1993-VIL-651-GAU-DT
Equivalent Citation: [1995] 216 ITR 644, 124 CTR 123, 74 TAXMANN 525
GAUHATI HIGH COURT
Date: 19.11.1993
LALSINGH ESTATE PRIVATE LIMITED
Vs
COMMISSIONER OF INCOME-TAX
BENCH
Judge(s) : MANISANA., SMT. M. SHARMA
JUDGMENT
The judgment of the court was delivered by
MANISANA J.-- In this reference under section 256(2) of the Income-tax Act, 1961, the following question has been referred to us by the Tribunal :
" Whether, on the facts and in the circumstances of the case, on the basis of the materials and documents produced, the Tribunal was justified in law in holding that the registered deed of release dated October 3, 1966, was not a lawful document and that the income from the properties was assessable in the hands of the assessee-company and not in the hands of the Hindu undivided family ? "
Facts.--Sri M. Lal Singh made an affidavit on April 11, 1959, declaring that he was the karta of a Hindu undivided family consisting of five members who had formed a limited private company (which we shall refer to as " the assessee-company ") ; that the land under the two periodic pattas bearing Nos. 201 and 1398 of Guwahati town issued in his name would be transferred to the assessee-company to secure the interest of the members for the use and maintenance of the whole joint family ; and that the land was for the use and maintenance of the joint family. The assessee-company was registered on June 23, 1959, with an authorised capital of two lakh rupees and the shareholders as on June 30, 1959, were five members. They were M. Lal Singh, Smt. Amrit Kaur, Sint. Ikbal Kaur, Sint. Gurbachan Kaur and Sri T. N. Singh. In other words, the assessee-company was formed by the members of the joint family as was declared in the affidavit. It appears that, on March 2, 1960, M. Lal Singh transferred the land and structures standing thereon to the assessee-company for a consideration of Rs. 1,10,000, of which Rs. 5,000 was paid in cash to M. Lal Singh and the balance of Rs. 1,05,000 was to be paid in the form of shares which were to be allocated at the direction of Sri M. Lal Singh. Accordingly, the shares were allocated as under: M. Lal Singh--750 shares valued at Rs. 75,000 ; Smt. Amrit Kaur-250 shares valued at Rs. 25,000 ; and Sint. Gurbachan Kaur-50 shares valued at Rs. 5,000. M. Lal Singh died on January 19, 1961. Before his death, he was assessed as an individual. On February 25, 1963, Sint. Amrit Kaur, the widow of Lal Singh, after the death of her husband, challenged the sale deed executed on March 2, 1960, by M. Lal Singh as invalid on the ground that the property mentioned in the deed belonged to the Hindu undivided family. On October 25, 1963, the assessee-company passed a resolution to transfer the possession of the said land to the 4 (four) surviving members of the joint family, namely, Smt. Amrit Kaur (widow), Smt. lkbal Kaur, Sint. Gurbachan Kaur and Sri T. N. Singh, by treating them as tenants under the assessee-company on nominal rental of Rs. 4,000 per annum and relegating the existing tenants occupying the same property to the position of sub-tenants under the aforesaid members of the joint family who could realise the rent from the sub-tenants. In terms of the various resolutions adopted by the assessee-company, Smt. Amrit Kaur, on behalf of the assessee-company, executed a deed of release on October 3, 1966, in favour of the Hindu undivided family. The terms of the deed of release are in the following words :
" .... 1. That the company having admitted and accepted the claim of the joint family in its general meeting held on March 24, 1964, to the effect that the transfer made in its favour by the late M. Lal Singh on March 2, 1960, in respect of the properties described in the Schedule below was illegal and void and the right, title and interest of the joint family in the said property has subsisted therein all along without any interruption, it (the company) had delivered possession of the said scheduled properties to the joint family on April 1, 1964.
2. That pursuant to the aforesaid mutual agreement the claim of the joint family for compensation for unlawful use and occupation of the said properties by the company and from August 2, 1959, to March 31, 1964, has been fully settled by adjustment against the cost incurred by the company in making the constructions, addition/alteration in the building described 'Lal Singh Mansion' in the Schedule below and the difference therein having been duly settled to the mutual satisfaction of the parties.
3. That in consideration of the mutual agreement and settlement of claim to the mutual satisfaction of the parties to these presents as set forth above, the abovenamed company, the Lalsingh Estate (Private) Limited, of Gauhati do hereby release and relinquishes whatever right, title and interest it had in the property described in the Schedule below and also hereby affirms and declares that the said company shall not have any claim, right, title and interest in the said property and in case any claim of any kind is at any time made by the company or its heirs/successors/assignees, the same shall be treated as void and would be liable to be annulled on the strength of their deed."
The assessment years are of 1962-63 to 1969-70. The Assessing Officer held that M. L. Singh was the absolute owner of the land and it was validly transferred by him to the assessee-company and, therefore, the land and building standing thereon belonged to the assessee-company despite the so-called release deed, The Appellate Assistant Commissioner, on appeals, confirmed the orders of all assessment years. There were appeals by the assessee-company before the Tribunal. The Tribunal observed that M. L. Singh was the absolute owner of the land and building, not the Hindu undivided family ; that the transfer of property made by M. L. Singh to the assessee-company could not be challenged ; that there was no evidence that the joint family did at all exist ; that the joint family had no locus standi to question the transfer ; and that the release deed was without any lawful authority as the joint family did not own the property. Thereafter, the Tribunal held that the release deed was neither based on facts nor on law and, therefore, it was merely a vehicle of tax evasion and an instrument to circumvent tax obligations.
The question which arises for consideration is whether the deed of release in question was not lawful in the sense that it was used for tax evasion or to circumvent tax obligations.
In CIT v. B. M. Kharwar [1969] 72 ITR 603, the Supreme Court has held that the taxing authority is entitled, and is indeed bound, to determine the true legal relation resulting from a transaction. If the parties have chosen to conceal by a device the legal relation, it is open to the taxing authorities to unravel the device and to determine the true character of the relationship. But the legal effect of a transaction cannot be displaced by probing into the " substance of the transaction ". In CIT v. Sri Meenakshi Mills Ltd. [1967] 63 ITR 609, the Supreme Court has held that the court has power to disregard the corporate entity if it is used for tax evasion or to circumvent tax obligations. In Juggilal Kamlapat. v. CIT [1969] 73 ITR 702, the Supreme Court reiterated that the court had power to disregard the corporate entity if it was used for tax evasion or to circumvent tax obligations or to perpetrate fraud, and that the income-tax authorities were entitled to pierce the veil of corporate personality and look at the reality of the transaction.
The ratio of the decisions of the Supreme Court in the abovecited cases is that the court, or the income-tax authority, has the power to lift the veil and examine the nature of the transaction if it is used for tax evasion or to circumvent tax obligation and the court has power to reject such a transaction for the purpose of the taxing statutes.
Coming to the case on hand, considering the terms of reference, we proceed with the case assuming that M. L. Singh was the karta of a Hindu undivided family. The transfer of the properties by M. L. Singh to the assessee-company was for a consideration of Rs. 1,10,000. The price of the properties was paid to M. L. Singh partly in cash and partly in the form of shares, as already stated. The affidavit indicates that the pattas of the land were in the name of M. L. Singh, not in the name of the Hindu undivided family. He had not stated in the affidavit that the land and building standing thereon were joint family properties. In the plaint of Title Suit No. 84 of 1950 filed by M. L. Singh, he stated that he was the owner of the land under Dag No. 1342 of periodic patta No. 201. Since the land and the structures standing thereon were in the name of M. L. Singh, it shall be presumed that they were the individual properties of M. L. Singh. It is true that from the juristic point of view, a company registered under the Indian Companies Act and the Hindu undivided family are separate legal personalities or entities, that is to say, a company is entirely distinct from the Hindu undivided family. In the present case, the shareholders of the assessee-company and the members of the Hindu undivided family were/are the same persons. During the lifetime of M. L. Singh, the profits or benefits from the properties were enjoyed by the company or the five members of the joint family as shareholders of the assessee-company, for more than two years by making additional constructions and also alteration of the then existing building. But, on the objection of Smt. Amrit Kaur that the properties in question were joint family properties and the sale was invalid, the assessee-company took a decision to transfer the possession of the properties by treating the surviving members of the Hindu undivided family as tenants under the assessee company. If the surviving members of the Hindu undivided family were treated as tenants under the assessee-company in respect of the properties in question, how any of the members of the Hindu undivided family could assert title against the assessee-company ? That apart, if the sale of the properties by M. L. Singh to the assessee-company was nullified by the assessee-company at the instance of Amrit Kaur, M. L. Singh or his heirs are to pay back the money received by M. L. Singh, as the price of the properties, to the assessee-company. There is no material to show such repayment to the assessee-company. Therefore, the decisions of the assessee-company to transfer the possession of the properties was for the purpose of securing some other advantage, say, evasion of tax. It is settled that the law does not permit a person to approbate and reprobate. No party can accept and reject the same instrument, that is to say, a person cannot say at one time that a transaction is valid and thereby obtain some advantage, to which he could only be entitled on the footing that it is valid, and then turn round and say it is void for the purpose of securing some other advantage (see R. N. Gosain v. Yashpal Dhir, AIR 1993 SC 352). This being the situation, any of the members of the Hindu undivided family could not invalidate the sale of the properties by M. L. Singh.
Proceeding further, there is no bar to conveying or transferring the land to the Hindu undivided family by the assessee-company in the cir cumstances of the case. The question which, therefore, arises for consideration is whether the deed of release executed by Smt. Amrit Kaur will operate as a conveyance. In Thayyil Mammo v. Kottiath Ramunni, AIR 1966 SC 337, the Supreme Court has held that a registered instrument styled a release deed releasing the right, title and interest of the executant in any property in favour of the releasee for valuable consideration, may operate as a conveyance, if it clearly discloses an intention to effect a transfer. In Kuppuswami Chettiar v. A. S. P. A. Arumugam Chettiar, AIR 1967 SC 1395, the Supreme Court has held that a release can be usefully employed as a form of conveyance by a person having some right or interest, to another having a limited estate and the release then operates as enlargement of limited estate ; and a deed called a deed of release also can, by using words of sufficient amplitude, transfer title to one having no title before transfer.
In view of the above decisions of the Supreme Court, it follows that a deed of release or instrument styled a release deed, in given cases, may operate as a conveyance if it clearly discloses an intention to effect a transfer for valuable consideration. Therefore, the deed of release in question should be for valuable consideration in order that it may operate as a conveyance. The release deed does not indicate the consideration amount. It does not mention how Rs. 1,10,000 was repaid by the Hindu undivided family to the assessee-company. Clause (2) of the deed indicates only the mutual agreement and settlement of claim of the Hindu undivided family for the alleged unlawful use and occupation by the assessee-company. Clause (3) of the deed indicates the mutual agreement, and settlement of the claim to mutual satisfaction of the parties in respect of the alleged unlawful use and occupation. Therefore, the deed of release does not show consideration. For these reasons, the deed of release does not operate as transfer or conveyance.
On the facts and in the circumstances of the case, the deed of release was not lawful for the purpose of a taxing statute. In that view of the matter, the question referred is answered in the affirmative, that is, in favour of the Revenue.
A copy of this order under the signature of the Registrar and seal of the court will be sent to the Appellate Tribunal.
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