Law Web: Whether Revenue is entitled to attach properties of Private Trust to recover dues of trustees?

The controversy then remaining in the

present Petition is whether the Revenue is

entitled to attach the properties belonging to a

Private Trust to recover dues of the trustees, who

was a director of a company which had allegedly

defaulted in paying its tax dues. The contention

of the Revenue appears to be that the property

being attached does not belong to the Trust but is

a property of one late Mrs. Sushila Laliwala- the

mother of the defaulting trustee. Therefore, the

properties could be attached to the extent it

devolved upon the ex-director of the defaulting

company as her legal heir.

10. Mr. Suresh Kumar appearing on behalf of the

Revenue also fairly submits that pursuant to issuance of the

Letters of Administration by this court to the trustees of the

trust, the above position is settled in law that the subject

properties stand in the name of the trust and do not belong to

the original petitioner No.1 against whom the Revenue has

initiated recovery proceedings. He however submitted that

the recovery proceedings being civil in nature would however

continue against the original petitioner No.1 and his estate in

the hands of his legal-heirs and representatives. But in so far

subject properties are concerned, he has fairly accepted the

position that continuance of the attachment orders would now

not be sustainable in law in view of the Letters of

Administration issued to the trust.

IN THE HIGH COURT OF JUDICATURE AT BOMBAY

ORDINARY ORIGINAL CIVIL JURISDICTION

WRIT PETITION NO.1657 OF 1998

Rajesh T. Shah Vs The Tax Recovery Officer

CORAM : UJJAL BHUYAN, &

MILIND N. JADHAV, JJ.

PRONOUNCED ON : 13th March 2020.

JUDGMENT (PER MILIND N. JADHAV, J.) :-

1. By this petition under Article 226 of the

constitution of India, petitioners have challenged the

following :-

“(i) order dated 15th December, 1993 issued

under Section 179 (1) of the Income Tax Act,

1961, (the Act);

(ii) demand notice dated 20th January, 1994; and

(iii) three orders of attachment dated 27th

August, 1997 and seven garnishee notices issues

under Section 226 (e) of the Act.”

2. The original petitioners namely Harish R. Laliwala,

Suresh Kantilal rhokshi, Rajesh T. Shah and Devila H. Laliwala

who were trustees of Ramniklal r. Laliwala Family Beneft Trust

(hereinafter referred to as ‘the trust’) have filed this Petition

on behalf of the trust for the above reliefs. The trust was

settled by one Smt. Sushila R. Laliwala, wife of Ramniklal r.

Laliwala under a deed of trust dated 14th April 1978 for the

beneft of her grand children. Originally, as per the trust deed

the following four trustees were appointed viz.;

(i) Sushila R. Laliwala

(ii) Harish R. Laliwala

(iii) Suresh Kantilal rhokshi

(iv) Jyotsna Praful Laliwala

2.1. Thereafter, the constitution of the trustees was

changed and at the time of fling of the Petition the trustees

were :

(i) Harish R. Laliwala

(ii) Suresh Kantilal rhokshi

(iii) Rajesh T. Shah

(iv) Devila H. Laliwala

3. During the pendency of this petition Harish R.

Laliwala and Suresh Kantilal rhokshi passed away and their

names were deleted. The third trustee viz; Amita Apurva

Laliwala who was added as trustee was impleaded as

petitioner No.3 in the Petition.

4. This court after hearing the matter for some time

on 27th October 2014 passed the following order :-

“This Petition under Article 226 of the

ronstitution of India, challenges:-

(i) order dated 15th December 1993 issued

under Section 179 (1) of the Income Tax Act,

1961 (the Act);

(ii) demand notice dated 20th January,

1994; and

(iii) three orders of attachment dated 27th

August, 1997 and seven garnishee notices issues

under Section 226 (e) of the Act.

2. This Petition was heard for sometime.

We were not inclined to set aside the order dated

15th December 1993 passed under Section 179

(1) of the Act.

3. The controversy then remaining in the

present Petition is whether the Revenue is

entitled to attach the properties belonging to a

Private Trust to recover dues of the trustees, who

was a director of a company which had allegedly

defaulted in paying its tax dues. The contention

of the Revenue appears to be that the property

being attached does not belong to the Trust but is

a property of one late Mrs. Sushila Laliwala- the

mother of the defaulting trustee. Therefore, the

properties could be attached to the extent it

devolved upon the ex-director of the defaulting

company as her legal heir.

4. At this stage, we were informed that the

Will of late Mrs. Sushila Laliwala was the subject

matter of contest in Testamentary Suit No.38 of

1999 in Testamentary Petition No.721 of 1998.

By an order dated 6th April, 2011, this court had

directed the Registry to process the Testamentary

Petition No.721 of 1998 and grant probate to the

Plaintif i.e. the defaulting director and trustee in

this case. However, we were fairly informed by

Mr. Jagtiani, that the Registry has not yet granted

the probate as there is an outstanding caveat

pending in the court Registry.

5. The decision in this Petition would, inter

alia, depend upon whether or not, the probate

has been granted to the Will of late Mrs. Sushila

Laliwala. This is so as if the probate is granted

then the attached property would certainly

belong to the Trust. However, in case, the

probate is not granted, then the attached

property to the extent of the share devolving

upon the defaulting trustee on intestate

succession could be a subject of recovery of tax

dues.

6. In view of the above, the Petition is

being adjourned by a period of four weeks, to

enable the Petitioner to obtain some clarity in

respect of the grant of probate to the Will of late

Mrs. Sushila Laliwala. While adjourning the

matter, it is made clear that Mr. Jagtiani, learned

counsel appearing for the Petitioner does not rest

his case merely on the grant of probate but seeks

to make legal submission which would entail

quashing of the attachment proceedings and

garnishee notices.

7. Accordingly, stand over to 1st December,

2014.”

5. At the outset, Mr. Jagtiani learned senior counsel

appearing on behalf of the petitioners submitted that, at the

time of passing of the above order dated 27th October 2014,

the Will of late Smt. Sushila R. Laliwala was not probated as

there was an outstanding caveat pending in the court

Registry. However, subsequently on 31st January 2017 this

court was pleased to issue Letters of Administration with the

Will annexed to the property and credits of the deceased Smt.

Shushila R. Laliwala. He submitted that a true copy of the

Letters of Administration with the Will annexed thereto has

been placed on record by affidavit dated 13th February 2017.

He submitted that the subject properties described in

paragraph No.3.15 of the petition in respect of which separate

attachment orders dated 27th August 1997 had been issued

on the premise that the said properties belonged to

petitioner No.1 in his individual capacity, has now been put to

rest by virtue of the grant of Letters of Administration to the

trust. He submitted that the subject properties which had

been attached do not belong to the original petitioner No.1

Harish R. Laliwala in his individual capacity and in fact and

law juridically belong to the trust. He submitted that, the

observations made by this court in paragraph Nos.4 and 5 of

the order dated 27th August 2014 have been complied with

and accordingly sought the reliefs claimed in the Petition.

6. Mr. Jagtiani also fairly submitted that in view of the

observations recorded in paragraph No.2 of the above order,

he would not press the challenge to the order dated 15th

December 1993 passed under Section 179 (1) of the Income

Tax Act, 1961 (hereinafter briefy referred to as the “Act”)

against the original petitioner No.1. He submitted that, he

had instructions from the petitioners to not press for any

consequential action of recovery of the garnishee amounts

received by the Income Tax Department pursuant garnishee

proceedings in respect of the subject properties. Mr. Jagtiani

has therefore restricted his reliefs only in respect of the

subject properties for setting aside the attachment and the

garnishee notices on the primary ground that the said

properties belong to the trust and do not belong to the

original petitioner No.1.

7. At this stage, we would like to advert to the brief

facts of the case :-

(i) Smt. Sushila R. Laliwala during her lifetime settled

a private trust namely Ramniklal r. Laliwala Family Beneft

Trust (already referred to as "the trust" herein before) under a

trust deed dated 10th April 1978 for the benefit of her grand

children. She had four sons, one daughter and eleven grand

children. She owned three properties apart from her other

properties viz (a) Sushila Sadan Building at Khar (West), (b) a

residential Flat, 5th Floor, 25/26, Girichaya, Band Stand

rhowpaty, Mumbai 400 006 and (c) tenanted premise being a

shop at Kothari Mansion, Parikh Street, Mumbai 400 004.

(ii) By Will deed dated 05th March 1985 Smt. Sushila R.

Laliwala bequeathed all her properties in favour of the trust

and appointed the original petitioner No.1 namely Harish R.

Laliwala as the executor thereof.

(iii) Smt. Sushila R. Laliwala expired on 26th August 1991.

(iv) The original petitioner No.1, Harish R. Laliwala in

the year 1986 joined M/s. Verma Extrusions Pvt. Ltd.

(assessee company) as Managing Director and resigned from

the company in the year 1993.

(v) In 1990 the Income Tax Department carried out a

survey action in the case of the above assessee company,

recorded the statement of the original petitioner No.1 Harish

R. Laliwala on 31st March 1990 and passed order dated 10th

August 1992 for the assessment year 1988 y 1989

determining an income of Rs.1,06,30,449/-. In appeal before

the rommissioner of Income Tax (Appeals), the income was

re-determined only after carrying forward and setting of loss

of income. However for the assessment year 1989 y 1990

income was determined at Rs.3,63,97,719/- and after

rectifcation the income was reduced to Rs.18,86,848/-. For

the assessment year 1990 y 1991 income was determined at

Rs.1,84,01,500/- which was ultimately reduced to

Rs.1,51,51,500/- by the rommissioner of Income Tax

(Appeals). Thus, for the aforesaid three years the total

liability of the original petitioner No.1 being the Managing

Director of the assessee company was quantifed at

Rs.1,78,00,750/- by the Revenue.

(vi) Respondent No.1 thereafter by order dated 15th

December 1993 issued under Section 179 (1) of the Act held

the original petitioner No.1 Harish R. Laliwala jointly and

severally liable for payment of arrears of tax of

Rs.1,78,00,750/- in the case M/s. Verma Extrusions Pvt. Ltd. of

which he was the Managing Director.

(vii) For realisation of the above liability, by separate

attachment orders dated 27th August 1997, respondent No.1

attached the three subject properties belonging to the trust

on the premise that the said three properties belonged to the

original petitioner No.1 in his individual capacity.

(viii) The three properties as described in the

attachment orders are as under :

(a) Building ‘Sushilaben’, Road No.4, Khar (West).

(b) Flat at ‘Girichhaya’, 5th Floor, Band Stand,

rhowpati, Mumbai y 400 y 006.

Girgaon court, Parekh Street, Mumbai y 400 y 004.

(ix) Respondent No.1 also issued six garnishee notices

under Section 226 (3) of the Act to respondent Nos.5 to 10

who were the tenants in the building ‘Sushila Sadan’ at Khar.

The seventh garnishee notice was issued to the occupant of

the shop at Kothari Mansion.

8. Mr. Jagtiani submitted that the three properties

which were attached by respondent No.1 by virtue of orders

dated 27th August 1997 were properties belonging to Smt.

Sushilaben R. Laliwala and on her death have been inherited

by the trust under her Will dated 05th March 1985. He

submitted that the Will has been probated and the trust has

received the Letters of Administration which have been

placed on record. He submitted that the subject properties

have been used for the beneft of the benefciaries who are

grand children of Smt. Sushilaben R. Laliwala. He submitted

that the subject properties did not stand in the name of

original petitioner No.1 and thus he did not any right or

interest in the said properties save and except that during his

lifetime original petitioner No.1 was the managing trustee of

the trust.

9. We have perused the pleadings with the help of the

learned counsel appearing for the respective parties and the

orders passed by this court. We have also perused the

private trust deed of the trust which is placed on record, the

Will deed dated 05th March 1985 of Smt. Sushila R. Laliwala

and the true copy of the Letters of Administration issued by

this court in respect of Testamentary Suit No.38 of 1999 in

Testamentary Petition No.721 of 1998 to the trustees of the

trust. From a conjoint reading of the aforesaid documents, we

are of the view that the the subject properties namely (a)

Building ‘Sushilaben’, Road No.4, Khar (West).,(b) Flat at

‘Girichhaya’, 5th Floor, Band Stand, chowpati, Mumbai y 400 y

006 and (c) Shop at Kothari Mansion, Ground Floor, Opp.

Girgaon rourt, Parekh Street, Mumbai y 400 y 004 do not

belong to the original petitioner No.1 Harish R. Laliwala in his

individual capacity. If that be the position then the impugned

attachment orders in respect of the subject properties issued

by respondent No.1 for realisation of the liability of the

original petitioner No.1 either in his individual capacity or as

Managing Director of M/s. Verma Extrusions Pvt. Ltd.

(asseesee company) would be untenable in law and fact.