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Petitioner: PRAKASH NARAIN VS Respondent: COMMISSIONER OF INCOME-TAX AND WEALTH TAX
1985 P T D 61
1985 P T D 61
[Allahabad High Court (Ind.)]
Before H.N. Seth and M. P. Mehrotra, JJ
PRAKASH NARAIN
versus
COMMISSIONER OF INCOME‑TAX AND WEALTH TAX
Income‑tax .References Nos. S.35 of 1976, 3 of 1977, 49 and 331 of 1978 and Wealth Tax Reference No. 593 of 1977, decided on 24th October, 1980.
Income‑tax‑‑
‑‑‑Benami transaction‑‑Burden of proof on Department‑‑Purchase of properties‑‑No evidence to show that purchases made were not genuine‑ Such purchases could not be held to be benami for purposes of income‑tax and super‑tax.
Jaydayal Poddar v. Bibi Hazra (1974) A I R 1974 S C 171 and C . I . T . v . Dault Ram Rawatmull (1973) 87 I T R 349 S C applied.
Bhuban Mohini Dasi v. Kumud Bala Dasi (1924) A I R 1924 Cal. 467; C.I.T. v. Daya Chand Jain Vaidya (1975) 98 I T R 280 (All.); C.I.T. v. Durga Prasad More (1971) 82 I T R 540 S C; C.I.T. v. Ganapathi Mudaliar (1964) 53 I T R 623; (S C ), Dalip Singh v. Nawal Kunwar (1908) L R 35 I A 104; I L R 30 All. 258 (P C ); Damodaran (D) v. Leelavathi Ammal A I R 1975 Mad. 278; Dhurm Das v. Shama Soondri Dibiah (1843) 3 M I A 229 (P C); Gangadara Ayyar v. Subramania Sastrigal A I R 1949 F C 88; Ganguly (S.N.) v, C.I.T. (1953) 24 I T R 16 (Pat.); Gopeekrist Gosain v. Gungapersand Gosains (1854) 6 M I A 53 (P C); Govindarajulu Mudaliar (A) v . C.I.T. (1958) 34 I T R 807 (S C); Hazarilal v. C.I.T. (1963) 47ITA 516(A.P); Imamt:andi Begam v. Kamleswari Pershad (1886) L R 13 A 160; I L R 14 Cal. 109 (P C); I.‑T.O. v. Dhanalakshmi Ammal (M.R) (1978) 112 I T R. 413 (Mad.); Irshad Ali v. Kariman (1917) 22 CWN 530 (P C); Juggilal Kamlapat v. C.I.T. (1969) 73 I T R 702 S,C);1Cale Khan Muhammad Hanif v. C.I.T. (1963) 50 I T R 1 (S C); Karnani Properties Ltd. v. C.I.T. (1971) 82I T R 547 (S C); Kumaraswami Reddiar (S) v. C.I.T. (1960) 40 I T R 590 (Ker.); Mohan Singh Oberri (Rai Bahadur) v. C.I.T. (1973) 88 I T R 53 (SC); Murthi(R.K.) v. C.I.T. (1961) 42 I T R 379 (Mad.); Promode Kumar Roy v. Madan Mohan Saha Pramanik (1923) A I R 1923 Cal. 228; Ramoswami Naidu (V,) v. C.I.T. (1974) 93 I T R 341 (Mad.); Ramkinkar Banerji v. C.I.T. (1936) 4 I T R 108 (Pat.); Ramnath Daga (Seth) v. C.I.T. (1971.) 82 I T R 287 (Bom.); Sheik Muhammad Naqi (K.B.) v. C.I.T. (1945) 13 I T R 452 .(Lah.); Sheo Narain In re: (1954) 26 ITR 249 (All); Sovaram Jokhiram v. C.I.T. (1944) 12 I T R 110 (Pat.); Sree Meenakshi Mills Ltd. v. C.I:T. (1957) 31 I T R 28 (S C); Subramanian (KM. N. N. S. N) v. C.I.T. (1965) 55 I T R 610 (Mad.); Union of India v. Moksh Builders and Financiers Ltd. A I R 1977 S C 409 and Upendra Nath Nag Chowdhury v. Bhupendra Nath Nag Chowdhury (1971) 21 C W N 280 and (1916) 32 I C 267 (Cal.) ref.
K.M.L. Hajela for the Assessee.
R.K. Gulati for the Commissioner.
JUDGMENT
M.P. MEHROTRA, J.‑‑ The following income‑tax and wealth‑tax references shall stand disposed of by this judgment:
1. I . T . R . No. 35 of 1976 in relation to the assessment years 1963‑64 and 1964‑65.
2. I.T.R. No.3 of 1977 in relation to the assessment year 1972‑73.
3 . I . T . R . No.49 of 1978 in relation to the assessment year 1965‑66.
4. I.T.R. No.331 of 1978 in relation to the assessment years 1973‑74, 1974‑75 and 1975‑76.
In all the aforesaid income‑tax references the common question of law, which has been referred to this court for opinion, is as follows:
"Whether, on the facts and in the circumstances of the case, the finding of the Tribunal in regard to the income from the three properties in question that they were purchased by the assessee benami was justified in law ?"
5. W. T. R. No. 593 of 1977 in relation to the assessment years 1964‑65, 1965‑66, 1966‑67, 1967‑68 and 1968‑69.
The question of law, which has been referred to us for our opinion in this reference, is as follows:
"Whether, on the facts and in the circumstances of the case, the finding of the Tribunal in regard to the three properties in question that they were purchased by the assessee benami was justified in law and could be included in the total wealth of the assessee ?"
It will be seen that the question referred to us in the income‑tax references is almost identical with that which has been referred to us, in the wealth‑tax reference and all the references are therefore, bound to be answered in the same manner and not differently.
The facts, in brief, are these. The assessee is an individual. He is an excise contractor and derives his income from excise contract and house property. He also acted as a toddy contractor. In regard to his income from the house property and from the liquour contract business, his previous year ended on March 31. However, for the toddy contract business for the assessment year 1965‑66, his previous year was from October 1, 1963, to September 20, 1964.
During the assessment proceedings for the assessment year 1965‑‑66 the I.T.O. found that the assessee had purchased the following four properties:
(1) A house in Mohalla Bhatan Tola, Shahjahanpur, purchased on 21‑5‑1962 for Rs.8,500. It was purchased in the joint names of assessee's wife and his mother‑in‑law.
(2) Four shops in Mohallah Khalil Gharvi, Shahjahanpur, purchased on 11‑11‑1963 for Rs.5,500 in the joint names of the assessee's wife, and mother‑in‑law and his father‑in‑law.
(3) A house in Mohallah Kachha Katra, Shahjahanpur, purchased in 1963 for Rs.14,000 in the name of the assessee's father‑in‑law.
(4) A house purchased on 2‑4‑1965 for Rs.8,500 in the name of the assessee's wife.
During the course of the assessment proceedings the assessee admitted that the house mentioned at serial No.4 above was purchased by him in the name of his wife, but in regard to the other three houses, he denied that they were purchased by him or that he invested any amounts in the said purchases. The I.T.O. recorded the statements of the assessee and his father‑in‑law, Babu Ram. The mother‑in‑law of the assessee filed a written statement before the I . T . O. wherein she asserted that she had moneys in her hands which she invested in the aforesaid purchases of the properties mentioned at serial Nos. 1 and 2 above. The I.‑T.O. was not satisfied with the aforesaid evidence and he came to the conclusion that the aforesaid purchases were made benami by the assessee himself from his own funds.
In the appeal, the A. A. C. reversed the said finding and held 'that the I.‑T.O. had failed to discharge the burden which lay on the .department to establish that the said purchases were made by the assessee, benami in the names of his father‑in‑law, his mother‑‑in7law and his wife.
In the second appeal before the Income‑tax Appellate Tribunal, the department succeeded and it was held that the aforesaid purchases were made by the assessee himself from his own funds but in the names of his father‑in‑law, his mother‑in‑law and wife.
An application under section 256(1)of the Act for a reference to this court was rejected by the Tribunal. Thereafter, the assessee moved this court under section 256(2) of the Act and the following question of law was directed to be referred alongwith the statement of the case:
"Whether, on the ‑facts and in the, circumstances of the case, the finding of the Tribunal in regard to the three properties in question that they were purchased by the assessee benami was justified in law ?"
In compliance with the said direction, the Income‑tax Appellate Tribunal has referred the said question of law alongwith the statement of the case for the opinion of this court. On behalf of the assessee, it was contended that the finding recorded by the Income‑tax Tribunal was not based on any material or evidence and was conjectural in nature.‑ On the other hand, the learned counsel for the department contended that the finding recorded by the Tribunal was a pure finding of fact and no question of law arose for our decision. It was next submitted that in any case, there was good material to support the Tribunal's finding.
A large 'number of reported cases were cited at the bar and they are being noticed below.
We shall first take up the Supreme Court cases.
In Union of India v. Moksh Builders and Financiess Ltd. A I R 1977 S C 409, a reference was made to Gangadara Ayyar v. Subramania Sastrigal A I R 1949 F C 88 and to Sree Meenakshi Mills Ltd. v. r I.T. (1957) 31 I T R 28 (S C), and it was held that there are two tests which should be applied to ascertain whether "an assignment in the name of one person is in reality for the benefit of another". The first test is the source from which the consideration for the transfer has come and the other test is who actually has enjoyed the benefits of the transfer. It was further observed:
"It is equally well‑settled that although the onus of establishing teat a transaction is 'benami' is on the plaintiff, where it is not possible to obtain evidence which conclusively establishes or rebuts the allegations, the case must be dealt with on reasonable probabilities and legal inferences arising from proved or admitted facts."
Lastly, it was emphasised that the burden of proof is not static and may shift during the course of evidence, and
"that where evidence has been led by the contesting parties on the question in issue, abstract considerations of onus are out of place, and the truth or otherwise of the case must always be adjudged on the evidence led by the parties. This will be so if the court finds that there is no difficulty in arriving at a definite conclusion."
In Jaydayal Poddar v. Bibi Hazra, A I R 1974 S C 171, it was laid down an under:
"It is well‑settled that the burden of proving that a particular sale is benami and the apparent purchaser is not the real owner, always rests on the person asserting it to be so. This burden has to be strictly discharged by adducing legal evidence of a definite character which would either directly prove the fact of benami or establish circumstances unerringly and reasonably raising an inference of that fact. The essence of benami is the intention of the party or parties concerned; and not often such intention is shrouded in a thick veil, which cannot be easily pierced though. But such difficulties do not relieve the person asserting the transaction to be benami of any part of the serious onus that rests on him; nor justify the acceptance of mere conjectures or surmises, as a substitute for proof. The reason is that a deed is a solemn document prepared and executed after considerable deliberation, and the person expressly shown as the purchaser or transferee in the deed, starts with the initial presumption in his favour that the apparent state of affairs is the real state of affairs. Though the question, whether a particular sale is benami or not, is largely one of fact, and for determining this question, no absolute formulae or acid test, uni formly applicable in all situations, can be laid down, yet in weighing the probabilities and for gathering the relevant indicia,the courts are usually guided by these circumstances: (1) the source from which the purchase money came; (2) the nature and possession of the property, after the purchase; (3) motive, if any, for giving the transaction a benami color; (4) the position of the parties and the relationship, if any, between the claimant and the alleged benamidar; (5) the custody of the title deeds after the sale; and (8) the conduct of the parties concerned in dealing with the property after the sale.
The above indicia are not exhaustive and their efficacy varies according to the facts of each case. Nevertheless No.1, viz. the source whence the purchase money came, is by far the most important test for determining whether the standing in the name of one person, is in reality for the benefit of another."
In Rai Bahadur Mohan Singh Oberoi v. C.I.T. (1973) 88 I T R 53 (S C), relying on the decision in Sree Meenakshi Mills Ltd. v. C.I.T. (1957) 31 I T R 28 .(S C), it was laid down that a finding on the point as to whether a purchase was made benami or not, would be a finding of fact and if it is based upon some evidence, then such a finding cannot be interfered with by the High Court in a reference. The finding of benami in this case was however, based on the earlier admission of the assessee himself.
In C. I. T. v. Daulat Ram Rawatmall (1 73) 87 I T R 349 (S C), it was laid down that findings of fact recorded by the Tribunal can be interfered with by the High Court on a reference only on the ground that there is no evidence to support it or that it is perverse
"Further, when a conclusion has been reached on an appreciation of a number of facts, whether that is sound or not must be determined, not by considering the weight to be attached to each single fact in isolation, but by assessing the cumulative effect of all the facts in their setting as a whole. Sree Meenakshi Mills Ltd. v. C.I.T. (1957) 31 I T R 28 (S C)."
The controversy in this case was whether an amount of Rs.5 lakhs in fixed deposit in the name of a son of a partner of the assessee firm, was the concealed income of the said firm. The Supreme Court observed:
"The Tribunal in arriving at the conclusion that the amount of Rs.5,00,000 in fixed deposit in the name of Biswanath was the concealed income of the respondent‑firm based its decision on the following circumstances:
(1) Explanation furnished by Biswanath with regard to the source of Rs.5,00,000 in proceedings relating to his personal assessment was found to be incorrect.
(2) The transfer of the two amounts of Rs.5,00,000 each from Calcutta to Bombay and thereafter to Jamnagar and the issue of fixed deposit receipt by the bank in the names of the sons of the respondent‑firm.
(3) The‑ use of the above‑mentioned two receipts as collateral security for the overdraft docility of Rs.10,00,000 afforded to the respondent‑firm.
The High Court took the view that the above material was not sufficient for holding that the sun) of Rs.5,00,000 belonged to the respondent‑firm and that the Tribunal had taken into consideration material which was not relevant to the issue. We have given the matter our consideration and are of the opinion that no case has been made for interfering with the judgment of the High Court."
Adverting to the first circumstance mentioned above, namely, hat the explanation furnished by the fixed deposit holder Biswanath, with regard to the source of Rs.5,00,000 had been disbelieved, it was observed (p. 359 of 87 I T R):
"The falsity of the above explanation of Biswanath, in the opinion of the High Court, did not warrant the conclusion that the amount of Rs.5,00,000 belonged to the assessee. We can find no flaw or infirmity in the above reasoning of the High Court. The question which arose for determination in this case was not whether the amount of Rs.5,00,000 belonged to Biswanath, but whether it belonged to the respondent‑firm. The fact that Biswanath has not been able to give a satisfactory explanation regarding the source of Rs.5,00,000 would not be decisive even of the matter as to whether Biswanath was or was not the owner of that amount. A person can still be held to be the owner of a sum of money even though the explanation furnished by him regarding the source of that money is found to be not correct. From the simple fact that the explanation regarding the source of money furnished by in whose name the money is lying in deposit, has been found to be false, it would be a remote and far‑fetched conclusion to hold that the money belongs to B. There, would be in such a case no direct nexus between the facts found and the conclusion drawn therefrom."
In regard to the other two circumstances mentioned above also, he Supreme Court observed:
"We also see no cogent ground to take view different from that of the High‑ Court that the other circumstances, namely, the transfer of the amount of Rs.5,00,000 from Calcutta to Jamnagar for fixed deposit in the name of Biswanath and the use soon thereafter of the said fixed deposit receipt as security for the overdraft facility to the respondent‑firm did not justify the inference that the amount belonged to the respondent."
It was next emphasized:
"The onus to prove that the apparent is not the real is on the party who claims it to be so. As it was the department, which claimed that the amount of fixed deposit receipt belonged to the respondent‑firm even though the receipt had been issued in the name of Biswanath, the burden lay on the department to prove that the respondent was the owner of the amount despite the fact that the receipt was in the name of Biswanath. A simple way of discharging the onus and resolving the controversy was to trace the source and origin the amount and find out its ultimate destination. So far as the source is concerned, there is no' material on the record to show that the amount came from the coffers of the respondent firm or that it was tendered in Burrabazar Calcutta branch of the Central Bank on November 15; 1944, on behalf of the respondent. As regards the destination of the amount, it has already been mentioned that there is nothing to show that it went to the coffers of the respondent. On the contrary, there is positive evidence that the amount was received by Biswanath on January 22, 1946. It would thus follow that both as regards the source as well as the destination of the amount, the material on the record gives no support to the claim of the department."
In the end, the court laid down as follows:
There should, in our opinion, be some direct nexus between the conclusion of fact arrived at by the authority concerned and the primary facts upon which that conclusion is based. The use of extraneous and irrelevant material in arriving at that conclusion would vitiate the conclusion' of fact because it is difficult to predicate as to what extent the extraneous and irrelevant material has influenced the authority in arriving at the conclusion of fact."
In Karnani Properties Ltd. C.I.T. (1971) 82 I T R 547, the Supreme Court laid down that the expression "on the facts and circumstances of the case" means the facts and circumstances as found by the Tribunal, and not the facts and circumstances that may be found by the High Court on the reappraisal of evidence. Indeed, the High Court has no jurisdiction to reappraise the evidence and to arrive at its own findings of fact in the reference proceedings.
In C.I.T. v. Durga Prasad More (1971) 82 I T R 540 (S C), the controversy was whether the house property in question was held by the assessee‑husband as a trustee on behalf of his wife. The assessee had put forward the said claim for the first time in the assessment year 1942‑43 but the claim was finally rejected by the Tribunal with the observation that it would be open to the assessee to establish his case in subsequent years' assessment proceedings. During the assessment years 1943‑44 to 1957‑58, the income of the said property was assessed in the hands of the assessee without any contest. During the proceedings for the years 1958‑59 and 1959‑60 the assessee revived his old plea, but the same was rejected and the said rejection was ultimately upheld by the Supreme Court. The Court observed as under:
"It is true that an apparent must be considered real until it is shown that there are reasons to believe that the apparent is not the real. In a case of the present kind a party who relies on a recital in a deed has to establish the truth of those recitals, otherwise, it will be very easy to make self‑serving statements in documents either executed or taken by a party and rely on those recitals. If all that an assessee who wants to evade tax is to have some recitals made in a document either executed by him or executed in his favour, then the door will be left wide open to evade tax .....
Now, coming to the question of onus, the law does not prescribe any quantitative test to find out whether the onus in a particular case has been discharged or not. It all depends on the facts and circumstances of each case. In come cases, the onus may be heavy whereas, in others, it may be nominal. There is nothing rigid about it."
In deciding the case the court was very greatly influenced by the fact that the assessee, after having objected to the inclusion of the income from the property in his assessment during the assessment year 1942‑43, included the said income in his return for several subsequent years and revived his old objection in the proceeding relating to the assessment years 1958‑59 and 1959‑60:
"There is no dispute that the consideration for the sale was in fact paid by the assessee. He says that he paid it on behalf of the trust orally created by his wife. Therefore, the question is whether he has satisfactorily proved that case. If he has failed to prove that case, as we think it to be so, and in the absence of any other alternative case pleaded by him, it follows as a matter of course that the considera tion for the sale passed from him."
In A. Govindarajulu Mudaliar v . C . I . T . (1958) 34 I .T R 807 (SC) the controversy was regarding certain amounts which stood credited to an assessee in a firm wherein he was a partner. The assessee was required to prove the source of the said credits. The explanation offered by him was rejected and it was held that the said credits represented the concealed income of the assessee. The assesses filed appeals after obtaining special leave from the Supreme Court. The appeals were dismissed and it was observed:
"When both these explanations were rejected, as they have been, it was clearly open to the Income‑Tax Officer to hold that the income must be concealed income. There is ample authority for the position that where an assessee fails to prove satisfactorily the source and nature of certain amount of cash received during the accounting year, the Income Tax Officer is entitled to draw the inference that the receipts are of an assessable nature."
So far as the Privy Council cases are concerned, a reference was made to Dalip Singh v. Chaudhrain Nawal Kunwar (1908) L R :35 IA 104 and I L R 30 All 258 (P C), where the controversy related to the genuineness of a transaction of mortgage. Sir Arthur Wilson, speaking on behalf of the board, observed as follows:
"There was some evidence on each side, bearing directly on the character of the transaction, but on neither side was that evidence wholly convincing. Persons whom one might have expected to be prominent witnesses were not called, and the evidence that was called is open to much adverse criticism. The testimony of one witness is described by the judge who heard it as being worthless. In determining, therefore, which story is to be accepted, it has been found necessary in India and it is equally necessary for their Lordships, to rely largely upon the surrounding circum stances, the position of the parties and their relation to one another, the motives which could govern their actions, and their subsequent conduct."
So far as the Allahabad decisions are concerned, a reference made to Sheo Narain Lal, In re: (1954) 26 I T R 249 and C.I.T. v. Daya Chand Vaidya (1975) 98 I T R 280.
In Sheo Narain Lal, In re (1954) 26 I T R 249, the controversy was in regard to the ownership of a house which stood in the name of the wife of the assessee. Half the sale price for the purchase of the said house was accept by the department to have been contributed by the wife. However, in regard to the source for the remaining half portion of the house, the Tribunal disbelieved her, statement that she had received gifts of cash and jewellery from her father‑in‑law. It was held that the mere rejection of the wife's explanation would not lead to the inference that half the sale price for the purchase of the property must have been contributed by the assesses‑husband. The court placed reliance an the decisions of the Patna High Court in Ramkindar Banerji v C . I . T ." I T R 108 (Pat) and Sovaram Jokhiram v . C .I . T . (1944) 12 I T R 110 (Pat.) and on the decision of the Lahore High Court in K . B . Sheikh Muhammad Naqi v. C . I. T . (1845) 13 I T R 452.
In C.I.T. v. Days Chan Jain Vaidya (1975) 98 I T R 280, the controversy was like this. A private limited company was floated by the assessee and the shareholders in the said company were the assessee, his wife, two major sons and two minor sons. Certain shares were issued and allotted to the shareholders. The share money was entered in the books of the company as having been received from the respective shareholder. The I .T and the A.A.C rejected the explanation of the wife of the assesses that the state money had been paid by her in respect of her own shares and in respect of the shares allotted to the two major sons from out of the funds which she had received from her father and father‑in‑law. However, in the second appeal, the Tribunal held that even though the explanation of the wife had been reject by the department still it did not lead to the inference that the money for the purchase of…
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