Law:

Section:

Section 53 of the transfer of property act, 1882, read with section 281 of the income-tax act, 1961 - Fraudulent transfer - Whether it is open to a debtor to prefer one or more creditors over others in payment of his debts and so long as he retains no benefit in property, mere circumstances that some creditors stand paid while others remain unpaid does not attract the provisions of section 53 - Held, yes Facts K Mills company was carrying on business in the manufacture and sale of tin cans and aerated water. It Centered into a partnership in September 1952 with R & Co., which was carrying on business in the pressing of cotton bales. Under the partnership agreement R & Co. was to install a cotton bailing press in the buildings of the company and the business of the Company and the business would be carried on under the name RC Pressing Factory, with the profits being divided between K Mills and R & Co. in the ratio of 7:9 respectively. The appellants, being the Union of India, alleged that K Mills incurred losses in its business year after year and from 1954, the only income derived by it flowed from the shares held by it in the partnership business. It was alleged that the company had in fact ceased to carry on its own business, but in computing the income of the Mills from the assessment year 1956-57 to the assessment year 1959-60 the losses suffered during the previous years from the company's own business were allowed to be carried forward and set off against its share of income from the partnership firm. Subsequently, the income-tax authorities decided to reopen the assessment proceedings under section 34 of the Indian Income-tax Act, 1922. It was alleged that in meanwhile, the company, having come to know of the proposed reopening of its income-tax assessments, began to dispose of its movable and immovable assets with a view to defeat the claim of the Union of India and to place the properties beyond the reach of the creditors of the company. The assets of the company were transferred in favour of R & Co. and the sale proceeds were employed for paying off the debts due to various creditors who, included also the close relations and friends…

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