CHOGMAL BHANDARI & OTHERS versus DEPUTY COMMERCIAL TAX OFFICER II DIVISION, KURNOOL

Citation: [1976] 3 S.C.R. 325 · Decided: 04-02-1976 · Supreme Court of India · Bench: R.S. SARKARIA · Disposal: Appeal(s) allowed

Judgment (excerpt)

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CHOGMAL BHANDARI & OTHERS 
v. 
DEPUTY COMMERCIAL TAX OFFICER II DIVISION 
KURNOOL 
February 4, 1976 
[R. S. SARKARIA AND MURTAZA FAZAL ALI, JJ.J 
Andhra Pradesh General Sales Tax Act-Sec. 17(1)-Whether sales tax 
-t!ues of u 0calor can be recorered fro111 tr11stees-h1dia11 Trusts A>'·t. 1882-
Sec. 4-Unlawful Trust-Transfer of Property Act-Sec. 53-Transfer wit/1 
intent to defeat or delay creditors-Liability to pay tax-Whether depends on 
assess111ent and quantification-Whether authorities 111uler Sales Tax Act can 
decide .con1plicated questions of title. 
Kollayya and Narasimaiah carried on business in partnership. The firm 
incurred huge losses and was dissolved in 1963. Kollayya's son Bala and Bala's 
son B.V.S. Rao carried on joint Hindu Family business. 
B.V.S. Rao applied, 
being a minor, through his father Bala, for registration \Vhich Vias granted by 
the Sales Tax Authorities. Thereaftei, Sales Tax Authorities continued to make 
assessment in the name of B.V.S. Rao from the year 1966 to the year 1969. 
Although B.V,S. Rao informed the Sales Tax Department that the business 
\Vas in fact carried on by the Joint Hindu family yet no assessment was made 
in the name of Joint Hindu family until 1971. Although B.V.S. Rao informed 
the Sales Tax Department that his business had come to an end and that the 
business was carried on by his grand-father Kollayya, yet the Sales Tax Depart-
1nent neither cancelled the registration of B.V.S. Rao nor issued fresh notice 
to Kollayya. 
In September, 1968, Kollayya and Narasimiah the partners of 
the dissolved firm executed a registered deed of Trust by which certain properties 
were vested in the Trustees for the purpose of paying off the creditors mentioned 
in the Trust Deed who had obtained decrees ngainst the settlors. 
In the year 
1971 assessments were made against the Joint Hindu Family and penalties \Vere 
also imposed for not paying the sales tax. 
All the assessments prior to the 
year 1971, \1.lere made in the name of B.V.S. Rao. 
Since the Sales Tax Autho-
ritie<; coukl not recover the monies from the asses~ees they issued notices under 
s, 17 ( 1) of the Andhra Pradesh General Sales Tax Act to the appellants who 
were the trustees of the said trust on the ground that the trust \Vas void and 
fraudulent. 
A 
B 
c 
D 
E 
. A w~it petition. fil~d by the appe~lants in the High Court for quashing ihe 
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sard notices was dtsmissed by the High Court on the ground that the deed of 
trust \vas fraudulent and had been executed to defeat the sales tax dues. 
On an appeal by special leave it v.ns contended by the appellants : 
( 1) Th~ moment the trust deed was executed by Kollayya and Narasa~ 
m::nah the title to those properties vested in the trustees and thus 
it \Vas beyond the reach of the Sales Tax Department, 
(2) When the impugned notice \Vas issued in 1970 tax had not been 
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quantified since the assessments were made subsecluently. 
Jt \Vas contended by the respondents that : 
( 1) K<:illayy'.1 must b~ deemed to have knowledge as the Karta of the 
Joint Hindu Family that he had in~urred sales tax liability. 
(2) Under s. 17(1) of the Act, the Sales Tax Authorities could realise 
the sales tax dues even from the trustees and the execution of the 
trust deed would not stand in the way of the recoveries. 
(3) Thed tru~th ishhi~ by s. 53 of the Tn1nsfer of Property ACt. being 
ma e \Vtt 
t e intent to defeat or delay the creditors. 
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A 
B 
c 
D 
E 
F 
G 
H 
326 
( 4) 
SUPREME COURT REPORTS 
(1976] 3 s.c.R. 
The liability of the appellants arose as early as in 1966-67 and the 
trust deed came into existence in September, 1968. 
Kollayya and 
trustees, therefore, could not be unaware of the tax liability. 
The 
creation of the trust subsequently was, therefore, a device to evade 
the payment of arrears of sales tax. 
Allowing the appeal by special leave, 
HELD : ( 1) The Sales Tax Department as also the High Court have held 
in a very summary fashion that the trust deed was void and fraudulent without 
cl?nsidering the real point of law which arose on the admitted facts. 
[329 A] 
(2) The mon1ent the trust deed was executed the trustees acquired an indepen-
dent title under the Trust. The trust deed clearly mentioned the names of the 
creditors to whom the money was to be paid. 
Under the trust, the settlors 
did not reserve any advantage or benefit for themselves. 
There is no material 
to show that the decrees obtained by the creditors were collusive a

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