TMI Blog1997 (6) TMI 22X X X X Extracts X X X X X X X X Extracts X X X X ..... ember 19, 1994, in O. P. No. 10711 of 1991 under section 256(2) of the Income-tax Act : "1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the income from Archana Jewellery whose ostensible owner was A. N. Chellappan was liable to be assessed in the hands of the assessee ? 2. Whether the income from Archana Jewellery business run under licence issued and controlled by the Central excise authorities is liable to be treated as income of the assessee and assessed at his hands when the licence stands in the name of another ? " Though the questions in I. T. R. Nos. 90/1993 and 147 of 1995 are couched in a slightly different manner, the question that is raised is as to the assessability of the income from Archana Jewellery in the hands of the assessee. The matter arises under the Income-tax Act. The assessment years concerned are 1983-84 and 1980-81 and the relevant accounting periods ended March 31, 1983, and March 31, 1980, respectively. The assessee is an individual. He was an abkari contractor. He was also having other businesses. For the assessment year 1980-81, the assessee filed a return of income on December 2, 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Jewellery on the basis of the findings arrived at for the assessment year 1979-80. Aggrieved by the assessment order, the assessee took up the matter in appeal before the Deputy Commissioner of Income-tax (Appeals), Trivandrum, who by his order dated December 14, 1989, inter alia, directed the exclusion of the income from Archana Jewellery in the assessment of the assessee following his decision in I. T. A. No. 12-SPL/CIT of 1984-85 in the case of the assessee for the assessment year 1981-82. The assessee filed an appeal against the order of the Commissioner of Income-tax (Appeals) on some other issue as I. T. A, No. 235/Coch. of 1990, wherein the assessee challenged the findings of the Commissioner of Income-tax (Appeals) directing deletion of income from Archana Jewellery in the assessment of the assessee (sic). The Department filed a cross objection No. 19/Coch of 1990 in the said appeal. The Income-tax Appellate Tribunal following its earlier decisions in I. T. A, Nos. 324, 325 and 326/Coch. of 1986 relating to the assessment year 1981-82 and 1982-83 which in turn relied on its earlier decision in I. T. A. No. 627/ Coch. of 1984 relating to the assessment year 1980-81 cancell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chari, Mamangalam. Another piece of evidence relating to the gold business (item marked as 20/37) at the time of seizure was also obtained from the bed room of the assessee according to which the total value of 15,134.40 gms of gold valued at Rs. 124 per gram was Rs. 18,76,628.40. The slip also refers to making charges, pagady, kuri collection, Cochin Bank S. B. account due and the cheques issued. The assessee was asked to give the details regarding the purchase of gold and also to whom he issued cheque for Rs. 6,11,293.97. The assessee filed a reply to the following effect: "I have no connection with the business of Archana Jewellery. My wife, Smt. Dayavathi, has advanced some money to them and my nephew (brother's son), Sri P. D. Sathyan, is an employee of Archana Jewellery who used to stay with me. Shri A. N. Chellappan is my neighbour. As he was not known to Mr. A. G. Ramesh he was reluctant to give a room in his building for lease. As requested by Mr. A. N. Chellappan, I took the room from Mr. A. G. Ramesh and had given it to Mr. Chellappan. I do not find anything in the alleged slip to show that it has any connection with me. I am not a partner in Jewellery as alleged by yo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gold regarding purchase of gold ornaments and sale of new gold ornaments which were found from the assessee's residence particularly some of them found from the assessee's bed room itself. The assessing authority ascertained that the assessee was introducing and withdrawing large sums of money from the business. From all the above, the assessing authority came to the conclusion that the initial capital contribution, control and management and also use of the funds of the business are with the assessee and that the assessee is the real owner of the business. Accordingly, he included the income from Archana Jewellery in his assessment. Against the assessment order from 1979-80, the assessee filed appeal before the Commissioner of Income-tax (Appeals), Ernakulam. One of the grounds in the appeal related to the inclusion of the income from Archana Jewellery in his assessment. The appellate authority observed that "the only ground on which the addition has been made appears to be that the appellant's wife has advanced money to the proprietor of Archana Jewellery and certain papers indicating transactions of Archana Jewellery in the form of purchase of old Jewellery were found at the res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... remained as the sole guarantor. But for the assessee's guarantee, the loan could not have been sanctioned by the Bank of Cochin to Shri A. N. Chellappan. The assessee's wife also advanced loans to this business of Archana Jewellery. Further, P. K. Narayanan and Co., of which the assessee is the managing partner had advanced a loan of Rs. 1,00,000 without charging any interest. Added to this a heavy amount of Rs. 1,50,000 was drawn by the assessee from the said Archana Jewellery on March 5, 1980. If, as submitted, the assessee was not having any connection with Archana Jewellery, he could not have withdrawn such a huge amount of 1 1/2 lakhs rupees from the business of Archana Jewellery. In fact, the bank account of Archana Jewellery 00-14 was operated by P. K. Narayanan, the assessee. The assessee's counsel could not also satisfy us as to how and why P. K. Narayanan operated this bank account of Archana Jewellery if he had no connection with the shop. To cap all these, the paper containing transactions of gold running to Rs. 18,76,628, pagady of Rs. 6,00,000, issue of cheque of Rs. 6,11,293 was found in the bed room of the assessee at the time of search. It is inconceivable as to ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and later the assessee remained the sole guarantor. The assessee's wife also advanced loans to the business. The assessee had given loan of Rs. 1,00,000 without charging any interest. The assessee has withdrawn a sum of Rs. 1,50,000 from the business of Archana Jewellery on March 5, 1980. Factually the bank account of Archana Jewellery 00-14 was operated by Sri P. K. Narayanan, the assessee ; and (iv) the paper containing transactions of gold amounting to Rs. 18,76,628.40, pagady Rs. 6,00,000 and the issue of cheque for Rs. 6,11,293.97 were found in the bedroom of the assessee at the time of search. According to the Tribunal, it is inconceivable as to how this paper found its way to the bed room of the assessee, if the assessee was not in any way connected with the business of Archana Jewellery. It is an admitted fact that the appellate order of the Tribunal for the assessment year 1979-80 has become final since the assessee has not taken up the matter under reference before this court. It is so stated by the assessee himself in the enclosure to the reference application for the assessment year 1983-84. It is also not known whether the assessee has taken up the Tribunal's order f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ship of the business of Archana jewellery. These facts and circumstances by themselves are not sufficient to hold that the business of Archana jewellery in fact belonged to the assessee. He submitted that though the findings of the Tribunal regarding the benami nature of the business appeared to be in the nature of findings of fact, the non-consideration of the principle regarding the nature of the transaction vitiates the said findings and that the findings arrived at by the Tribunal without considering the relevant principles are illegal, unsustainable and, therefore, the order of the Tribunal is to be set aside. Learned counsel for the assessee also submitted that the fact that the assessee has not challenged the findings of the Tribunal on this question for the assessment year 1979-80 will not operate as res judicata. Learned counsel submitted that the principles of res judicata will not apply to the proceedings under the Income-tax Act. He submitted that even assuming that the principles of res judicata will apply to the income-tax proceedings also, the order of the Income-tax Tribunal rendered for the year 1979-80 will not in any way disentitle this court from considering t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arding the ownership of Archana jewellery is a pure finding of fact and that it cannot be said that the aforesaid finding is not supported by any evidence or that the said finding is in any way perverse or unreasonable. In support of his contention that a finding of fact not specifically challenged cannot be allowed to be canvassed, learned counsel relied on the decisions of the Supreme Court in Karam Chand Thaper and Bros. P. Ltd. v. CIT [1971] 80 ITR 167 and in Karnani Properties Ltd. v. CIT [ 19 71] 82 ITR 547. He also relied on the decision of the Supreme Court in Sree Meenakshi Mills Ltd.'s case [1957] 31 ITR 28, in support of his submission that the finding of fact arrived at by the Tribunal cannot be interfered with in reference under section 256 of the Income-tax Act. After due consideration of the question in the light of the respective contentions raised by the parties and the legal position contained in the decisions of the Supreme Court mentioned above, we are of the view that there is no case for taking a different view than the one taken by the Tribunal. The Tribunal, according to us, found as a fact on relevant and cogent materials that the business of Archana jewe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the source of consideration for the transfer. In that connection, the Supreme Court observed as follows : "The word 'benami' is used to denote two classes of transactions which differ from each other in their legal character and incidents. In one sense, it signifies a transaction which is real, as for example, when A sells properties to B but the sale deed mentions X as the purchaser. Here the sale itself is genuine ; but the real purchaser is B, X being his benamidar. This is the class of transaction which is usually termed as benami. But the word 'benami' is also occasionally used, perhaps not quite accurately, to refer to a sham transaction, as for example, when A purports to sell his property to B without intending that his title should cease or pass to B. The fundamental difference between these two classes of transactions is that, whereas in the former there is an operative transfer resulting in the vesting of title in the transferee, in the latter there is none such, the transferor continuing to retain the title notwithstanding the execution of the transfer deed. It is only in the former class of cases that it would be necessary, when a dispute arises as to whether the per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mount of Rs. 5 lakhs belonged to B, but whether it belonged to the respondent-firm. The fact that B had not been able to give a satisfactory explanation regarding the source of Rs. 5 lakhs would not be decisive even of the matter as to whether B was or was not the owner of that amount. A person could 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 was found to be not correct. It was also held that it is a common feature of commercial and other transactions that securities are offered by other persons to guarantee the payment of the amount which may be found due from the principal debtor. The concepts of security and ownership are different and it would be a wholly erroneous approach to hold that a thing offered in security by a third person to guarantee the payment of debt due from the principal debtor belongs not to the surety but to the principal debtor, It was also held that the onus of proving that the apparent was not the real was on the party who claimed 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 rece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f gold ornaments were also seized from the bed room of the assessee. The presumption under section 132(4A) was also available to the Department and the burden is on the assessee to show that the slips and other documents seized from the residence of the assessee did not belong to him, which the assessee was not able to discharge properly. The facts of the case would clearly show that the initial control and management and also the use of the funds for the business are with the assessee and that the assessee is the real owner of the business. Even though the Tribunal has not stated in so many words about the source of the business and also the beneficial enjoyment of the income from the business, the discussion and the findings of the Tribunal will clearly show that the Tribunal had in mind relevant considerations for determining the question as to the ownership of the business of Archana jewellery and the various facts found by the Tribunal will clearly show that the initial capital, control and enjoyment of the business were with the assessee and it is as a result of the cumulative effect of the various facts found by the Tribunal that the Tribunal has ultimately come to the fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... les entered in the books of the appellant in the names of the intermediaries were genuine and if not, to whom the goods were sold and for what price are all questions of fact. Their determination does not involve the application of legal principles to facts established in the evidence. The findings of the Tribunal are amply supported by evidence and are eminently reasonable. It should, therefore, follow that there is no question which could be referred to the court under section 66(1). The Supreme Court addressed the question as to what is the ground for holding that a finding of benami is one of mixed law and fact and observed that the only basis for such a contention is that the finding that a transaction is benami is a matter of inference from various primary basic facts such as who paid the consideration, who is in enjoyment of the properties and the like. But that is not sufficient to make the question one of mixed law and fact unless there are legal principles to be applied to the basic findings before the ultimate conclusion is drawn. But no such principles arise for application to the determination of the question of benami which is purely one of fact. The Supreme Court als ..... X X X X Extracts X X X X X X X X Extracts X X X X
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