TMI Blog1980 (10) TMI 17X X X X Extracts X X X X X X X X Extracts X X X X ..... 67, 1967-68 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 liquor 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 30, 1964. During the assessment proceeding's for the assessment year 1965-66 the IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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 along with 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 Financiers Ltd., AIR 1977 SC 409, a reference was made to Gangadara Ayyar v. Subramania Sastrigal, AIR 1949 FC 88 and to Sree Meenakshi Mills Ltd. v. CIT [1957] 31 ITR 28 (SC), 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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 colour; (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 (6) 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 sale standing in the name of one person, is in reality for the benefit of another." In Rai Bahadur Mohan Singh Oberoi v. CIT [1973] 88 ITR 53 (SC), relying on the decision in Sree Meenakshi Mills Ltd. v. CIT [1957] 31 ITR 28 (SC), 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 evi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... observed (p. 359 of 87 ITR) : " 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 A, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 CIT v. Durga Prasad More [1971] 82 ITR 540 (SC), 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 obs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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] LR 35 IA 104 ; ILR 30 All 258 (PC), where the controversy related to the genuineness of transaction of mortgage. Sir Arthur Wilson, speaking on behalf of the board, observed as follows (p. 267) : " 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 necess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oach of the Tribunal was correct. The cases of Govindarajulu Mudaliar v. CIT[1958] 34 ITR 807 (SC), Kale Khan Mohammad Hanif v. CIT[1963] 50 ITR I (SC) and CIT v. M. Ganapathi Mudaliar [1964] 53 ITR 623 (SC) were distinguished on the ground that in the said cases the amounts in question were entered in the account books of the assessees concerned and it was held that once the explanations given by the assessees concerned in respect of such deposits were found to be incorrect, the ITO could properly treat such deposits as the income of the assessee from an undisclosed source. contention was raised on behalf of the department that as all the share-holders in the private limited company belonged to the family of the assessee, who was the karta of his family, it could be inferred that the amounts in question belonged to the assessee. Reliance was placed on the decision of the Supreme Court in Juggilal Kamlapat v. CIT [1969] 73 ITR 702. The said contention was rejected and it was observed (p. 283 of 98 ITR) : " The revenue, in the circumstances of this case, could only succeed in case they had brought on record material from which it could be concluded that the deposit made by the wif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... posits made in the name of the wife of the assessee in a partnership where the assessee-husband was a partner, belonged to her or were held by her benami for her husband. It was observed (p. 346): " There can be no doubt that the burden of proof was on the department to show that the real owner was the assessee and the amount belonged to the assessee. The amount is credited in the accounts of Krishna and Company in the name of Laxmi Ammal and the natural presumption is that it belonged to Laxmi Ammal." The court also considered the effect of the rejection by the department of the explanation given by the assessee and observed (pp. 346-7): " We are of opinion that this rejection of the evidence alone could not lead to the inference that the consideration was provided by the assessee. There is no material on which we could conclude that the purchase in the name of the minor was benami for the assessee or that the amount standing to the credit of Laxmi Ammal belonged to the assessee ...... We are of opinion, that on the facts and circumstances of this case, it cannot be stated that the department has discharged its onus of proving that the ostensible owner was not real owner of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed benami by the husband in the name of the wife. The court observed (p.110) : " There is no presumption that a property standing in the name of married Hindu lady does, in fact, belong to her husband. The ordinary presumption of law is that the apparent state of affairs is real unless the contrary is proved. The absence of evidence one way or the other did not under the law justify the Assistant Commissioner in drawing an inference that the lady was a benamidar of her husband. If the Assistant Commissioner had disbelieved the payment of the money much would have been said in favour of the view that it was a finding of fact but in this case the payment is not disputed. What the Assistant Commissioner has found is this, that the payment was to himself because the lady in whose name the payment has been made was a benamidar. For coming to this finding some evidence was essential, which, in my opinion, was wanting in this case. " In S. N. Ganguly v. CIT [1953] 24 ITR 16 (Pat), the controversy was in regard to a sum of Rs. 11,000 representing the value of high denomination notes encashed in the name of the assessee's wife. The department treated the said amount to be a secret profi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hur Wilson said in Dalip Singh v. Nawal Kunwar [1908] LR 35 IA 104 ; ILR 30 All 258 (PC), reliance must be largely placed, not only upon the surrounding circumstances and the position of the parties and their relations to one another, but also upon the motives which could govern their actions and their subsequent conduct." In Seth Ramnath Daga v. CIT [1971] 82 ITR 287 (Bom), the controversy of benami was examined in the peculiar facts of the case. A house had been purchased in the name of the second wife of the karta of the assessee-HUF. The contention of the assessee was that the consideration for the purchase had come to the second wife from the funds which were in possession of the first wife to whom the moneys had been given by the husband from time to time. After the death of the first wife these funds came into the possession of the second wife, and she utilized such funds for the purchase of the house. This explanation was not accepted and it was held that the consideration for the purchase was out of the undisclosed income of the assessee-HUF. In S. Kumaraswami Reddiar v. CIT [1960] 40 ITR 590 (Ker), the controversy was regarding certain cash credits in the books of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enefit of the person paying or providing the consideration. " This provision enshrines the fundamental proposition, which is applicable to a controversy regarding benami, that the most important aspect to determine whether a transaction is a benami one or not, is the source of the consideration for the transaction. It has seemed to us that while examining the controversy involved in the instant case, we should not take into account the cases which related to the addition of a cash credit appearing in the books of an assessee, whether in the name of the assessee or in the name of a third party. It is well established that if the assessee's explanation in respect of such cash credits is rejected, then they may be treated as the income of the assessee from undisclosed sources. A reference may also be made to s. 68 of the I.T. Act, 1961, which lays down as under: " Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Income-tax Officer, satisfactory, the sum so credited may be charged to income-tax as t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not all that honest as he shows himself to be because he has purchased one house property in the name of his wife benami. 5. The AAC in deciding the controversy in favour of the assessee was led away by surmises and made incorrect statements of fact. So far as the aforementioned first aspect is concerned, it should be seen that the mere fact that the version of Babu Ram, the father-in-law of the assessee, has not been accepted by the Tribunal Will not lead to the inference that the properties in question were purchased benami by the assessee himself. This is clear from the following observation made by the Supreme Court in CIT v. Daulat Ram Rawatmull [1973] 87 ITR 349 at 359: " 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 A, 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 dra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted to rely on this aspect then the witnesses, who were examined, should have been put more explicit questions in this regard. No such question was put to Babu Ram and, so far as the assessee was concerned, he only said a; stated above, that all, i. e., the in-laws and the assessee, lived in one house. He did not say anything more. No question was put to him regarding the alleged dependence of the in-laws on him. So far as the aforementioned third aspect is concerned, we have not appreciated how the fact that the assessee's wife is the only issue of her parents, leads to the conclusion that the purchases of the three properties in dispute were financed not by her parents but by her husband. The said circumstance is a natural one and it was equally possible that the purchases might have been effected by the parents themselves as well as by her husband. Such a circumstance could not be relied upon by the Tribunal for coming to the conclusion that the properties in question could not have been purchased by the parents but must have been purchased by the husband. So far as the aforementioned fourth aspect is concerned, it clearly shows that the Tribunal allowed itself to suffer f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under s. 147 it was enhanced to Rs. 26,590. For the assessment year 1963-64, his income was originally computed at Rs. 9,250 and, subsequently, it was revised under s. 147 and computed at Rs. 10,750. The AAC had in mind these figures when he observed that if the assessee wanted to purchase these properties in his own name, he could have easily purchased them from his own savings which were available with him on the basis of the earlier assessments. The Tribunal criticised the said observations of the AAC in these words: " In making these observations the Appellate Assistant Commissioner has presumed that in the earlier years the assessee had earned sufficient income and had been able to save sufficient amount from that income. There is no material on record to justify this supposition." In our view, this criticism is unmerited. Moreover, what is more significant is the point that the Tribunal seems to be indulging in a contradiction. Is the Tribunal suggesting that the assessee did not have sufficient funds from his past savings to purchase the three properties in dispute ? If that be so, then how could the Tribunal hold that the said properties were purchased by the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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