no more than an internal decision of the tax authorities to proceed against the property. In September 1981, the Tax Recovery Officer passed an order under Section 281 holding that the provisions of Section 281 were applicable to the case and that the mortgage deed, the trust deed and the conveyance deed dated February 27, 1969, were void. In that case, the assessee held that the ambit of the power of the Tax Recovery Officer under Rule 11 of the Second Schedule was not called in question in the earlier writ petition. The judgment in the earlier petition did not preclude the petitioners from contending that the Tax Recovery Officer had no power to declare the transfer of property void.
14. There the Bombay High Court observed as follows (at page 182) :
"The Tax Recovery Officer acting under Rule 11 of the Second Schedule must direct his investigation to possession. It is not open to him to go into complicated questions of title. But, if in the course of such investigation as to who is in possession of the property attached, a question of some legal right, interest or title arises and if it affects the determination of the question as to who is the person really in possession, he can take such legal right, interest or title into account."
15. It must be observed that the provisions of Rule 11 of the Second Schedule are analogous to Order 21, Rules 58-61 and 63 of the Code of Civil Procedure as they stood until Rule 58 was amended in 1976. Having regard to the principle laid down in these decisions in my view, therefore, the shares having been registered in the names of the trustees of the petitioner trust and having been in their custody and possession as owners thereof, the Tax Recovery Officer could not go into the question of title.
16. The next contention which has been urged is with regard to the jurisdiction of this court to entertain the writ application. It has been contended on behalf of the respondents that this court has no jurisdiction to entertain the writ application. In my view, the contention made on behalf of the respondents is wholly misconceived. This court can always entertain an application under Article 226 of the Constitution if any part of the cause of action arises within the jurisdiction of this court.
17. Firstly, the attached shares were lying with the petitioners at Calcutta, by the impugned order of attachment the property lying at Calcutta, has been effected. Secondly, attachment of the said shares was made at Calcutta. Under Schedule II to the Act the attachment of the shares is required to be made in the manner laid down in Rule 26, viz., by making an order prohibiting the shareholder from transferring the shares and from receiving any dividend in respect thereof. The said order of attachment was addressed to and served on the trust at Calcutta. The said order of attachment can take effect only when it is served on the shareholder who is prohibited and restrained thereunder. The attachment is made only by serving the prohibitory order. Under Rule 26 of Schedule II to the Act service of such order is a statutory requirement.
18. In Everest Coal Co. Pvt. Ltd. v. Coal Controller [1986] 90 CWN 438, the Division Bench of this court held that in order to maintain a writ application the petitioner has to establish that within the territorial limits of the court's jurisdiction prime facie a legal right claimed by him has been either infringed or is threatened to be infringed by the respondents. Such infringement may take place by causing him legal injury or threat thereof. Accordingly, when the impugned act of the respondent takes effect within the territorial jurisdiction of a particular High Court, the court may entertain the writ petition of the person aggrieved notwithstanding that the respondents have the offices or residences outside its territorial jurisdiction. An order which has been made by an authority or person at a place beyond the territorial jurisdiction of a particular High Court but is given effect to against the petitioner within the said High Court's jurisdiction gives rise to at least a part of the cause of action at the place where it is implemented. When an order becomes effective only when it is communicated or served, the service of the order or receipt of a notice thereof would form part of the cause of action for the filing of a writ petition by the person aggrieved thereby.
19. Thus when the impugned act of the respondents takes effect within the territorial jurisdiction of this High Court, this court could entertain the writ petition by the person aggrieved notwithstanding that the respondents have their offices, residences outside its territorial jurisdiction.
20. The cases of the said private trust against whose demands the attachment was made had been transferred to Calcutta. The orders vacating the said demands have been passed by the Income-tax Officer at Calcutta. Even if the writ petition is returned on the ground that all the authorities are outside the jurisdiction still a fresh writ petition can be filed now at Calcutta in view of the fact that the assessments of the said private trust are now made at Calcutta.
21. For the aforesaid reasons, I am of the view that in the facts and circumstances of the case this court has jurisdiction to entertain this writ application and the contention to the contrary has to be rejected.
22. In the result, this application succeeds. Rule is made absolute. The notice of attachment dated February 15/17, 1977, the order of attachment dated June 7, 1977, the order dated ]une 22/27, 1977, of the Tax Recovery Officer and his letter dated November 9, 1977, are set aside and quashed.
23. There will be no order as to costs.
24. This judgment and order will also govern C. R. No. 6550 (W)/77.