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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
UJJAL BHUYAN, MILIND N. JADHAV, JJ.
Rajesh T. Shah and others - Petitioners
Versus
The Tax Recovery Officer city – II Mumbai and others – Respondents
Writ Petition No.1657 of 1998
Decided On : 13-03-2020
Income Tax - Private Trust - Income Tax Act, 1961, Section 179(1), Section 226(e) - The court discussed the applicability of the Income Tax Act, 1961, specifically Section 179(1) and Section 226(e), in the context of attaching properties belonging to a private trust to recover tax dues of a trustee. The court emphasized the importance of probate in determining the ownership of the attached properties and ultimately set aside the attachment orders and garnishee notices.
Fact of the Case:
The petitioners challenged orders and notices issued under the Income Tax Act, 1961, regarding the attachment of properties belonging to a private trust for the recovery of tax dues of a trustee who was a director of a defaulting company.
Finding of the Court:
The court found that the attached properties did not belong to the trustee in his individual capacity and were rightfully owned by the trust, as confirmed by the probate of the trust's Will. The court set aside the attachment orders and garnishee notices, allowing the Revenue to pursue proceedings against the trustee's estate.
Issues: The main issue was whether the Revenue was entitled to attach properties of a private trust to recover tax dues of a trustee, and the significance of probate in determining the ownership of the attached properties.
Ratio Decidendi: The court held that the attached properties belonged to the trust and not the individual trustee, as confirmed by the probate of the trust's Will. Therefore, the attachment orders and garnishee notices were set aside.
Final Decision: The writ petition was allowed, setting aside the attachment orders and garnishee notices, while allowing the Revenue to pursue proceedings against the trustee's estate.
JUDGMENT :
MILIND N. JADHAV, J.
1. By this petition under Article 226 of the Constitution of India, petitioners have challenged the following :-
(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 Chokshi, Rajesh T. Shah and Devila H. Laliwala who were trustees of Ramniklal C. Laliwala Family Benefit Trust (hereinafter referred to as ‘the trust’) have fled this Petition on behalf of the trust for the above reliefs. The trust was settled by one Smt. Sushila R. Laliwala, wife of Ramniklal C. Laliwala under a deed of trust dated 14th April 1978 for the Benefit of her grand children. Originally, as per the trust deed the following four trustees were appointed viz.;
(ii) Harish R. Laliwala
(iii) Suresh Kantilal Chokshi
(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 :
(ii) Suresh Kantilal Chokshi
(iii) Rajesh T. Shah
(iv) Devila H. Laliwala
3. During the pendency of this petition Harish R. Laliwala and Suresh Kantilal Chokshi 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 :-
(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 Plaintiff 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,
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