RAJESWARI AND CO Vs. UNION OF INDIA

JUDGEMENT

(1.) THE only question that arises for determination in this appeal filed by defendants 2 to 13 is whether the sales of the suit properties by the first defendant, which is a public limited company in favor of the second defendant firm of which the partners are defendants 3 to 13, were effected with intent to defeat or delay the Union of India and other creditors of the first defendant company. THE Union of India represented by the Commissioner of Income-tax, Madras laid the suit under Section 53 of the Transfer of Property Act on its own behalf and on behalf of other creditors, if any, of the first defendant company for a declaration that the sale deed Ex. B-1 dated 27-2-1961 in respect of the plaint mentioned immovable properties and the sale of the movables properties by the first defendant company in favor of the second defendant firm were invalid and not operative and not binding on the plaintiff and other creditors of the first defendant company as having been made to defeat the just claims of the plaintiff and other creditors. It was also prayed that the said transfers may be cleared not binding upon the creditors of the first defendant company and that the plaintiff was entitled to recover arrears of income-tax due from the first defendant company from out of the plaint schedule properties. THE suit has been decreed by the trial court as prayed for and hence this appeal.

(2.) THE first defendant company was incorporated in the year 1946 with the object of carrying on business of seed crushers oil extractors etc. THE first defendant company did not make any profit in the business. In the year 1952, the first defendant company entered into a partnership with the second defendant firm called Rajeswari and Co., and started a factory called Rajapalayam cotton Pressing Factory, in which the second defendant company had 7 out of 16 shares. This partnership was re-constituted in the year 1954. Even as per the re-constituted firm the first defendant company continued to have 7 out of 16 shares. THE first defendant company in its own activities, incurred loss, but the partnership earned profits, in which the first defendant company got its share. THE first defendant company claimed set off of the profits so earned against the loss incurred in its own business. One Gnanaprakasam, an Income-tax Officer of Virudhunagar who was on the eve of his retirement allowed the set off. But his successor Thirunavukarasu who was examined as P.W. 1 in this case found that the set off was improper and ought not to have been allowed his view being that on account of the loss incurred by the first defendant company it ceased to carry on its business that the loss automatically lapsed and that therefore there was no scope for carrying forward the loss and setting off the loss against the profits earned by the first defendant company in a different venture. On this basis the matter was reopened under Section 34 of the Income-tax Act and a sum of Rs. 28,240-96 was levied as income-tax by order dt./- 4-10-1961, by reopening the assessments of the year 1956-57 to 1959-60. But even before this order was passed the first defendant company sold away all its immovable properties in favor of the second defendant under Ex. B-1 on 27-2-1961 for Rs. 1,30,000 and also sold all its movable properties and good will in favor of the second defendant firm for Rs. 40,000/- on 2-3-1961. It is in these circumstances that this suit was instituted for the reliefs indicated above.

(3.) THE contention urged on behalf of the plaintiff. Union of India is that the properties of the first defendant company were worth nearly about Rs. 3 1/2 lakhs and that the said properties have been sold away for inadequate consideration for Rs. 1,30,000/-. In support of this contention reliance is placed upon Ex. A.59 which is a report submitted by one Sankara Iyer retired Engineer on behalf of the South Indian Bank Ltd., the 14th defendant to whom the second defendant firm applied for a loan after getting a sale of the properties of the first defendant company. In that report, Sankara Iyer estimated the value of the properties at Rs. 3,48,727. Sankara Iyer was not examined though he was available to give evidence. A clerk of the 14th defendant bank gave evidence as P.W. 2. He proved the signature of Sankara Iyer in Ex. A.59 and stated that he accompanied the said engineer when the latter inspected the properties. But he admitted that he did not know on what particulars the engineer assessed the value. THEre is also nothing to show that he accompanied the engineer at the time of the inspection of the properties. As Sankara Iyer, though available was not called no weight could be attached to Ex. A.59.