C BALAIAH Vs. CENTRAL GOVERNMENT

JUDGEMENT

(1.) A. S. No. 188/59. This appeal arises out of O. S. No. 19/57 on the file of the Subordinate Judge's Court, Nellore, which was filed by the Union of India, represented by the 1st Additional Income tax Officer. Nellore against four Defendants for a declaration that the equitable mortgage dited 1-4-1953 executed by Defendants 1 to 3 in favour of the 4th defendant in respect of the properties described in the schedule attached to the plaint, is a sham, nominal and void transaction and that the decree obtained thereon in O. S. No. 316 of 1953 is a fraudulent and collusive decree and that the further proceedings in execution of the decres cannot affect the priority of the Plaintiff in respect of the income-tax arrears of Rs. 55, 298-15-0 for the assessment year 1951-52, the assessees being Defendants 1 to 3. The 1st Defendant is the father and Defendants 2 to 4 are his sons. The Plaintiff's case, as disclosed in the plaint, is shortly as follows : The 4th Defendant, who is the eldest son of the 1st Defendant, got divided from the family in the year 1940 and was ever since carrying on business separately on his own account and in partnership with others. Defendants 1 to 3 were assessed to income-tax at Rs. 55,298-15-0 under Section 23 (4) of the Income-Tax Act for the assessment: year 1951-52. The Order of assessment is dated 31-3-53: and it was served on the 1st Defendant on 5-8-53. Defendants 1 to 3 filed a Writ Petition, W.P. No. 746/53 on 7-9-53 in the High Court of Madras for the issue of a Writ of Prohibition or other appropriate writ prohibiting the plaintiff from executing the order of assessment and collecting the tax. They also filed a Petition for stay and finally, an order was passed on 19-10-53 directins Defendants 1 to 3 to pay the tax in 12 monthly instalments of Rs. 5000/-each beginning from 1-12-53. Again, the assesses filed a further application in the High Court offering to give adequate security for the tax and expressing inability to pay the instalments. Then, the Court passed a consent order that all the immoveble properties of defendants 1 to 3 will be attached and that the attachment will continue till the dispjsal of the writ petition. The Plaintiff was not informed of the existence of any encumbrance ovet the properties. But the 4th defendant filed O. S. No. 316/53 against defendants 1 to 3 praying for a preliminary mortgage decree for Rs. 84,142-3-6 alleging that tht said sum was due to him on the basis of a mortgage by deposit of title deed dated 1-4-53. The said suit was filed on 4-12-53. There was a preliminary decree on 20-1-1954, which was followed by a final decree dated 15-9-1954. The 4th Defendant next sought to execute the final decree in the mortgage suit. It is further alleged in the plaint that the debt alleged to be due to the 4th Defenddant from Defendants 1 to 3 is a fictitious one and that the alleged transactions, which were carried on between defendants 1 to 3 and the 4th defendant were also fictitious. The alleged mortgage by daposit of title deeds is a bogus transaction created with a view to screen the properties of defendants 1 to 3 from being proceeded against for recovery of the income-tax, but there was really no debt owing by defendants I to 3 to the 4th deiendant. It is further alleged that on the foot of this sham and nominal mortgage, the 4th defendant filed a suit, O. S. No. 316/53 in the Subordinate Judge's Court. Nellors and obrained the fraudulent and collusive preliminary decree and final decree for a sum of Rs. 84,142-3-6. Oa thaae allegations,the plaintiff prayed for the declaration above referred to. Defendants 1 to 3 were ex parte. The 4 th defendant filed a written statement denying the allegations in the plaint. He asserted that the accounts between himself and defendants 1 to 3 were settled on 31-3-53 and it was found that a sum of Rs. 77.925-7-2 was owing to the 4th defendant.

(2.) In order to secure the repayment of the money already due. defendants 1 to 3 deposited their title deeds relating to the properties described in the schedule with the 4rh defendant and thus created a mortgage by the deposit of title deeds under Sec, 53 of the TRANSFER OF PROPERTY ACT, 1882. On 31-3-5S itself, defendants 1 to 3 executed a promissory note it page 194 of the 4th defendant's account book. On the next day i. e, 1-4-53, defendants 1 to 3 executed a memorandum letter containing the list of title deeds to serve as evidence of record of the transaction completed on 31-3-53. They denied that the decrees in the mortgage suit are fraudulent and collusive. On these pleadings, seven issues were framed of which it is necessary in this appeal to refer to the first two issues :

(3.) After a full discussion of the entire evidence, the lower Court held that it is unable to accept the contention of the Plaintiff that there was no real debt and that the entries in the Accounts are merely accommodation entries to help defendandts 1 to 3 to conceal their income from being assessed. It further held that the plaintiff failed to show that there was no real debt and that the anthakam promissory .note was not supported by consideration. The lower Court was inclined to accept the version of the 4th defendant and held that the Anthakam promisory note. Ex, B. 6 was fully supported by consideration and that the detendants 1 to 3 were due to the 4th defendant the amount for which the said pro;rrssory note was execitid. Therefore, the plaint;tf's case that there was no debut as all deremem detendants 1 to 3 to the 4th defendant which formed the consideration for the procassory note and which is also alleged on final the consdaction for the moregage by deposit of title deeds is rejected by the lower coart. But the lower court earlier in its judgment discussed the question whether the meinorandum letter dated 1--I-53 and which is" "marked as Ex. 6-23 is inadmissible in ev dence for want of registration under Sections 17 and 49 ot the Indian REGISTRATION ACT, 1908. It held that the said memorandum required to be registered and that, as it is not registered, it is inadaissible in evidence and was mefrective to create a valid mortgage. In that view only the lower coure held, on Issue No. 1 that there was no valid equitable inortgage in favour or the -1th defendant. This is what the lower court staged.