Fazl Ali, J. - (1.) This is an appeal by special leave against the judgment of the Andhra Pradesh High Court dated December 2, 1974 and arises under the following circumstances.
(2.) Itikala Kollayya and his brother-in-law Kovvuru Narasimhaiah constituted partnership firm dealing in foodgrains. The firm carried on the business in the name and style of "Kovvuru Narasimhaiah and Itikala Kollayya". The firm, however, stood dissolved in 1963. The firm appears to have been in serious financial difficulties and incurred debts to the tune of about Rs.70,000/-. The creditors filed an insolvency petition but the petition was ultimately dismissed because it was held that the firm had no means to discharge the debts. Subsequently the business was started in the name of B.V.S. Rao son of Bala Seshaiah. After the death of Itikala Kollayya his son Bala Seshaiah and his son B.V.S. Rao carried on on joint Hindu family business. In fact B.V.S. Rao applied on May 8, 1966 for a certificate of registration to the Sales Tax Department of the State and was given the same. B.V.S. Rao who was a minor had applied for the certificate through his guardian Bala Seshaiah. Thereafter the Sales Tax Department continued to make assessments in the name of B.V.S. Rao. Thus for the years 1966-67, 1967-68 and 1968-69 the provisional assessments were made in the name of B.V.S. Rao the minor. It is not disputed that during all these years the business was run in the name of B.V.S. Rao the minor grandson of Kollayya. There are also materials on the record to show that B.V.S. Rao had informed the Sales Tax Department that the business was in fact carried on by the joint Hindu family and yet no assessment was made in the name of the joint Hindu family until 1971. It is true that the High Court has held that B.V.S. Rao was merely a benamidar for Kollayya who was the real proprietor of the firm and therefore the real dealer would be Kollayya and not B.V.S. Rao. The High Court also relied on the circumstances that Kollayya did not appear before the Sales Tax Department in obedience to the notices issued to him and therefore the High Court thought it was too late in the day for Kollaya to contend that he was not a dealer within the meaning of the Andhra Pradesh General Sales Tax Act. Mr. Ram Reddy learned counsel for the respondent did not support this part of the reasoning of the High Court because the Sales Tax Department having itself issued the certificate of registration to B.V.S. Rao and having recognised him as a dealer could not make a some result and start assessing tax in the name of Kallayya who was not at all a registered dealer. Furthermore, it would appear that B. V. S. Rao had himself informed the Sales Tax Department that his business had come to an end and that the business was carried on by his grandfather and yet the Sales Tax Department did not choose to cancel the registration of B.V.S. Rao or to issue fresh notice to Kollayya. In these circumstances the ball was in the Court of the Sales Tax Department which appears to have taken delayed action in the matter for assessing Kollayya as the manager of the Joint Hindu Family for the first time in 1971. Mr. Ram Reddy confined his arguments only to the question that in view of the circumstances of the case Kollayya must be deemed to have knowledge as the karta of the joint Hindu family that he had earned sales tax liability and from this alone an inference was sought to be raised that the trust was a fraudulent transaction. We are, however, unable to press this inference too far in view of the reasons which we shall give hereafter.
(3.) It appears that on May 26, 1969 B.V.S. Rao informed the Sales Tax Department that he had stopped the business with effect from August 1, 1968 and despite this fact the Sales Tax Department went on making assessment orders in the name of B.V.S. Rao. Further on January 17, 1968 the Deputy Commercial Tax Officer while making the assessment order had stated that the business was being carried on as joint family business by Bala Sashaiah the father of B.V.S. Rao. It appears that on September 16, 1968 Itikala Kollayya and Kovvuru Narasimhaiah, i.e. the partners of the dissolved firm, executed a registered deed of trust by which the properties mentioned in Schedule 'B' were vested in the trustees for the purpose of paying off the creditors who were named in Schedule 'A' of the trust deed. Thirteen persons were named in Schedule 'A'. According to the assessee the creditors mentioned in Schedule 'A' had obtained decrees against the settlors and it was for the purpose of discharging the previous debts of those creditors that the trust was executed. Subsequently it appears that the assessments were made against the joint Hindu family on January 18, 19 and 24, 1971 and penalties were also imposed on the assessees for not paying the sales tax. The sales tax authorities therefore, made the assessment in the name of the joint Hindu family for the first time on January 18, 1971 and prior to that the assessments were made in the name of the minor B.V.S. Rao. The Sales Tax Department having found that the assessees had constituted a trust in respect of the properties and as the amounts could not be realised from the assessees notices were issued on the petitioners who were the trustees for payment of the amounts due under the various assessments made by the Sales Tax Department on the joint Hindu family. The Sales Tax Department was of the view that the deed of trust dated September 16, 1968 was void and fraudulent and was brought about to defeat the debts of the Sales Tax Department in the shape of the assessments made against the Joint Hindu family whose business was carried on by its karta Bala Sashaiah. Demand notices under Section 17 (1) of the Andhra Pradesh General Sales Tax Act were served on the petitioners who filed a writ petition before the Andhra Pradesh High Court for quashing the notices, on the basis of which the amounts were sought to be recovered. The High Court held that the deed of trust was fraudulent and had been executed to defeat the Sales Tax Department of its dues and the petitioners were, therefore, trustees of an invalid trust and being in possession of the properties held the same on behalf of the debtor assessees who were liable to pay the amounts. On this finding the writ petition was dismissed by the High Court. The petitioners moved the High Court for granting certificate of fitness for leave to appeal to this Court which having been refused they obtained special leave from this Court and hence this appeal.;