TMI Blog1985 (5) TMI 120X X X X Extracts X X X X X X X X Extracts X X X X ..... which the property stands and Smt. Alka Chaudhary is merely his benamidar. 3. It is not out of place to mention at this stage that the issue regarding the nature of ownership first arose in the case of Smt. Alka Chaudhary for the assessment year 1977-78. The ITO in that case passed a draft order and referred the matter to the IAC under section 144B of the Income-tax Act, 1961 ('the Act'). The IAC collected evidence for the first time in section 144B proceedings, and on appreciation of the evidence collected by him came to the conclusion that Smt. Alka Chaudhary was merely a benamidar of Dr. Vinayak Chaudhary. Smt. Alka Chaudhary and Dr. Vinayak Chaudhary also filed voluminous evidence in assessment proceedings and also before the IAC. The ITO as per the directions of the IAC under section 144B proceedings held that Smt. Alka Chaudhary was the benamidar of Dr. Chaudhary in respect of the property in question. He also came to the conclusion that the investment to the extent of Rs. 34,180 remained unexplained and, hence, he added the same in the case of Smt. Alka Chaudhary. Against the said order for the assessment year 1977-78, Smt. Alka Chaudhary filed an appeal before the Commis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... benamidar of other or not is upon the person alleging the same. In this case the burden is on the department to prove that Smt. Alka Chaudhary, is the benamidar of Dr. Chaudhary. The burden has to be strictly discharged by adducing legal evidence of definite character which would either directly prove the fact of benami or establish circumstances unerringly and reasonably raising an inference of that fact---Jaydayal Poddar v. Mst. Bibi Hazra AIR 1974 SC 171. (ii) The essence of benami is the intention of the party or parties concerned. The intention is often shrouded in a thick veil which cannot be easily pierced through. But such difficulties do not relieve the person asserting the transaction to be benami of any part of the serious burden that rests on him nor justify the acceptance of mere conjectures and surmises as a substitute of proof---Jaydayal Poddar's case. The question whether a purchase in the name of the wife by the husband out of money provided by him is benami for his own benefit would depend upon the intention of the parties at that time of purchase---R.K. Murthi v. CIT [1961] 42 ITR 379 (Mad.). (iii) The source from which the purchase money came Jaydayal Podda ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Alka Chaudhary in the books of Dr. Vinayak Chaudhary. Thereafter Dr. Chaudhary paid instalments, interest and ground rent of 1978 and 1979 on 31-8-1979 and debited 50 per cent of the same to the account of Smt. Alka Chaudhary in the books of Dr. Chaudhary. Interest up to 31-7-1981 was equally paid by Dr. Chaudhary and Smt. Alka Chaudhary, that is, each one paid Rs. 5,239 on 1-8-1981. The instalments of premium, interest and ground rent of 1980 and 1981 were equally paid by Dr. Chaudhary and Smt. Alka Chaudhary on 6-11-1982, that is, each one paid Rs. 20,716 on 6-11-1982. Thereafter some further payments of Rs. 1,812 are made by each of them on 17-12-1982. The details of the payments made by the parties have been furnished in tabulated form by the assessee as also in different forms by the department. The assessee has also furnished the copy of account of Smt. Alka Chaudhary as appearing in his books of account from the financial year 1977-78 to 1983-84. In the year 1982-83 Smt. Alka Chaudhary has made two repayments to Dr. Chaudhary, the effect of which is that the account of Smt. Alka Chaudhary in the books of the assessee, Dr. Chaudhary gets fully squared off and Smt. Alka Chau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear that Dr. Chaudhary and Smt. Alka Chaudhary have made equal contribution towards purchase of NIT plot Nos. 93-94. The learned AAC while dealing with the payments of instalments of NIT plots has observed as follows : "Thus, the A.R's claim that the lease rent was borne equally by the appellant and his wife after the reallotment in joint names by NIT was made on 29-3-1976 is not correct." On this basis, he further observed that no adequate consideration flowed from the wife to the husband in respect of the above assignment of part of the leasehold right. The learned AAC obviously not viewed the situation as a whole. He has only taken into consideration the payment of first few instalments into consideration. He has not taken note of the fact that after Smt. Alka Chaudhary was taken as a co-allottee, 50 per cent of the payment made by Dr. Chaudhary was debited to her account and ultimately Dr. Chaudhary has been reimbursed for the same by Smt. Alka Chaudhary. He has also not taken note of the instalments actually paid by Smt. Alka Chaudhary. The mere fact that at earlier stage Dr. Chaudhary alone made the payment of instalments or that at a given point of time the contribution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lised was a commercial-cum-residential building. However, it appears that Dr. Chaudhary applied for a revised plan on 13-6-1975 and the same was sanctioned on 5-7-1975. The revised plan was for hospital building. However, subsequently, the plans as per actual construction were submitted by Dr. Chaudhary and Smt. Alka Chaudhary on 10-9-1977 and the same was sanctioned thereafter. Thus the position as it finally stands is that the plan is sanctioned in the names of Dr. Chaudhary and Smt. Alka Chaudhary. It is submitted by the assessee that Smt. Alka Chaudhary made the following investments: 1. Rs. 14,000 Invested partly in cash and partly deposited in account No. 134 with UBI. 2. Rs. 2,10,000 Loan from Vijaya Bank in the joint names of Dr. Chaudhary and Smt. Chaudhary. 3. Rs. 12,000 Loan from Professor Mahure received on 4-1-1977. 4. Rs. 15,000 Loan from Mr. A.R. Phalak by demand draft dated 8-2-1977 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls and receipts from the concerned parties to whom payments were made. 9. It was contended by the department that Smt. Alka Chaudhary was not in a position to invest the said amount of Rs. 14,000. Her source of income was salary from the hospital of Dr. Chaudhary. So also she had small interest income besides the amounts declared under the Voluntary Disclosure Scheme, 1975. It was pointed out by the IAC in his order under section 144B that the assessee, namely, Smt. Alka Chaudhary had acquired assets worth about Rs. 88,331 between 1966 and 1977, while her source during that period was only Rs. 58,350 and, hence, she could not have invested Rs. 14,000 as alleged. In the proceedings before the AAC the assessee had pointed out various mistakes committed by the IAC in holding that no cash was available with Smt. Alka Chaudhary. Even in the proceedings before the Commissioner (Appeals) in the case of Smt. Alka Chaudhary, it was pointed out that the learned IAC instead of treating cash flow statement as a whole picked up few items of receipts omitting various other items and proceeded to hold that these receipts, as picked up by him were exhausted in other investments and that the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid investment. Apart from this, the IAC in his order has come to the conclusion that the cash available with her was Rs. 13,132 and there is no challenge by the department against the said finding. The mere fact that Smt. Alka Chaudhary in her first statement did not refer to the said investment of Rs. 14,000 does not mean that her contention was an afterthought especially when the detailed cash flow statement has been submitted immediately on the second date of hearing and all the items of receipts and payments as mentioned in the said cash flow statement are properly verifiable. The contention of the department that initially the cost of investment was shown at Rs. 3,55,375 and, subsequently, when the valuer gave an estimate at Rs. 3,78,664, the assessee showed an initial investment of Rs. 14,000 to suit the new estimate of cost of construction, does not appear to be sound. It is to be noted that Dr. Chaudhary and Smt. Alka Chaudhary have not maintained any regular books of account for construction. The question of explaining the investment arose only at the time of assessment proceedings and in the said proceedings they collected the information from various sources and submitt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... receive your letter dated 14-11-1976 declaring the completion of the premises and also putting us in possession from 15-11-1976. We confirm having obtained the possession of the premises from 15-11-1976 and assure you that the rent accruing thereon shall be paid to your loan account with us as desired by you." The contention of the department is that the loan in effect is given to Dr. Chaudhary alone. For this purpose the department heavily relied upon the application dated 20-1-1976 given to the bank for facility of loan. It is contended that the said application was given by Dr. Chaudhary alone and Smt. Alka Chaudhary does not figure therein. The loan application was for Rs. 2,50,000 and the security offered was the land and building on completion of the premises. The purpose of the loan is stated to be the construction of the premises for Vijaya Bank and the terms of payment is stated to be out of the rent payable in respect of the said premises. In the said application, the branch manager of the bank has given an opinion that Dr. Chaudhary is a reputed consulting surgeon of the locality. He is also having another consulting room at Dharampeth and that he desires to have a nur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,500 per month. Relying on paragraph No. 21 of the IAC's order, it was submitted that the real security for the Vijaya Bank loan of Rs. 2,10,000 was initially certain assets of Dr. Chaudhary and later investment made by him in the house up to the date of sanction. The IAC pointed out that Dr. Chaudhary had offered some of his personal movable assets as security for the said loan of Rs. 2,10,000. To controvert this fact the assessee filed a letter dated 25-2-1983 from the bank confirming that Dr. Chaudhary had not offered the security of movables for the said loan of Rs. 2,10,000. Those items were stated by him only in the statement of assets and liabilities and were not offered as security. Referring to the loan application and the letter of sanction also it appears that the security offered was in the form of immovable property consisting of plot Nos. 93-94 and the house property standing thereon. The counsel for the department contended that the bank could not have given loan to Smt. Alka Chaudhary as she had no paying capacity. According to him, the bank had given loan looking to the fact that Dr. Chaudhary was a reputed surgeon and looking to his application only, the bank sanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n which is presently done by way of rent adjustment against the loan. As regards the execution of the lease agreement between the bank and the owner of the building, he has stated that it is required to be signed and executed by the bank on one side and Smt. Alka Chaudhary on the other side as owner of first floor and the lease deed between the bank and Smt. Alka Chaudhary would be valid and legal as per provisions of law if she executes the lease of the first floor only. He has also opined that an affidavit be obtained from Dr. Chaudhary that he has partitioned the property with Smt. Alka Chaudhary granting her first floor. Conduct of the parties shows that the loan in question was intended to be transferred in favour of Smt. Alka Chaudhary alone. However, the position at the relevant time was that the loan was in favour of Dr. Chaudhary and Smt. Alka Chaudhary. In any event it is difficult to accept the contention of the department that the loan was granted only to Dr. Chaudhary and not jointly to Dr. Chaudhary and Smt. Alka Chaudhary. Further the assessee has filed a copy of account of Vijaya Bank. The said account is a joint account of Dr. Chaudhary and Smt. Alka Chaudhary and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has given loan to her in pursuance of her request and that the cheque is issued in the name of Dr. Chaudhary as per her request only. Since most of the expenditure for construction work was routed through the account with UBI in the name of Dr. Chaudhary there is nothing unnatural in Smt. Alka Chaudhary asking for issue of cheque in the name of Dr. Chaudhary. This does not mean that the loan is given to Dr. Chaudhary. The IAC has also not doubted the genuineness of the loan to Smt. Alka Chaudhary. The AAC has also accepted the said loan to be genuine. The said loan amount is actually deposited in the account with UBI and the said amount is actually utilised for payment of construction bills. There should be, thus, no hesitation in holding that Smt. Alka Chaudhary has established the contribution of Rs. 12,000 for construction of the house property in question. The observation of the AAC that the said contribution is negligible also cannot be appreciated. If the said contribution is viewed in isolation then it may be said that it is negligible or small but if we look to the contribution from all sources it cannot be said so. The aforesaid contribution along with other contributions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or and the said contractor has acknowledged the receipts of amounts from Smt. Alka Chaudhary and Dr. Chaudhary. Such receipts started from 5-8-1975 and continued till the consolidated full payment receipt is executed on completion of the work. The counsel for the department has contended that the running bills filed by Parate Construction Co. do not bear any date. To controvert the contention of the counsel for the department, it is stated by the learned counsel for the assessee that it is only when the bills are submitted to the owners, Smt. Alka Chaudhary has acknowledged the receipts of such bills and she has put the date on the same. On all the bills Smt. Alka Chaudhary has put the date of receipt of bill by her. However, the contractors have not put the date. It may be stated that all these bills were produced before the taxing authorities at the earliest stage and the genuineness of the bills has never been doubted by any of the authorities below. Further as and when the part payments are made, separate receipts have been invariably taken by Smt. Alka Chaudhary and Dr. Chaudhary and such vouchers and receipts always contained the date. The payments are also made by cheques. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e factum of ownership by both of them and for dividing the property by allotting specific portion to each of them on 25-8-1976. The said agreement is signed by the parties and is witnessed by two witnesses. The IAC and the AAC have observed that the said agreement was merely make-believe affair. According to the AAC the vital clause of the said agreement was clause 3 whereby the parties agreed to get the property valued by an approved valuer for determination of investments attributable to their respective portions and settle the account between them, accordingly. According to him, the parties did not get the property valued till September 1979, and have also not settled the accounts between them and such inaction would lead one to believe that this agreement was merely a make-believe. It has to be observed that this agreement has been signed and executed by parties and is duly witnessed by the witnesses. Both the executants of the agreement, viz., Dr. Chaudhary and Smt. Alka Chaudhary have been examined extensively on various aspects but nothing has come out in the said depositions which would lead one to believe that the agreement in question was not genuine or was not executed o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the valuation of the property has been made late, that by itself does not mean that the same is an afterthought or a make-believe. One has to remember that it is a matter of adjustment of rights between the husband and wife and not between third parties and, therefore, the delay in valuation of the property or adjustment of accounts will not take away the genuineness of the agreement. Further it is found that the mutation in corporation records and NIT records have been made at the earliest time and the tax bills are issued in their names and taxes are also paid by them. There is also separate enjoyment of the property by both of them in respect of the portions allotted to them. In this view of the matter it cannot be said that the agreement is an afterthought or make-believe. The said agreement is binding on both of them and it validly determined their rights inter se. Looking to the totality of all the facts and circumstances of the case and on appreciation of voluminous evidence brought on record by both the parties, it cannot be said that Smt. Alka Chaudhary is merely a benamidar of Dr. Chaudhary in respect of the ground floor and first floor of the house property standing on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... benami by the ITO : (i) A house in the joint names of the assessee's wife and mother-in law (ii) four shops in the names of the assessee's wife, his mother-in-law and his father-in-law ; and (iii) a house in the name of his father-in-law. The Tribunal also held the said transactions to be benami for the following reasons : (i) B, the father-in-law of the assessee, could not be believed when he said that he had a sum of Rs. 1 lakh in cash with him since he had discontinued his business in 1946. (ii) B had no source of income and at the relevant period he along with his wife was living with his son-in-law and both of them were dependent on the assessee. (iii) The assessee's wife was the only issue of her parents, and (iv) The assessee was not honest as he had admittedly purchased a house property benami, in the name of his wife. The High Court applied the various tests laid down by the Supreme Court in Jaydayal Poddar's case and CIT v. Daulat Ram Rawatmull [1973] 87 ITR 349 and held as follows : "Held, that the mere fact that the statement of B that he had cash amounting to Rs. 1,00,000 was not accepted by the Tribunal, would not lead to the inference that the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany sold 2,098 shares of the said company to the assessee's wife for Rs. 24,000. The assessee's wife paid only Rs. 4,000 and executed the promissory note for the balance amount of Rs. 20,000 in favour of the said director and undertook to pay the amount without interest. The said amount of Rs. 20,000 was paid by the assessee and not his wife to the said director as follows: Rs. 6,000 on 26-9-1947; Rs. 10,000 on 18-12-1947; Rs. 4,000 on 7-4-1949. The assessee's wife reimbursed her husband in respect of the amount paid by him out of the dividends which she received from the said company on those 2,098 shares. The department sought to include the entire dividend income received by the assessee's wife in the total income of the assessee, whereas the Tribunal held that as Rs. 20,000 have come out of the assessee's fund in the first instance for the purchase of shares at least five-sixth of the dividend income should be included in the assessee's total income. The contentions raised by the department are : 1. that assessee's wife was merely a benamidar of the assessee ; and 2. there was a transfer of asset by the assessee to his wife indirectly within the meaning of section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nly a loan, the payments cannot amount to a transfer of assets. There is no prohibition against a husband advancing monies to his wife for the acquisition of property by her. Whether in such cases there was a loan by the husband to the wife or whether it was merely a camouflage to cover a case of transfer of assets, is a question of fact. That question does not, however, arise in the present case, as the amounts advanced were repaid out of the dividents, and what was advanced could only be a loan. Even assuming that there was no material to show that Mr. Murthi did grant a loan to his wife, and that the payment of the wife's obligations to the vendor amounted to a transfer of assets to enable her to obtain the shares, such transfer should be held to be one for consideration, as the monies were ultimately repaid, presumably in pursuance of the original understanding between the parties. The provision of section 16(3) would not, therefore, apply to the case." The learned counsel for the assessee further relied upon the decision of the Allahabad High Court in L. Sheo Narain Lal, In re. [1954] 26 ITR 249. The assessee drew our attention to the following extract in the report : "If ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t that except making a bare statement, the parties had not produced any evidence. The best evidence which could have been in possession of the parties and which could have been produced in the case was not produced and in absence of that evidence the bare explanation of the assessee cannot be taken as truthful. It is in that context that the High Court made the abovequoted observation. It is true that the benami nature of transaction can be proved either by direct evidence or by circumstantial evidence and especially when the transaction is between the persons who are in fiduciary relationship. The transaction in its nature is known only to the parties and it is only by placing before the Court several circumstances that real nature of the transaction can be determined. In the present case as stated above voluminous evidence has been placed on record and none of the parties have held back any evidence or material. Therefore, as stated by the High Court the only way to ascertain the true nature of the transaction is by appreciation of the evidence on record and by applying various tests laid down by the Courts. 17. Another case on which the reliance was placed by the revenue is CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the apparent was not the real, in a case where a party relied on self-serving recitals in documents, it was for that party to establish the truth of those recitals ; the taxing authorities were entitled to look into the surrounding circumstances to find out the reality of such recitals ; (iv) though it was true that neither the principle of res judicata nor the rule of estoppel was applicable to assessment proceedings, the fact that the assessee included the income of the premises in his returns for several years, after objecting to its inclusion in the year 1942-43, was a circumstance which the taxing authorities were entitled to take into consideration, in the absence of any satisfactory explanation ; (v) that no question of law arose out of the order of the Tribunal and that the Tribunal was right in holding that the house property was not trust property." It is true that the taxing authorities are not bound to blindly follow the recitals made in the documents. They are entitled to look into the surrounding circumstances to find out the reality of the recitals made in those documents. There can be no exception to the said proposition laid down by the Supreme Court. In f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its own facts. In that case the husband had gifted a plot of land to his wife. She had no source of income to construct the house thereon. She took loan and advance rent on hypothecation of said gifted land and constructed the house thereon. Under these circumstances the Calcutta High Court held that income arose to the wife of the assessee directly from the gifted assets and, hence, the income from rent was liable to be included in the case of the husband under section 64. The said case has no application to the facts of the present case. In this case Smt. Alka Chaudhary contributed half the price for the plot in course of time. She reimbursed Dr. Chaudhary in respect of some of the instalments paid by Dr. Chaudhary. Thus, this was not a case of gift or transfer without consideration. In fact the case of the Madras High Court, R.K. Murthi, squarely applies to the facts of this case and section 64 has no application to the facts of this case. We, therefore, hold that Smt. Alka Chaudhary is not the benamidar of Dr. Chaudhary in respect of ground floor and first floor of the house property standing on NIT plot Nos. 93-94 on Central Avenue Road, Nagpur. She is the owner of half share ..... X X X X Extracts X X X X X X X X Extracts X X X X
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