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1988 (8) TMI 85 - HC - Income Tax
Issues Involved:
1. Interpretation of the Benami Transactions (Prohibition of the Right to Recover Property) Ordinance, 1988.
2. Validity of the release deed executed by the plaintiff's mother.
3. Applicability of the Ordinance to pending suits and appeals.
4. Constitutional validity of the Ordinance under Article 19(1)(f).
Issue-wise Detailed Analysis:
1. Interpretation of the Benami Transactions (Prohibition of the Right to Recover Property) Ordinance, 1988:
The case primarily revolves around the interpretation of the Benami Transactions (Prohibition of the Right to Recover Property) Ordinance, 1988. The Ordinance aims "to prohibit the right to recover property held benami and for matters connected therewith or incidental thereto." Section 2(1) of the Ordinance states that "No suit, claim or action to enforce any right in respect of any property held benami against the person in whose name the property is held or against any other person shall lie by or on behalf of a person claiming to be the real owner of such property." Section 2(2) further prohibits any defense based on benami transactions. The court held that the Ordinance has a broad scope, effectively barring any suits, claims, or actions, including those already pending, that are based on benami transactions.
2. Validity of the Release Deed Executed by the Plaintiff's Mother:
The plaintiff sought to invalidate a release deed executed by his mother, the 3rd defendant, arguing that she had no authority to alienate the property in which he had a one-fifth share. The trial court dismissed the suit, holding that Padmanabhan, the original owner, was only a benamidar. However, the appellate court reversed this decision, noting the lack of evidence for the financial resources of the 1st defendant and the paltry consideration of Rs. 25 for the release deed, which was prejudicial to the minor children's interests. The appellate court decreed the suit, declaring the plaintiff's entitlement to a one-fifth share in the property.
3. Applicability of the Ordinance to Pending Suits and Appeals:
The court examined whether the Ordinance applies to suits and appeals that were already pending at the time of its promulgation. The court concluded that the Ordinance has retrospective effect, affecting transactions entered into long ago and litigations already pending. The court emphasized that the terms "suit," "claim," and "action" in the Ordinance are broad enough to include appeals and second appeals. Therefore, the defense of benami is not available in any ongoing litigation, including the second appeal under consideration.
4. Constitutional Validity of the Ordinance under Article 19(1)(f):
A constitutional challenge was raised, arguing that the Ordinance violates Article 19(1)(f) by imposing an unreasonable restriction on the right to hold and dispose of property. The court dismissed this contention, noting that the Ordinance serves a significant public interest by eliminating a practice that has been used to defraud creditors and evade taxes. The court held that the prohibition of benami transactions is a reasonable restriction in the interest of the general public and does not infringe upon fundamental rights.
Result of the Discussion and Decision:
The court dismissed the second appeal, holding that the defense of benami, essential for the appellant to succeed, is unavailable due to the Ordinance. Consequently, the appellants must reconcile themselves with defeat in this litigation. The second appeal was dismissed without any order as to costs.
Disappointments and Acknowledgments:
The court noted the lack of assistance from the State Government and the Central Government in interpreting the Ordinance. The court acknowledged the contributions of various members of the Bar who assisted in the case. A copy of the judgment was ordered to be transmitted to the Union of India and the State Government.