Ajay WP-1657-1998.doc IN HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION NO.1657 OF 1998 Rajesh T. Shah and others Petitioners Versus Tax Recovery Ofcer rity y II Mumbai and others Respondents Mr. Sharan Jagtiani, Senior rounsel a/w. Ms. Jyoti Mistri i/b. S.K. Srivastav and ro. Advocate for Petitioners. Mr. Suresh Kumar, Advocate for Respondents. CORAM : UJJAL BHUYAN, & MILIND N. JADHAV, JJ. RESERVED ON : 06th February 2020. PRONOUNCED ON : 13th March 2020. JUDGMENT (PER MILIND N. JADHAV, J.) :- 1. By this petition under Article 226 of ronstitution of India, petitioners have challenged following :- (i) order dated 15th December, 1993 issued under Section 179 (1) of Income Tax Act, 1961, (the Act); 1 of 17 Uploaded on - 13/03/2020 Downloaded on - 21/03/2020 09:22:08 Ajay WP-1657-1998.doc (ii) demand notice dated 20th January, 1994; and (iii) three orders of attachment dated 27 th August, 1997 and seven garnishee notices issues under Section 226 (e) of Act. 2. original petitioners namely Harish R. Laliwala, Suresh Kantilal rhokshi, Rajesh T. Shah and Devila H. Laliwala who were trustees of Ramniklal r. Laliwala Famiy Beneft Trust (hereinafter referred to as trust ) have fled this Petition on behalf of trust for above reliefs. trust was settled by one Smt. Sushila R. Laliwala, wife of Ramniklal r. Laliwala under deed of trust dated 14 th April 1978 for beneft of her grand children. Originally, as per trust deed 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, constitution of trustees was changed and at time of fling of Petition trustees were : 2 of 17 Uploaded on - 13/03/2020 Downloaded on - 21/03/2020 09:22:08 Ajay WP-1657-1998.doc (i) Harish R. Laliwala (ii) Suresh Kantilal rhokshi (iii) Rajesh T. Shah (iv) Devila H. Laliwala 3. During pendency of this petition Harish R. Laliwala and Suresh Kantilal rhokshi passed away and their names were deleted. third trustee viz; Amita Apurva Laliwala who was added as trustee was impleaded as petitioner No.3 in Petition. 4. This rourt after hearing matter for some time on 27th October 2014 passed following order :- This Petition under Article 226 of ronstitution of India, challenges:- (i) order dated 15th December 1993 issued under Section 179 (1) of Income Tax Act, 1961 (the Act); (ii) demand notice dated 20th January, 1994; and 3 of 17 Uploaded on - 13/03/2020 Downloaded on - 21/03/2020 09:22:08 Ajay WP-1657-1998.doc (iii) three orders of attachment dated 27th August, 1997 and seven garnishee notices issues under Section 226 (e) of Act. 2. This Petition was heard for sometime. We were not inclined to set aside order dated 15th December 1993 passed under Section 179 (1) of Act. 3. controversy then remaining in present Petition is whether Revenue is entitled to attach properties belonging to Private Trust to recover dues of trustees, who was director of rompany which had allegedly defaulted in paying its tax dues. contention of Revenue appears to be that property being attached does not belong to Trust but is property of one late Mrs. Sushila Laliwala- mother of defaulting trustee. Therefore, properties could be attached to extent it devolved upon ex-director of defaulting company as her legal heir. 4. At this stage, we were informed that Will of late Mrs. Sushila Laliwala was subject matter of contest in Testamentary Suit No.38 of 1999 in Testamentary Petition No.721 of 1998. By order dated 6th April, 2011, this rourt had 4 of 17 Uploaded on - 13/03/2020 Downloaded on - 21/03/2020 09:22:08 Ajay WP-1657-1998.doc directed Registry to process Testamentary Petition No.721 of 1998 and grant probate to Plaintif i.e. defaulting director and trustee in this case. However, we were fairly informed by Mr. Jagtiani, that Registry has not yet granted probate as there is outstanding caveat pending in rourt Registry. 5. decision in this Petition would, inter alia, depend upon whether or not, probate has been granted to Will of late Mrs. Sushila Laliwala. This is so as if probate is granted then attached property would certainly belong to Trust. However, in case, probate is not granted, then attached property to extent of share devolving upon defaulting trustee on intestate succession could be subject of recovery of tax dues. 6. In view of above, Petition is being adjourned by period of four weeks, to enable Petitioner to obtain some clarity in respect of grant of probate to Will of late Mrs. Sushila Laliwala. While adjourning matter, it is made clear that Mr. Jagtiani, learned rounsel appearing for Petitioner does not rest his case merely on grant of probate but seeks to make legal submission which would entail 5 of 17 Uploaded on - 13/03/2020 Downloaded on - 21/03/2020 09:22:08 Ajay WP-1657-1998.doc quashing of attachment proceedings and garnishee notices. 7. Accordingly, stand over to 1st December, 2014. 5. At outset, Mr. Jagtiani learned senior counsel appearing on behalf of petitioners submitted that, at time of passing of above order dated 27 th October 2014, Will of late Smt. Sushila R. Laliwala was not probated as there was outstanding caveat pending in rourt Registry. However, subsequently on 31 st January 2017 this rourt was pleased to issue Letters of Administration with Will annexed to property and credits of deceased Smt. Shushila R. Laliwala. He submitted that true copy of Letters of Administration with Will annexed thereto has been placed on record by afdavit dated 13 th February 2017. He submitted that subject properties described in paragraph No.3.15 of petition in respect of which separate attachment orders dated 27th August 1997 had been issued on premise that said properties belonged to petitioner No.1 in his individual capacity, has now been put to rest by virtue of grant of Letters of Administration to 6 of 17 Uploaded on - 13/03/2020 Downloaded on - 21/03/2020 09:22:08 Ajay WP-1657-1998.doc trust. He submitted that subject properties which had been attached do not belong to original petitioner No.1 Harish R. Laliwala in his individual capacity and in fact and law juridically belong to trust. He submitted that, observations made by this rourt in paragraph Nos.4 and 5 of order dated 27th August 2014 have been complied with and accordingly sought reliefs claimed in Petition. 6. Mr. Jagtiani also fairly submitted that in view of observations recorded in paragraph No.2 of above order, he would not press challenge to order dated 15 th December 1993 passed under Section 179(1) of Income Tax Act, 1961 (hereinafter briefy referred to as Act) against original petitioner No.1. He submitted that, he had instructions from petitioners to not press for any consequential action of recovery of garnishee amounts received by Income Tax Department pursuant garnishee proceedings in respect of subject properties. Mr. Jagtiani has therefore restricted his reliefs only in respect of subject properties for setting aside attachment and garnishee notices on primary ground that said 7 of 17 Uploaded on - 13/03/2020 Downloaded on - 21/03/2020 09:22:08 Ajay WP-1657-1998.doc properties belong to trust and do not belong to original petitioner No.1. 7. At this stage, we would like to advert to brief facts of case :- (i) Smt. Sushila R. Laliwala during her lifetime settled private trust namely Ramniklal r. Laliwala Family Beneft Trust (already referred to as "the trust" herein before) under trust deed dated 10th April 1978 for beneft 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) residential Flat, 5th Floor, 25/26, Girichaya, Band Stand rhowpaty, Mumbai 400 006 and (c) tenanted premise being 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 trust and appointed original petitioner No.1 namely Harish R. Laliwala as executor thereof. (iii) Smt. Sushila R. Laliwala expired on 26th August 8 of 17 Uploaded on - 13/03/2020 Downloaded on - 21/03/2020 09:22:08 Ajay WP-1657-1998.doc 1991. (iv) original petitioner No.1, Harish R. Laliwala in year 1986 joined M/s. Verma Extrusions Pvt. Ltd. (assessee company) as Managing Director and resigned from company in year 1993. (v) In 1990 Income Tax Department carried out survey action in case of above assessee company, recorded statement of original petitioner No.1 Harish R. Laliwala on 31st March 1990 and passed order dated 10 th August 1992 for assessment year 1988 y 1989 determining income of Rs.1,06,30,449/-. In appeal before rommissioner of Income Tax (Appeals), income was re-determined only after carrying forward and setting of loss of income. However for assessment year 1989 y 1990 income was determined at Rs.3,63,97,719/- and after rectifcation income was reduced to Rs.18,86,848/-. For 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 rommissioner of Income Tax (Appeals). Thus, for aforesaid three years total 9 of 17 Uploaded on - 13/03/2020 Downloaded on - 21/03/2020 09:22:08 Ajay WP-1657-1998.doc liability of original petitioner No.1 being Managing Director of assessee company was quantifed at Rs.1,78,00,750/- by Revenue. (vi) Respondent No.1 thereafter by order dated 15 th December 1993 issued under Section 179 (1) of Act held original petitioner No.1 Harish R. Laliwala jointly and severally liable for payment of arrears of tax of Rs.1,78,00,750/- in case M/s. Verma Extrusions Pvt. Ltd. of which he was Managing Director. (vii) For realisation of above liability, by separate attachment orders dated 27th August 1997, respondent No.1 attached three subject properties belonging to trust on premise that said three properties belonged to original petitioner No.1 in his individual capacity. (viii) three properties as described in 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. (c) Shop at Kothari Mansion, Ground Floor, Opp. 10 of 17 Uploaded on - 13/03/2020 Downloaded on - 21/03/2020 09:22:08 Ajay WP-1657-1998.doc Girgaon rourt, Parekh Street, Mumbai y 400 y 004. (ix) Respondent No.1 also issued six garnishee notices under Section 226 (3) of Act to respondent Nos.5 to 10 who were tenants in building Sushila Sadan at Khar. seventh garnishee notice was issued to occupant of shop at Kothari Mansion. 8. Mr. Jagtiani submitted that 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 trust under her Will dated 05 th March 1985. He submitted that Will has been probated and trust has received Letters of Administration which have been placed on record. He submitted that subject properties have been used for beneft of benefciaries who are grand children of Smt. Sushilaben R. Laliwala. He submitted that subject properties did not stand in name of original petitioner No.1 and thus he did not any right or 11 of 17 Uploaded on - 13/03/2020 Downloaded on - 21/03/2020 09:22:08 Ajay WP-1657-1998.doc interest in said properties save and except that during his lifetime original petitioner No.1 was managing trustee of trust. 9. We have perused pleadings with help of learned counsel appearing for respective parties and orders passed by this rourt. We have also perused private trust deed of trust which is placed on record, Will deed dated 05th March 1985 of Smt. Sushila R. Laliwala and true copy of Letters of Administration issued by this rourt in respect of Testamentary Suit No.38 of 1999 in Testamentary Petition No.721 of 1998 to trustees of trust. From conjoint reading of aforesaid documents, we are of view that the subject properties namely (a) Building Sushilaben , Road No.4, Khar (West).,(b) Flat at Girichhaya , 5th Floor, Band Stand, rhowpati, 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 original petitioner No.1 Harish R. Laliwala in his individual capacity. If that be position then impugned attachment orders in respect of subject properties issued 12 of 17 Uploaded on - 13/03/2020 Downloaded on - 21/03/2020 09:22:08 Ajay WP-1657-1998.doc by respondent No.1 for realisation of liability of 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. 10. Mr. Suresh Kumar appearing on behalf of Revenue also fairly submits that pursuant to issuance of Letters of Administration by this rourt to trustees of trust, above position is settled in law that subject properties stand in name of trust and do not belong to original petitioner No.1 against whom Revenue has initiated recovery proceedings. He however submitted that recovery proceedings being civil in nature would however continue against original petitioner No.1 and his estate in hands of his legal-heirs and representatives. But in so far subject properties are concerned, he has fairly accepted position that continuance of attachment orders would now not be sustainable in law in view of Letters of Administration issued to trust. 13 of 17 Uploaded on - 13/03/2020 Downloaded on - 21/03/2020 09:22:08 Ajay WP-1657-1998.doc 11. We have also perused order dated 19th January 1998 passed by this rourt in Notice of Motion No.22 of 1996 in Execution Application No.205 of 1995 in Suit No.1695 of 1976 fled by United rommercial Bank Vs. M/s. Jai Hind Plastic and Rubber Industries and ors. This order came to be passed in application made by trust in respect of challenge to attachment carried out by plaintif y Bank on one of subject property, namely, Flat No.25, Giri rhhaya, rhowpati, Band Stand, Mumbai y 400 006. issue before rourt was that ex-parte decree was passed against defendant M/s. Jai Hind Plastic and Rubber Industries for recovery of money and enforcement of securities which was in nature of movables. plaintify Bank in execution of said ex-parte decree sought attachment of aforementioned fat on ground that said fat belonged to borrowers i.e. defendants M/s. Jai Hind Plastic and Rubber Industries and another in their individual capacity. This rourt recorded following fndings which is thought necessary to be reproduced herein :- In present case, short point which arises for determination by this rourt is what is 14 of 17 Uploaded on - 13/03/2020 Downloaded on - 21/03/2020 09:22:08 Ajay WP-1657-1998.doc right, title and interest of judgment debtor in residential fat as on date of Order of attachment which was levied on 1 st June 1996. In present matter, it is not in dispute that above residential fat was not treated as security in favour of Bank. It was not part of suit property. Taking into account above facts and circumstances of case as and when fat stood attached on 1st June 1996, fat did not stand in name of any of borrowers. Even if this rourt was to accept contention advanced on behalf of plaintif- Bank that Trust was subterfuge created by Sushilaben in order to defeat rights of plaintif-Bank, even then property stood in name of Sushilaben as she was owner in respect of residential fat. Prima facie, Trust existed prior to attachment. 11.1. This rourt by said order allowed application fled by trust and set aside attachment of said fat which belonged to trust. 12. In view of above, it is evident that subject properties belong to trust which was settled by Smt. Sushila R. Laliwala s Will before initiation of recovery 15 of 17 Uploaded on - 13/03/2020 Downloaded on - 21/03/2020 09:22:08 Ajay WP-1657-1998.doc proceedings by Revenue against original petitioner No.1. said properties did not belong to original petitioner No. 1 or his legal heirs / representatives. trust being formed in year 1978 and Will of Smt. Sushila R. Laliwala made in 1985 much before initiation of recovery proceedings, there is no question of said properties being diverted to trust to evade payment of due tax. 13. That being position, we set aside and quash attachment orders dated 27th August 1997 being exhibits O- 1 , O-2 and O-3 in respect of subject properties. demand notice dated 20th January 1994 being exhibit L and six garnishee notices issued under Section 226 (3) of Act being exhibits R-1 to R-6 to Petition would also stand interfered with. 14. However, Revenue is free to pursue proceedings against estate of original petitioner No.1 in hands of his legal-heirs and representatives in accordance with law in so far as order dated 15 th December 1993 under Section 179 (1) of Act is concerned. 16 of 17 Uploaded on - 13/03/2020 Downloaded on - 21/03/2020 09:22:08 Ajay WP-1657-1998.doc 15. Writ Petition is accordingly allowed in aforesaid terms with no order as to costs. (MILIND N. JADHAV, J.) (UJJAL BHUYAN,J.) 17 of 17 Uploaded on - 13/03/2020 Downloaded on - 21/03/2020 09:22:08 Rajesh T. Shah And Others. v. Tax Recovery Officer City-II, Mumbai And Other