UNION OF INDIA Vs. SHANTILAL MOTILAL MEHTA

JUDGEMENT

(1.) The present suit is filed by the Union of India seeking declaration that the assignment of seven insurance policies and payment of premiums thereunder by the original defendant no. 3 is with an intention to defraud the creditor i.e. Income-tax Authorities. The plaintiffs have also sought a decree against the 4th defendant for handing over of the proceeds of all the seven insurance policies to the plaintiffs herein. Various other interim reliefs are also sought.

(2.) Some of the material facts of the present case briefly enumerated are as under :-

(3.) The original 3rd defendant took out seven insurance policies on his life and assigned five policies in favour of the wife, one policy in favour of the wife and five children and another policy in favour of wife and two sons. It is the case of the plaintiffs that the original 3rd defendant was apprehended by the Customs Authorities on 18.9.1958 and diamonds worth Rs. 2,79,900/- were found in the taxi occupied by him. This amount was included in his total income for the assessment year 1959-60 and the previous year being 1.4.1958 to 31.3.1959. It is the case of the plaintiffs that the assessment for the year 1959-60 was finalised on 21.3.1964 and the taxable income was determined as being Rs. 2,24,302/-. Accordingly, a demand was raised on the original defendant no. 3 by the plaintiffs for a tax due of Rs. 2,46,798/-. It is the further case of the plaintiffs that however the original defendant no. 3 had filed return for the previous year 1958-59 on 16.10.1959 declaring his total income at Rs. 3,190/- only. On or about 9.7.1959 the original 3rd defendant assigned his two policies which were obtained on 25.11.1953 being Policy No. 466492 and 466493 under the Married Women s Property Act, III of 1874. The beneficiary designated under the said assignment was the original defendant no. 1. On 1.6.1960 the original defendant no. 3 obtained a third policy from LIC being Policy No. 13330674 for Rs. 15,000/- and the policy was assigned to the wife under the Married Women s Property Act, III of 1874. Thereafter the original defendant no. 3 further obtained various policies and under Section 6 of the Married Women s Property Act, III of 1874 assigned the benefits of the said policies to his wife who was the original defendant no. 1. It is the case of the plaintiffs that the notice of demand was served on the original defendant no. 3 sometime on or about 24.3.1964 and since taxes were not paid the recovery certificate was issued on 26.3.1965 which was received by the Additional Collector of Bombay on 31.3.1965. It is the case of the plaintiffs that to avoid the payment of huge tax liability the original defendant no. 3 has with intention to defraud revenue has assigned the said policies to the original defendant no. 1 and his children. It is the case of the plaintiffs that the said assignment is void by virtue of the fact that the same was with a view to defraud the revenue and/or creditors and thus the plaintiffs are entitled to declaration that the said assignment is void under proviso to section 6 (1) of the Married Women s Property Act, III of 1874. When the Income-Tax Authority issued prohibitory order on defendant no. 4 on 8.4.1971, the original defendant no. 3 filed a Misc. Petition being Petition No. 543 of 1990 in this Court challenging the said attachment of the policies towards the tax liabilities. By an order and judgment dated 17.3.1979 the learned Single Judge of this Court directed withdrawal of the attachment and observed that if the revenue authorities desire to establish that the said policies are assigned with the intention to defraud the creditors then they may follow the remedy of a civil suit. Accordingly, the present suit is filed questioning the assignment of the policies in favour of the original defendant no. 1 by the original defendant no. 3 and/or assignment in favour of the children. Both the original defendant nos. 1 and original defendant no. 3 have since expired and their legal heirs are brought on record.