1. The appeals [IT Appeal Nos. 5005 to 5007] are by the department. The assessee in this case is a private limited company, Gajria Electrical Industries Co. (P.) Ltd. Appeals [IT Appeals Nos. 1739 to 1743] are by an assessee, Neelam Traders, a firm consisting of three partners. All these appeals are consolidated and disposed of by this common order.
2. Gajria Electrical Industries Co. (P.) Ltd. has 22 shareholders. One thing common to all the shareholders is that they are closely related to the director, Shri Hiranand Gajria. The assessee has income from commission business and property. The latter consists of rent received from a property known as 'Mistry Bhavan', situated in Dinshaw Wachha Road, Bombay.
3. The company purchased this property in May 1972. The rent received of Rs. 5,31,007 included rent received from three firms Latesh Kumar & Co. of Rs. 39,794, Chandra Trading Co. Rs. 24,000 and Neelam Traders Rs. 27,832. Part of the premises allegedly let out to the above firms had been in turn let out by these firms recovering rents of Rs. 88,284, Rs. 70,200 and Rs. 1,07,385 respectively. The difference between the above two amounts relating to each of the firms was sought to be assessed in their hands and the assessee claimed that the amounts allegedly received by it through these firms of Rs. 39,794, Rs. 24,000 and Rs. 27,832 alone should be the basis of property income assessment in its hands. The ITO, however, in his draft assessment order based the property computation on the amounts of Rs. 88,284, Rs. 70,200 and Rs. 1,07,385 received by the firms. The IAC apparently relying on certain orders of the Tribunal directed the ITO to base the property income computation in respect of the two firms Latesh kumar & Co. and Chandra Trading Co. on the amounts paid to the assessee of Rs. 39,794 and Rs. 24,000 respectively. In the case of Neelam Traders, however, he agreed with the draft order of the ITO that the property income included in the assessment of the assessee should be based on the figure of Rs. 1,07,385 paid to Neelam Traders rather than Rs. 27,832 paid by Neelam Traders to the assessee. The basis of the inclusion can be traced from two paragraph Nos. 9 and 12 of the assessment order for the year 1978-79 and they run as under: 9. Here again, it can be clearly seen that the setting up of the firm was only with a view to siphon off a part of the assessee's profits.
12. Considering the findings above, it is understood that the firms have been formed to avoid taxation of the assessee. In the circumstances, the actual rentals receivable by the assessee-company will include the difference of rent received and rent paid by the three firms.
The ITO followed the same procedure for the subsequent two assessment years as well. On appeal, the Commissioner (Appeals) directed the ITO to compute the income of the house property on the basis of the actual rent received or receivable from Neelam Traders. He held that the ITO had failed to prove that the transaction between the assessee and Neelam Traders was not genuine. Specifically he referred to the following grounds as justifying the deletion: 2. In order to avoid any loss, it entered into an agreement with Neelam Traders to get as much rental income as was being paid to the original owner.
3. That the letter dated 10-6-1972 establishes that Neelam Traders did make efforts to achieve higher rent.
5. That no question of benamidari can be established on the basis of the three points required to be considered on the basis of the directions issued by the Tribunal.
The department has challenged the above order of the Commissioner (Appeals).
4. The learned Counsel for the department has pointed out that before the ITO in the proceedings under Section 144B of the Income-tax Act, 1961 ('the Act') the assessee did not contest the inclusion of the income on the basis of the rent received by Neelam Traders. He referred in particular to paragraph No. 4 of the directions of the IAC: Shri Gajria has not seriously contested this issue. Hence, no interference is called for.
According to the learned Counsel, this itself indicated that the rent received by Neelam Traders from the outside party was in effect received by the assessee. Apart from this there were several other circumstances justifying the ITO's stand.
5. Neelam Traders was a firm of three partners all of whom were related to the moving force behind the assessee-company Shri Gajria. Two of the partners were in fact shareholders in the assessee-company. The assessee purchased the property in 1972 when the present tenants, viz., International Computers Ltd. 'ICL' was occupying the premises. Neelam Traders was constituted in October 1972, long after the property was purchased and long after the tenant came into the building. The assessee could not have let out the premises to Neelam Traders at all, since there was no question of obtaining vacant possession. The assessee is the owner of the property and has to be assessed on the actual receipts from the property in terms of specific provisions of law. There was in fact no dispute between the assessee and the ICL. The real tenant was the ICL and what rent the tenant paid only mattered.
All the parties except ICL are related to the main owner Shri Gajria of the assessee-company. The flat was actually let out to ICL even before the Neelam Traders was born. Referring to the letter of 10-6-1972 it is pointed out that even before the partnership came into existence, this letter seems to have been written up, which, according to the learned Counsel, was a clear indication of the self-serving purpose behind the letter. Referring to the position of the other two firms, Latesh Kumar and Chandra Trading Co., it is pointed out that the Tribunal at no stage has addressed itself to or decided the relationship between these firms and the assessee with regard to the property income. Since the property income had not been assessed in the assessee's hands, and it was returned by these firms the assessment was upheld by the Tribunal.
That, according to the learned Counsel, does not in any case support the assessee's stand.
6. The learned Counsel for the assessee has pointed out that even according to the ITO the position was the same with regard to all the three firms. Even so the ITO has not added the income of those two firms to the total income of the assessee. He has followed a strange position with regard to Neelam Traders. The ITO has treated this firm as the benami of the assessee and the basis of the property income assessment is also the benamiship. In the draft assessment order the ITO wanted to make the addition in respect of all the three parties, but clearly the IAC removed the addition in respect of two parties.
According to the learned Counsel, what applied to those two persons apply also to the Neelam Traders.
7. Referring to the computation of the property income itself the assessee being the owner, property income has to be assessed on the basis of Section 23 of the Act. The expression 'let out from year to year' means 'let out in law'. According to the decisions, the maximum that can be considered in this context is the standard rent. According to the learned Counsel, the standard rent is prescribed by Section 5, Clause (10), of the Rent Control Act. In the present case the premises were let out for the first time at Rs. 27,832. This alone could be the standard rent. Under Section 23(a) nothing more can be expected to be added. Section 23(b) refers to income received or receivable by the owner which in the present case would be the same figure of Rs. 27,832.
Reference is made in this connection to the decisions of the Supreme Court in the cases of Dewan Daulat Rai Kapoor v. New Delhi Municipal Committee  122 ITR 700 and Mrs. Sheila Kaushish v. CIT  131 ITR 435.
8. What Neelam Traders received was a licence fee or compensation and cannot be considered while applying the provisions of Section 23(c) or Section 23(b). In order to establish a case of benami the onus was clearly on the revenue. Considering the relevant questions to be asked in this connection, the learned Counsel has pointed out that there is no evidence to show that the amount received goes to Shri Gajria. The firm of Neelam Traders had only two partners who are shareholders in the company. There are several other shareholders in the company and certainly one more partner in Neelam Traders. It would not be proper, therefore, to regard two different entities like Neelam Traders and the assessee as having common interests at all. In law Neelam Traders is the real tenant of the assessee. The 1CL is on the contrary the licensee of Neelam Traders. The legal position is clear from the lease deeds dated 15-3-1974 between ICL and Neelam Traders and 1-10-1972 between Neelam Traders and the assessee. The ICL stepped into the shoes of the earlier tenant of the premises and by entering into a legal agreement with Neelam Traders it also accepted the fact that they are the tenants or licensees of that firm and having nothing to do with the assessee.
9. The facts lie in a small compass. One R.K. Mistry was the owner of the property 'Mistry Bhavan'. The assessee-company purchased this property in May 1972. At the time of the purchase the ICL was a tenant of the property. The ICL seems to have been in the property at least from the year 1965 or 1966 onwards. Prior to that date another party, Hollerith India Ltd., were the tenants. ICL continued to pay the rent of Rs. 27,832 which apparently the previous tenant was also paying.
After the assessee purchased the property from the Mistries, ICL continued to be the tenant. In the light of the circumstances of the case, ICL was a protected tenant under the rent regulations and could continue in occupancy of the premises. The standard rent being defined in the Rent Control Acts, apparently there was nothing which prevented ICL from exercising its right to maintain the same rent as it paid earlier. No evidence of a substantial nature indicating any dispute between the tenant ICL or the landlord the assessee in May 1972 is available. There is also no evidence as to any rent dispute between these two parties after that date. Apparently, therefore, the tenancy of ICL with the assessee-company was and could have continued uninterrupted.
10. By a document dated 22-2-1973 a partnership of Neelam Traders was brought into existence consisting of three partners Shyam, Monica and Neelam having shares of 34 per cent, 33 per cent and 33 per cent. The partnership was deemed to have commenced from 1-10-1972. Clause 3 of the partnership deed states the business of the partnership to be: ... that of real estate and investment, i.e., to purchase and/or acquire flats, godowns, garages or other premises either on ownership basis or on lease or tenancy basis and to sell or sub-demise or give it on lease and licence basis or let it out on monthly tenancy or otherwise dispose it off to such person or persons and at such price compensation rent and on such terms and conditions as the parties hereto may from time to time agree upon and/or such other business or businesses as the parties hereto may from time to time agree upon.
According to the assessee, the premises already occupied by ICL and for which under the protection of the Rent Control Act it was paying a specific rent and in respect of which there was no dispute either from the side of the tenant or the landlord was leased out to the newly constituted firm of Neelam Traders and at the same rent as Rs. 27,832 which ICL was paying to the assessee. The alleged leasing out of the property to Neelam Traders is effected by a lease agreement dated 1-10-1972. By an agreement dated 15-3-1974, Neelam Traders were to lease out the same premises to the International Computers Ltd. Some of the specific provisions of this agreement are Clauses 1(v), 2 and 11 which states: (v) The licensors do and each of them doth hereby grant to the licensee leave and licence to use and occupy the said premises on leave and licence basis for a period of 5 (five) years from the 1st day of October, 1972.
2. The licensee agrees to pay to the Licensors compensation at the rate of Rs. 1.50 per sq. ft. per month for the first year of the licenced period, i.e., up to the 30th day of September, 1973 and at the rate of Rs. 2 per sq. ft. per month for the second year of the licenced period, i.e., from the 1st day of October, 1973 to the 30th day of September, 1974 and thereafter from the 1st day of October, 1974 at the rate of Rs. 2.25 per sq. ft. per month till the expiry of the licenced period. The said compensation shall be payable in advance on or before the 5th day of each and every succeeding month.
The licensee has paid to the licensors a sum of Rs. 30,000 (Rupees Thirty thousand only) the receipt whereof is hereby acknowledged by the licensors, and which amount shall be adjusted and set off against the last instalments of the monthly compensation payable by the licensee to the licenors as provided herein.
11. The licensors shall renew this licence agreement on receipt of a notice in writing in that behalf from the licensee at least three months before the expiration of these presents for a further period of five years at a monthly compensation of Rs. 3 per sq. ft. or at the market rate prevailing at the time of renewal whichever is lower but otherwise on the same terms and conditions herein contained.
During the assessment year 1978-79 under the above clauses, ICL paid to Neelam Traders Rs. 1,07,385. Another document of importance referred to in the course of the hearing is the letter dated 10-6-1972 written to Neelam Traders by the ICL which is as under: 1. With reference to the discussion we had with your Shri Shyam R. Gajria in connection with recognising our occupation of the premises on first floor in Mistry Bhavan which we received from Hollerith India Ltd., we shall appreciate if you get the confirmation from the owners to this effect.
2. We appreciate your services in solving our long dispute with the owners in connection with our occupation.
3. On receiving the consent from the owners we shall exchange the agreement between us.
11. It is on the basis of above facts that the assessee claimed that it received only a sum of Rs. 27,832 as income from the property and the ITO held that the entire amount of Rs. 1,07,385 is to be taxed in his hands. The Commissioner (Appeals) seems to have decided the issue on the ground of Neelam Traders being a benami of the assessee-company. He applied the well laid tests to find out whether these lead to the ITO's conclusion. In the case of a benami as has been clarified in the case of Prakash Narain v. CIT  134 ITR 364 (All.) to which reference was made by the learned Counsel for the assessee, the onus is on the person who claims benami to prove it. The essential ingredients are 'to trace the source and origin of the amount and find out its ultimate destination' as laid down in CIT v. Daulat Ram Rawatmull  87 ITR 349 (SC). Since these conditions were not satisfied, the Commissioner (Appeals) held that Neelam Traders cannot be regarded as the benami of the assessee. In our view, this approach of the Commissioner (Appeals) suffers from a fallacy. The ITO in the first place has not stated that Neelam Traders are the benamies of the assessee. The technical requirements of establishing benami, therefore, well expounded in the decided cases do not, therefore, require to be satisfied. The question of onus also, therefore, on this basis is not relevant. What the ITO has done is looking apparently to all the circumstances to come to an inevitable conclusion that the interposition of Neelam Traders between the assessee and ICL was only an exercise in diversion of income for tax evasion. The Commissioner (Appeals) has laid stress on the legal relationship suggested by various agreements, etc., between the parties. In fact stressing the legal unvulnerability of these agreements the Commissioner (Appeals) has accepted the genuineness of the transactions. He has also hinted at several disputes, etc., between the assessee and the tenant justifying the intervention of Neelam Traders. While apparently no evidence, not even from the assessee's own side not to speak of outside corroborative and external evidence, is available for any disputes with the tenants and the landlord or any problems to be solved the Commissioner (Appeals) has laid stress on some of these. At any rate, even he has not spelt out the details of such problems requiring resolution and calling for intervention of Neelam Traders.
12. On the contrary the facts make it clear that ICL was a protected tenant under the Rent Control Act. There was no dispute between the tenant and the landlord. In fact, years back ICL had succeeded the previous tenant Hollerith India Ltd. Subsequent to that there has been a change of ownership also. If the ICL had gone to the court to sustain its tenancy even at the same rent, nothing could have helped the assessee in dispute. To say, therefore, and that to without any evidence in this regard that some one has to intervene in the dispute would be imagination running riot. As pointed out earlier Neelam Traders is comprised of two of the relatives of the main and central shareholder and director of the assessee-company. Granting that intervention of an outsider is necessary for settling disputes, certainly the junior relatives of the director who formed a firm for the purpose are not the fittest persons to interfere. Whatever these people can do in the field of conciliation certainly the director of the assessee-company could have done. The theory, therefore, again unsupported by evidence, of disputes between the tenant and the landlord being settled is absolutely baseless. We are not sure that if there was a real dispute, even an outsider could have resolved it in the manner that its resolution is subsequently said to have taken place. The ICL as the protected tenant both as to tenancy as well as rent would certainly not have agreed in an arbitration even by an outsider if it only increased its rental nearly four times for no particular reason. More than that, it certainly would not have agreed to an annual escalation of rent which the agreement with Neelam Traders stipulates. The limit of absurdity is reached by the fact that the agreement with Neelam Traders restricts the tenancy to five years whereas under the normal law of the land ICL could have continued paying the same rent and stayed unmolested in the premises for any length of time till the Rent Control Laws continue in the State. The picture given by the assessee's learned Counsel of too many things going wrong in the tenant-landlord relationship calling for intervention of a closely-related brother or sister to resolve the dispute appears to be too unrealistic to be believed. The facts, therefore, do not indicate any reason why a firm of the type of Neelam Traders should have been interposed in the flow of rental from the tenant to the assessee landlord.
13. The events mentioned above show things at a still more unrealistic stage. The assessee was the owner of the property. ICL was the tenant even on the day of purchase, i.e., May 1972. The firm came into existence on 22-2-1973. The partnership deed referred to its coming into existence with effect from 1-10-1972. There is no evidence placed before us to show that the business of Neelam Traders who were to act as estate agent, etc., have really done so. Apparently between 1971 to-date they have not entered into any other business transaction than this particular leasing out to ICL. The lease agreement between ICL and Neelam Traders is dated 15-3-1974. Curiously even this lease agreement speaks of a lease for a period of five years from 1-10-1972. Apart from other discrepancies, the dispersal of the dates May 1972, 1-10-1972, 22-2-1973 and 15-3-1974 cast in a time frame work would itself defeat the very claim of the assessee that all is real and genuine in these agreements. On the top of it all comes the letter dated 10-6-1972 written to Neelam Traders which even according to the deed of 22-2-1973 was supposed to have come into existence with effect from 1-10-1972 only. The letter has been reproduced fully in para 10 above. It deals with the discussion with Shyam R. Gajria and seeks confirmation of certain agreements long before Neelam Traders came into existence, before any lease agreement was made out or any worthwhile action was taken at all. The reference in para 2 of this letter to 'solving our long dispute with the owners in connection with our occupation' only adds a comic tinge to the whole problem. A reading of all these documents with the historical relationship between the landlord and the tenant in the present case would certainly indicate that what is claimed is not correct.
14. We are concerned with computing the property income of the assessee in relation to this property. The ultimate tenant of the property is ICL who have been in the property from 1966 (about) onwards to-date.
Since the relationship of tenant and landlord existed between the assessee and ICL only for the entire period any compensation for the tenancy whether called rent, lease rent or by any other name is payable by ICL only to the assessee. Alternatively, and for the same reason whatever ICL pays in respect of an unchanged occupation of the premises from 1966 onwards, at any rate from 1972 onwards, should go only to the owner of the property, viz., the assessee. We do not see any reason why any outsider should come into this legal relationship of landlord and tenant between the parties or the consideration for the tenancy the landlord receives from the tenant. In other words, if the facts as to the tenancy and the persons constituting the landlord and tenant are fixed it is automatic to deduce that the consideration or compensation for the tenancy should be paid by the tenant only to the landlord and none else. In practice the tenant may pay the rent fully or partly to anyone else designated by the landlord provided he gets the requisite discharge for the same. The landlord likewise may direct the rent to be paid to anyone else on his behalf provided he can give the discharge for the landlord to the tenant. None of these would affect the factual position of the tenancy and the rent paid by the tenant. The fact that the entire rent paid by the tenant as consideration for the occupation of the premises is not paid to the landlord but someone else would not alter the position as to the extent of the compensation paid by the tenant for his occupancy.
14A. The question, therefore, to be answered in the present case is as to who are the tenants and the landlord and what compensation the tenant pays the landlord. In our view, the Commissioner (Appeals)'s attempt to go into a question of benami is clearly erroneous. He has not addressed himself to the proper questions to be asked in the case, All arguments, therefore, as to the benami or otherwise nature of the relationship is also not relevant to the question of determining the property income of the assessee. At any rate, there is no allegation that the assessee is not the owner of the property. The question of benami arises normally in connection with the ownership of an asset.
The income from an asset follows the ownership. We are not conceptually able to see a situation where an asset is owned by some one but the income therefrom goes to someone else. In other words, the ownership of a property being with one and fixed there could clearly be no question of a benami relationship in law. As to the income from that property considered as a source of income all that can be happened would be that the income may be transferred either by handing over or as a gift or in any other manner to someone else. No question of benami is relevant in this context. In our view, all the decisions cited relating to benami would also not apply to such a situation. We have no hesitation in coming to the conclusion on the facts as above that the tenant ICL has parted with as consideration for the tenancy a sum of Rs. 1,07,385. The consideration for the tenancy should go as a matter of law to the landlord. The inevitable conclusion is whether the landlord received the sum of Rs. 1,07,385 directly himself or got it distributed amongst others, in the context of the landlord tenancy relationship which is all that is relevant to property ownership or property income the landlord must be deemed to have received the rent paid by the tenant.
The rent stipulated and paid by the tenant is also clearly receivable by him.
15. Property income is to be computed under the provisions of Section 23(1). There could be no quarrel with this proposition. The section is also clear as to how it is to be computed. The provisions of Section 23(1)(a) fixes the normal method of fixing the annual value for the purpose of computing the property income. Section 23(1)(b) applies to a situation where the property is let and the annual rent received or receivable by the owner in respect thereof is in excess of the some referred to in Section 23(1)(a). The expression used is 'received' or 'receivable' by the owner. There is no ambiguity about the use of the expression 'received'. 'Receivable' would refer to a stage where cash has not been received but the assessee is 'entitled to receive the rent'. The legal position in the context alone is relevant. Where an assessee has let out his premises and the rent the tenant has to pay is a particular amount, that amount would constitute the amount of rent 'receivable by the owner' in respect of the letting. A direct application, therefore, of the provisions of Section 23 to the present case would involve application of Section 23(1)(b). The expression 'receivable' in the context also would mean the actual rent the tenant pays whether it reaches in the same form or diminished or enhanced as cash in the landlords' hands. We have, therefore, no hesitation in coming to the conclusion that the property income to be assessed in the hands of the assessee would be based at Rs. 1,07,385, the tenant ICL has parted with as consideration for the tenancy.
16. Arguments had been raised before us stating that the assessee received only Rs. 27,832. This is the standard rent even as per the Rent Control Act. Only Section 23(1)(a) applies to the case. Even if Section 23(1)(b) is applied the same figure has to be adopted. The fallacy involved in this argument has been referred to earlier. There is no reason why between the lawful tenant and landlord another party should be interposed to distribute what the tenant has to pay as rent to the landlord and not to anyone else. In the present case the assessee has claimed to have interposed Neelam Traders. What we have said above clearly indicates that there was no reason for this interposition. Pushing the point to its extreme limit could it be that if all the rent of Rs. 1,07,385 is received by Neelam Traders and nothing is received by the assessee, the assessee has no property income Or if instead of Neelam Traders, half a dozen other persons are interposed the rent paid by ICL would be distributed amongst all these persons The answer is clear. The rent paid by the tenant is receivable by the landlord and the landlord only. If the landlord for whatever his own reasons distributed the amount among one or several other persons and prefers to receive a lesser sum, at least in the context of the tenancy it does not alter the legal position or the extent of rent receivable. We are not concerned with the reasons or the capacity in which the person interposed like the Neelam Traders gets a part of the rent paid by the tenant. It may be a loan. It may be a gift. It may be just a payment ad hoc. This will be relevant only for consideration in the hands of the interposed person but not the assessee as the owner of the property. We, therefore, held that the actual rent receivable and received by the landlord, the assessee, for the letting out of the property would be the sum of Rs. 1,07,385 and this would be taxable in his hands as property income.
17. The learned Counsel for the assessee has referred to the decision made by the Tribunal in the case of Chandra Trading Co. and Latesh Kumar & Co. We are aware that a similar situation obtained in those cases. The Tribunal's orders to the extent produced before us do not negative the propositions at all or the conclusions arrived at by us above. On the contrary as correctly mentioned by the learned Counsel for the department the Tribunal's orders were dealing with a case where these firms returned an income which was not even taxed in the hands of the assessee. The Tribunal confirmed the assessment in the hands of these firms. What would have happened in the hands of the assessee with regard to these receipts has not been decided by the Tribunal. It was also not necessary for the Tribunal to decide that question. The manner in which, therefore, the IAC dealt with these persons interposed also in a tenant-landlord relationship does not help the assessee's case. On the contrary it may still be open to the ITO to look at this relationship also in the correct perspective and tax the assessee on the correct figure of property income even in respect of these tenancies. We are, however, not concerned with that. The arguments advanced by the learned Counsel for the assessee that the IAC has dealt with these matters in a particular form does not support his claim as far as the present dispute before us is concerned. The Commissioner (Appeals)'s order is, therefore, reversed on this point and the ITO's restored.
18 to 25. [These paras are not reproduced here as they involve minor issues.]