FATEHSINH GAIKWAR OF BARODA Vs. A D GUPTA

JUDGEMENT

(1.) THIS suit in substance is for a declaration that the two trust deeds dt. 14th March 1959, are valid and operative and that the two properties which are the subject matter thereof are not liable to attachment for recovery of arrears of income tax from the late H. H. Maharaja Fatehsinh Gaikwar of Baroda (hereinafter referred to as "the settlor"). A number of consequential reliefs are claimed. The main prayer is for setting aside the two attachments dt. 25th and 27th July, 1970, ordered by the 1st defendant and his order dt. 10th Aug, 1971, whereby he has upheld the validity of the two attachments. It is not necessary to detail other consequential reliefs, inasmuch as both sides are agreed that if the aforesaid impugned order is upheld, the suit will have to be dismissed in its entirety otherwise; it will have to be decreed in full.

(2.) ALMOST all the material facts are admitted. The settlor is the father of the present plaintiff, H. H. Maharaja Fatehsinh Gaikwar. By the two trust deeds executed on 14th March 1959, the settlor created the trusts in respect of two properties situated at Bombay, known as "Chateau Windsor" and "Chateau Marine". He appointed himself and the plaintiff as trustees. The settlor reserved to himself the right to enjoy the properties during his lifetime. After his demise, the properties were to be enjoyed by the plaintiff's wife, Padmavati, if she survived him. The settlor died on 19th July, 1968. On 27th March 1957, the ITO sent a certificate under S. 46(2) of the Indian IT Act, 1922 (hereinafter referred to as "the old Act"), to the Addl. Collector of Bombay for recovery of arrears of income tax dues from the settlor. This order, admittedly, was passed under the old Act. On 30th March 1957, the Addl. Collector wrote a letter to the settlor requiring him to pay the dues within three days or show cause why they should not be recovered from him Admittedly, it was served on him on 4th April, 1957. On 14th March 1959, as already indicated, he executed the two trust deeds in respect of the two properties. On 12th May, 1959, the trust deeds were lodged with the Registrar, Bombay, for registration. These deeds came to be actually registered on 11th March 1971. Meanwhile, a few material events took place which may be stated here. The IT Act, 1961, came into effect on 1st April, 1962. I shall generally refer to this Act as "the present Act". On 30th March 1970, the 1st defendant, who is the TRO, Bombay III, sent a notice of demand to the present plaintiff in the latter's capacity as the heir of the deceased settlor. He referred to the earlier certificate dt. 27th March, 1957 (issued to the Addl. Collector, Bombay, under S. 46(2) of the old Act), and required him to pay arrears of tax with penalty and interest within 15 days. This notice was issued under r. 2 of the Second Schedule to the present Act. Thereafter, on 25th July, and 27th July, 1970, he issued the impugned orders directing the attachment of the two properties. Here, it may be noted that S. 34 of the WT Act, 1957, since repealed w.e.f. 1st Oct., 1964, prohibited a Registering Officer from registering any document, unless a certificate of the WTO was produced to the effect that the transferor either had made satisfactory provision for payment of the wealth tax due to the Government or that the registration of the document would not prejudicially affect the recovery of any existing liability under the Act. This constraint operated in respect of transfers worth over Rs. 1,00,000. Admittedly, the two properties in question are worth far in excess of that amount. On 8th Jan., 1971, a certificate purporting to be issued by the ITO (not WTO) was produced and it was thereafter that the two trust deeds came to be registered on 27th March, 1971.

(3.) THE plaintiff challenges the validity of this order by this suit. The defendants naturally support it. When the case came up for hearing before me on 1st July, 1987, learned counsel of both sides proposed some issues and agreed that the validity of the trust deeds may be decided and the suit finally disposed of on the basis of the findings on those issues alone, without going into the merits of the other contentions raised by the two sides. Issues are accordingly settled with their consent. They have also filed an agreed compilation of documents and closed their respective cases without leading any oral evidence. The issues so settled and my findings thereon are given below : Issues Findings