M. Cauverry Ammal vs The State of Tamil Nadu

A. Ramamurthi, J.—The unsuccessful respondent in S.A. No. 21 of 1987 has filed the present Review Application to review the Judgment and decree of this Court dated 9.2.1998 passed in Second Appeal No. 21 of 1987. The plaintiff filed a suit to set aside the attachment of the suit properties made by the second defendant and for permanent injunction bringing the properties for sale to realise the sales; tax arrears and also penalty due by one Malayan Chettiar. The plaintiff purchased the properties for a valid consideration from one Dhanalakshmi Ammal under a registered sale deed dated 1.3.1973. She is in possession and enjoyment of the properties in her own right and paying the municipal tax. Malayan Chettiar was assessed to sales tax from 1957 to 1963 and in view of his tax arrears, statutory charge has been claimed by the authorities concerned. The plaintiff claims that she is the bona fide purchaser for value without notice of the charge.

The defendants contended that the properties were transferred only after the issue of provisional notice relating to the sales tax and as such, there is a statutory charge on these properties. In short, the subsequent proceedings, if any, are only subject to the charge and, as such, the plaintiff will not get any absolute title. They are also entitled to recover the arrears of proceedings under the Revenue Recovery Act.

The trial Court dismissed the suit and aggrieved against this, the plaintiff preferred A.S. No. 18 of 1985 on the file of the Sub-Court, Salem and the appeal was allowed. Aggrieved against this appeal, the defendants preferred the Second Appeal and after hearing the parties, this Court allowed the Second Appeal and dismissed the suit. Now, the plaintiff has come forward with this review application.

Heard the learned Counsel of both sides.

Learned Counsel for the plaintiff mainly contended that the Court has not considered the impact of Section 24 of the Tamil Nadu General Sales Tax Act (hereinafter referred to as The Act) and according to proviso I, bona fide transferee for adequate consideration without notice of the liability of the transferor in respect of the sales tax is protected and the charge cannot be enforced against such property in the hands of the transferee. The impact of Section 24A has not been considered in the decisions referred to in 1985 W.L.R. 240 and also the unreported decision in W.A. No. 981 of 1999 dated 29.8.1997. Further more, under Ex.A-32, the assessee, Malayan Chettiar, had acquired title for only the half of the properties and the other half belonged to his wife Dhanalakshmi Ammal and, as such, the charge, if any, will not be in respect of the entire property. The sales tax amount claimed is also excessive and this has not been properly explained and the plaintiff is not an assessee and she cannot question the same before the authorities. In short, according to the learned Counsel for the plaintiff, these are mistake apparent on the face of the record and, as such, the Judgment and decree passed by this Court dated 9.12.1998 have to be reviewed.

Per contra, learned Government Advocate (Civil Side) contended that the transfer has been effected only after receiving the notice by the assessee and there would be a statutory charge in respect of the properties. The purchaser of the property is also related to the assessee and hence, it cannot be said that she is a bona fide purchaser for value and without notice. The burden is only upon the plaintiff to prove that she is a bona fide purchaser for value and without notice. The sales tax although assessed has not been paid by the assessee, he had conveyed the property only to defeat the payment of the tax. Learned Counsel for the plaintiff further stated that Section 24A of the Act is not applicable to the case on hand since the amendment itself came into force from 1980 whereas the impugned transaction is earlier in point of time.

It is just and necessary to deal with the contentions raised by the learned Counsel for the plaintiff. Before considering the same, it is necessary to extract Section 24A of the Act for proper appreciation of the contentions of the parties.

"Transfers to defraud revenue void Where, during the pendency of any proceeding under this Act or after the completion thereof, any dealer creates a charge on, or parts with the possession (by way of sale, mortgage, gift, exchange or am other mode of transfer whatsoever) of any of his assets in favour of any other person, with the intention to defraud the revenue, such charge or transfer shall be void as against am claim in respect of any tax, or any other sum payable by the dealer as a result of the completion of the said proceeding or otherwise Provided that, such charge or transfer shall not be void if it is made-

(i) for adequate consideration and without notice of the pendency of such proceeding under this Act or, as the case may be, without notice of such tax or other sum payable by the dealer; or

(ii) with the previous permission of the assessing authority."

The language employed u/s 24A of the Act clearly denotes that any transfer made to defraud the revenue, shall be void under law. However, proviso (i) says that such charge or transfer shall not be void if it is made for adequate consideration and without notice of the pendency of such proceeding under this Act or other sum payable by the dealer. This proviso is now relied upon by the plaintiff in order to show that she had purchased the property for a valid consideration and she was also not aware of the pendency of any proceedings initiated by the sales tax authorities.

Learned Counsel for the plaintiff also relied on the decision reported in The Ahmedabad Municipal Corporation of the City of Ahmedabad Vs. Haji Abdulgafur Haji Hussenbhai, , wherein it was held that second half of Section 100 of the T.P. Act enacts the general prohibition that no charge shall be enforced against any property in the hands of a transferee for consideration without notice of the charge and that the exception to this general rule can be made only if expressly so provided by law.

It is also made clear from Section 11 of the Transfer of Property Act dealing with charge that nothing in that section applies to the charge of a trustee on the trust property for expenses properly incurred in the execution of the trust and, save as otherwise expressly provided by any law for the time being in force, no charge shall be enforced against any property in the hands of a person to whom such property has been transferred for consideration and without notice of the charge. Learned Counsel for the plaintiff contended that the saving provision of law must expressly provide for enforcement of a charge against the property in the hands of a transferee for value without notice of the charge and not merely create a charge. According to the learned Counsel, even if there is a statutory charge, the exception is that if the transferee is able to establish that he/she is a bona fide purchaser for value without notice, then the charge cannot be enforced.

Reliance is also placed upon the decision in The Deputy Commercial Tax Officer, Thudiyalur Assessment Circle, Coimbatore and another Vs. R.K. Steels, , that property of bona fide purchaser without notice of charge u/s 24(4) of Tamil Nadu General Sales Tax Act cannot be proceeded against to recover sales tax arrears of seller. It has also been held in N. Padma Coffee Works and others v. C.T.O., Rockfort Assmt. Circle, Trichy, Vol. 114 S.T.C. 494, as follows:

"An honest and bona fide purchaser who had no knowledge about the encumbrance of the tax liability of the original owner is protected under proviso (i) to Section 24A of the Tamil Nadu General Sales Tax Act, 1959. Under clause (i) of the proviso to section 24A of the Act, not only adequate consideration but also the want of notice, are the two ingredients to safeguard the purchaser. A reading of section 3 of the T.P. Act, 1882 leads to the conclusion that, rot only a willful abstention from an enquiry which a person ought to have made, but the gross negligence to make enquiry also would amount to notice of fact to him. When the prudence of a person requires him to make enquiry, but due to his own negligence he failed to make enquiry, he falls in the category of a person, with notice. A purchaser of the property when claims the transaction to be bona fide without notice, the yardstick to be applied for the "notice" is given in section 3 of the Transfer of Property Act, 1882 and only by the application of this provision, a purchaser who seeks protection u/s 24A of the Act, is to be identified, whether he is a purchaser for value without notice. The necessary of the purchase, the intention of the transfer, the relationship between the vendee and vendor are all vital factors to find out the reasonableness of the person who in purchasing the property. Sometimes unexplained secrecy or haste in the transactions may also throw some light as to the bona fides or mala fides. To decide whether a transaction was genuine or bona fide or mala fide, all facts relating to the conduct of the parties to the transaction have to be weighed as a whole."

The principles enunciated in these decisions can be considered for appreciating the contentions of the parties.

It is, therefore, clear from the aforesaid principles that even though there is a statutory charge, in view of section 24A, the bona fide transferee without notice will not be affected by the said charge. It has been suggested in the course of evidence that the plaintiff is related to the assessee Malayan Chettiar, but it has not been substantiated. Only if the parties are related, then under law, it can be presumed that the transferee also must have notice. In the present case, there is no material to infer that the transferee has notice of any such earlier proceedings. Similarly, at one point of time, the assessment of tax was only Rs. 2000/- and odd; but, suddenly in the subsequent notice, it has jumped into Rs. 64,000/-. The Department has failed to explain how this discrepancy has crept in. Learned Counsel for the plaintiff also placed another contention that Malayan Chettiar as well as wife had purchased the property under Ex. A-32 dated 15.4.1959 and, as such, even assuming that there was arrears of sales tax. the charge will be only in respect of the half share belonging to the said Malayan Chettiar and it cannot be extended to the other half share of his wife. Under Ex. A-33, the property has been conveyed in favour of a third party by Malayan Chettiar as well as his wife. The plaintiff had purchased the property from one Chinnammal @ Dhanalakshmi Ammal on 1.7.1973. It is therefore evidently clear that Malayan Chettiar was the owner of only one half of the property and as such, statutory charge if any would be only in respect of the half share and it cannot be extended to the other half share of his wife. In my view, this is an error apparent on the face of the record and only to the limited extent, the Judgment and decree already passed by this Court can be reviewed and the plaintiff can partly succeed in respect of half share in the property. So far as the other half share belonging to Malayan Chettiar, in view of the charge and for the reasons stated earlier, there is no reason to review the order. For the reasons stated above, the Second Appeal is allowed in part and the Judgment and decree of the lower appellate Court are modified and the suit is decreed only in respect of half share in the property and in respect of the other share, the suit is dismissed. There will be no order as to costs Review Application ordered accordingly