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S.R. Kalani, Huf Vs. Income-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Indore
Decided On
Judge
Reported in(1985)14ITD132Indore
AppellantS.R. Kalani, Huf
Respondentincome-tax Officer
Excerpt:
1. these appeals of the assessee relate to the assessment years 1963-64, 1965-66 and 1967-68 to 1970-71 and arise out of the order of the commissioner (appeals), indore. for the assessment years 1963-64 and 1965-66, the assessee contests the appeals on the following grounds: 1. the learned commissioner (appeals) has erred in confirming the inclusion of entire income of s.r. kalani & co., in the hands of the appellant. it is submitted that the appellant derived only 50 per cent share income from the firm s.r. kalani & co. the appellant was not the sole owner of the said business, hence, the inclusion of entire income is improper, unjustified and unwarranted. 2. the commissioner (appeals) has erred in confirming the inclusion of income of shri narendrakumar subject to findings.....
Judgment:
1. These appeals of the assessee relate to the assessment years 1963-64, 1965-66 and 1967-68 to 1970-71 and arise out of the order of the Commissioner (Appeals), Indore. For the assessment years 1963-64 and 1965-66, the assessee contests the appeals on the following grounds: 1. The learned Commissioner (Appeals) has erred in confirming the inclusion of entire income of S.R. Kalani & Co., in the hands of the appellant. It is submitted that the appellant derived only 50 per cent share income from the firm S.R. Kalani & Co. The appellant was not the sole owner of the said business, hence, the inclusion of entire income is improper, unjustified and unwarranted.

2. The Commissioner (Appeals) has erred in confirming the inclusion of income of Shri Narendrakumar subject to findings given in paragraph No. 5(4) of the appellate order. It is respectfully submitted that the appellant had no right, title or claim on the income derived by Shri Narendrakumar Kalani. Inclusion of any income of Shri Narendrakumar Kalani confirmed by the learned Commissioner (Appeals) may kindly be deleted.

For the remaining assessment years, apart from the grounds taken by the assessee for the assessment years 1963-64 and 1965-66, has taken the following grounds : 3. That the learned AAC has erred in holding that the order passed under Section 143(3)/250 of the Income-tax Act, 1961 ('the Act') by the learned ITO is valid in law though the same was passed in pursuance of notice under Section 148 of the Act. It is submitted that since no order has been passed in accordance with law, the order deserves to be quashed.

4. Without prejudice to the above, it is submitted that the learned AAC has erred in confirming that the provisions of Section 147(a) of the Act are attracted in the case and the reopening was justified.

It is respectfully submitted that on the facts and in the circumstances of the case, the reopening was improper and illegal as all the information on the basis of which the assessment was reopened were already on record of the learned ITO when he completed the original assessment. The reopening of the assessment is, therefore, illegal and the assessment completed pursuance of the reopened assessment deserves to be quashed.

5. The AAC erred in confirming the inclusion of income of Vijay Kumar subject to the finding given in para graph No. 4 of the appellate order.

2. The aforesaid appeals involve a common issue and are, therefore, heard together and disposed of by a common consolidated order for the sake of convenience.

One Shri Shiv Prashad Kalani died without leaving behind any child in the year 1921, leaving behind him his widow, Smt. Badamibai, who adopted Shri Sitaram Kalani in 1927, who was about 10 years of age then. On his attaining majority in 1935, he became the karta of the HUF consisting of himself, his wife and children and his widowed mother. The assessee has been assessed in the status of an HUF for a number of years. Due to family disputes, there was a partial partition of the HUF on 17-8-1961. This claim of partition was not accepted by the ITO. On appeal by the assessee, the AAC confirmed the order. Before the Tribunal, the assessee took the plea that a sum of Rs. 1 lakh was allotted to Smt. Badamibai out of the capital assets of the business of the HUF under a family arrangement. The matter was, accordingly, sent back for fresh assessment for the assessment year 1962-63. On the fresh assessment, the ITO rejected all other claims of the assessee and assessed the income from the business of S.R. Kalani & Co. in the hands of the HUF. This was confirmed by the AAC, on appeal. The matter when came up before the Tribunal, the Tribunal discussed the various aspects of the matter, rejected the claim of the assessee giving a finding that the transaction entered into between S.R. Kalani and Smt. Badamibai as evidenced by the documents placed before it, cannot at all be said to be any genuine or bona fide family arrangement and they are sham documents. At the outset, the learned counsel for the assessee was fair enough to concede that ground No. 1 was covered by the decision of the Tribunal, Indore Bench, in IT Appeal Nos. 218 to 220 (Indore) of 1974-75, dated 25-3-1975, which is against the assessee.

Respectfully following the aforesaid decision of the Tribunal, we hold that, the lower authorities have rightly confirmed the inclusion of the entire income of S.R. Kalani & Co. in the hands of the assessee-HUF. The appeal of the assessee on ground No. 1 is, therefore, dismissed.

4. Regarding ground No. 2 for the assessment years 1963-64 and 1965-66 and ground No. 5 for the assessment years 1967-68 to 1970-71, the learned counsel for the assessee contended before us that Smt.

Badamibai made gift by way of cash and also by cheques to her grand children Vijayakumar and Narendrakumar, the minor sons of Shri Sitaram Kalani. It is pointed out by him that gift-tax assessments were completed and gift-tax was paid, accordingly. In support of his contention, the assessee's counsel referred to the paper book in which copies of those assessment orders are placed. Subsequent to the gifts made by Smt. Badamibai to the minor sons Vijaykumar and Narendrakumar the minors made deposits in different firms in which they had been admitted to the benefits of the partnership, is further contended that the minors have been assessed separately to income-tax and there is no denial that such incomes of the minors have reached them directly and not to the coffer of the HUF. It is, therefore, contended by the learned counsel for the assesses that the authorities treated Smt.

Badamibai as a benamidar even in respect of her share in the partnership firm S.R. Kalani & Co. He contended that this lady, Smt.

Badamibai, made legal gifts and that even if she was declared as benamidar, she can give or dispose of her property even as a benamidar.

In support of the aforesaid contention, he relied on the decision of the Madras High Court in the case of Sinnachami Chettiar v. Ramaswami Chettiar AIR 1939 Mad. 858 in which, inter alia, the relation between the benamidar and the beneficiary being not that of a principal and an agent. In the aforesaid case, it was also held that the question of rectification did not arise. According to the learned counsel for the assessee, even in her benami capacity Smt. Badamibai could dispose of her property standing in her name which was received by her as a result of family settlement mentioned above. It is also stressed that Shri Badamibai was competent to transfer the properties in her possession even as benamidar. He placed reliance on the decision of the Supreme Court in the case of Sree Meenakshi Mills Ltd. v. CIT [1957] 31 ITR 28 for the proposition that 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 transaction 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 that it would be necessary, when a dispute arises as to whether the person named in the deed is the real transferee or B, to enquire into the question as to who paid the consideration for the transfer. But in the latter class of cases, when the question is whether the transfer is genuine or sham, the point for decision would be, not who paid the consideration but whether any consideration was paid.

He further placed reliance on the decision of the Privy Council in the case of Ch. Gur Narayan v. Sheolal Singh AIR 1918 PC 140. In the aforesaid case, their Lordships of the Privy Counsel observed that the benamidar has no beneficial interest in the property or business that stands in his name ; he represents, in fact, the real owner, and so far as their relative legal position is concerned, he is a mere trustee for him. In such circumstances, there is no reason why an action cannot be maintained in the name of the benamidar in respect of the property although the beneficial owner is no party to it. The bulk of judicial opinion in India is in favour of the proposition that in a proceeding by or against the benamidar, the person beneficially entitled is fully affected by the rules of res judicata. It is open to the latter to apply to be joined in the action ; but whether he is made a party or not, a proceeding by or against his representative in its ultimate result is fully binding on him. It is, therefore, contended by the learned counsel for the assessee that the action of the benamidar binds the real owner and the gifts made by Smt. Badamibai to the grand children of S.K. Kalani are, therefore, binding on the assessee-HUF. It is further clarified by the learned counsel for the assessee that the gifts made by the lady was by cash and also by cheques, which were issued by Shri Sitaram Kalani in his capacity as karta and also as natural guardian of the minors. He took us through the paper book filed by him and drew our attention to the relevant pages where he has filed affidavits declaring the gifts made to Narendrakumar and Vijaykumar. He further drew our attention to the affidavit of Shri Sitaram Kalani, who on solemn affirmation accepted the gifts made by Smt. Badamibai as a natural guardian of the minors and the aforesaid affirmation is made before the notary public. He, therefore, pointed out that Smt.

Badamibai as a benamidar, dealt with the business assets of the HUF and gifted the monies to the HUF by way of cash and by way of cheques and the actions of the benamidar, namely, Smt. Badamibai, are binding on the HUF and the gifts are deemed to have been made by the HUF and as a result of the gift, the donees become absolute owners and the income earned by the minors, namely, Narendrakumar and Vijaykumar is their income and cannot be assessed in the hands of the HUF. The learned departmental representative, on the other hand, contended before us that the point involved has already been decided by the Tribunal against the assessee in view of the fact that the Tribunal has held that the family arrangement that has been entered into between Smt.

Badamibai and S.R. Kalani was held to be sham and nominal. No cash was passed to Smt. Badamibai, and, therefore, she could not have made any gift. He further submitted that the gift-tax assessments made on Smt.

Badamibai are made purely on protective basis and they are not substantive. He, therefore, contended that the income of the minors have been rightly assessed in the hands of the assessee-HUF and calls for no interference.

5. We have carefully considered the rival submissions. We have carefully perused all the documents filed by the assessee. We have also perused the order of the Tribunal holding that the transaction entered into between S.R. Kalani and Smt. Badamibai as evidenced by the documents cannot be said to be genuine or bona fide arrangement and they are sham documents and that the sum of Rs. 1 lakh was neither in fact paid nor could be deemed to have been paid to the lady, out of the business assets. On perusal of the order of the Tribunal, we find that there was no discussion about the gifts made by Smt. Badamibai to her grand children Vijaykumar and Narendrakumar. From the paper book filed by the learned counsel for the assessee, the gift-tax assessments of Smt. Badamibai were completed and gift-tax was paid, accordingly.

Though the learned departmental representative pointed out that the gift-tax assessments were made only on protective basis, we find that for the assessment years 1968-69 and 1970-71, the gift-tax assessments of Smt. Badamibai have been made substantive and not on protective basis. Further, it is an admitted fact that the minors have invested the moneys gifted to them in different firms in which they have been admitted to the benefits of the partnership. The aforesaid fact cannot be disputed because it is this amount that the revenue wants to tax in the hands of the assessee-HUF. Whatever may be the source of the gift, we have to admit that the gifts have been made by Smt. Badamibai to her grandchildren. The very fact that the share income of the minors is being assessed in their income-tax returns goes to show that they have invested monies in different firms. All the aforesaid facts go to prove that the minors got some gifts from their grandmother Smt. Badamibai.

The Tribunal, in our opinion, has given a finding that a sum of Rs. 1 lakh was neither in fact paid nor could be deemed to have been paid to the lady out of the business assets because they have held that the family arrangement entered into between S.R. Kalani and Smt. Badamibai is a sham document. But the fact remains that Smt. Badamibai made gifts to the grandchildren. It is at this stage, the learned counsel for the assessee contends that Smt. Badamibai as benamidar of the assessee, gifted the portion of the business assets of the HUF to her grandchildren, thus, binding the real owner. Even accepting for a moment following the decision of the Tribunal, that the lady has not received any amount in terms of the family arrangement entered into between her and S.R. Kalani. We are bound to accept that Smt. Badamibai acted as a benamidar of the karta of the HUF. The very finding of the Tribunal holding that the family arrangement is sham, gives rise to second class of benami transaction as laid down by their Lordships of the Supreme Court in the case of Sree Meenakshi Mills Ltd. (supra). We find further support for the aforesaid proposition of law at p. 4 of the Third edn. 1977 of Nathulal Law on benami transactions where author under the heading 'benami' has stated that in our country there are mainly two types of benami one type of benami is where the transaction is genuine and real and other type of benami is where the transaction itself is not real but fictitious. Taking into consideration the subsequent events that followed the gifts, we are bound to accept the plea of the learned counsel that Smt. Badamibai tried to meddle with the HUF business assets as a benami of the real owner and gifted some monies by way of cash and cheques to her minor grandchildren. The actions of Smt. Badamibai, in our opinion, are binding on the real owner. The aforesaid proposition of law has been held to be correct proposition of law in several judicial pronouncements. Even in the case cited by the learned counsel for the assessee in Ch. Gur Narayari's case (supra), their Lordships of the Privy Council go to the extent of holding that even action is maintainable against the benamidar though he is only a representative of the real owner. The aforesaid proposition of law further finds support in the decision of the Madras High Court in the case of Sinnachami Criettiar (supra), where their Lordships have held that the relation between the beneficiaries and the benamidar is not that of a principal and an agent. The relation between them is the result of a trust arising by implication of law between the two. On perusal of the assessment order passed by the ITO to the effect that various gifts have been made out of Rs. 1 lakh claimed to have been received by Smt. Badamibai at the time of the alleged partition.

From the facts given by the ITO in his order, it is clear that the gifts have been made by Smt. Badamibai to Narendrakumar and Vijaykumar, spread over in a period from 7-9-1961 to 31-3-1972. The aforesaid fact clearly goes to show that Smt. Badamibai never made gifts at the time of the partition but gifts were made for a period of ten years from the time of alleged partition. Further, we find that the amount gifted by Smt. Badamibai is beyond Rs. 1 lakh, which is alleged to have been received by her during partition. From all the aforesaid facts, we are bound to come to the conclusion that though Smt. Badamibai has not received any amount in terms of the family arrangement, which is held to be sham by the Tribunal, she gifted certain monies from out of the HUF business assets in the capacity of a benamidar and we, further, find that every gift made by her was consented to by Shri Sitaram Kalani in the capacity of the karta of the HUF as well as in the capacity of the natural guardian of the minor children. We, therefore, hold that the income earned by the minors on investment of the gifted amounts received by them from their grandmother in different firms constitutes their individual income and we are of the opinion that the aforesaid income cannot be assessed in the hands of the assessee.

6. With regard to ground No. 3 for the assessment years 1967-68 to 1970-71, it is submitted by the learned counsel for the assessee that since no order has been passed in accordance with the law, the same cannot be sustained. On perusal of the order of the Commissioner (Appeals), we find that the Commissioner (Appeals) observed that the miswriting of the section does not vitiate the assessment. He, therefore, found no substance in this ground of appeal and, therefore, dismissed the appeal on this count. After considering the arguments of the learned counsel for the assessee, we agree with the observations and conclusions arrived at by the Commissioner (Appeals) in this respect. Wrong mentioning of section of defects in the notice, in our opinion, would not invalidate the assessment. We, therefore, do not find any reason to interfere with the order of the Commissioner (Appeals).

7. Regarding ground No. 4 for the assessment years 1967-68 to 1970-71, on a perusal of the order of the Commissioner (Appeals), we find that the Commissioner (Appeals) considered the various submissions made on this point. He noted that the ITO on the basis of the appellate decisions in regard to the statement of facts has reopened the assessment under Section 147. Accordingly, he found that the assessment was not vitiated on that score. It is contended by the learned counsel for the asses-see that all the necessary facts of the case were before the ITO when he completed the original assessments and, therefore, the opening of the assessments was bad and the order of the Commissioner (Appeals) confirming the order of the ITO is, therefore, not in accordance with the law and is to be quashed. The learned departmental representative on the other hand, relied on the orders of the authorities below.

8. We have heard the rival submissions and perused the records placed before us. Admittedly, the assessee cannot be considered to be stranger to the proceedings even at the appellate stage connected with the earlier decisions of the lower authorities, on the basis of which it was stated that the assessment was reopened. Having regard to the facts of the case, we are of the opinion that the order of the Commissioner (Appeals) on this point, requires to be sustained and is, therefore, sustained.

1. I have derived immense benefit from going through the order of nay learned brother in the present appeals by the assessee. The point involved is verily important and is vital to the issue in dispute. I will discuss briefly the relevant points in the following paragraphs.

2. From the impugned order of the Commissioner (Appeals), it is seen that the claim of the assessee was that the firm S.R. Kalani & Co. was an independent unit and had nothing to do with the assessee-HUF. It was contended before him on behalf of the assessee that the ITO was not, therefore, justified in including the entire income of the firm in the assessment of the assessee. It was submitted that the assessee should have been assessed only in respect of the share income belonging to it.

That apart, it was urged that Smt. Badamibai became the absolute owner of the money paid to her as a result of family settlement dated 17-8-1961. As an alternative, it was contended that in the absence of formal determination of income of the above firm, the figure of returned income should have been included in the hands of the assessee.

As far as the alternative plea is concerned, the Commissioner (Appeals) has given an appropriate direction to the ITO, but in respect of the first claim, the Commissioner (Appeals) found that the Tribunal, vide its order dated 25-3-1975, has given a final fact finding that the aforesaid family arrangement was a sham document and that Smt.

Badamibai was neither paid, nor could be deemed to have been paid the alleged sum of Rs. 1 lakh out of the HUF business assets and that it was held that the income from the above firm was rightly treated as an income of the assessee. The Commissioner (Appeals) was of the opinion that since the Appellate Tribunal has given the final decision, the point of the assessee cannot be conceded. Hence, these appeals by the assessee. At this stage, we may refer to the decision of the Tribunal, relied on by the Commissioner (Appeals). It was noted in paragraph No.2 of the order of the Tribunal that the above lady admittedly did not have any share in the HUF assets or any right of partition thereof and she admittedly had only a right of maintenance out of the family assets. In the assessment proceedings for the assessment year 1962-63, the assessee claimed that an HUF business was converted into a partnership firm between Shri S.R. Kalani and his mother, Smt.

Badamibai, on the basis of a partial partition of the HUF made on 17-8-1961. The ITO did not accept the contention of the assessee and made the assessment in the status of an HUF. His order ultimately came before the Tribunal before which several contentions were made. At the latter part of paragraph No. 4, the Tribunal noted that the above lady wanted to corroborate the version of the assessee that the transaction of creating a sum of Rs. 1 lakh from out of the assets of the assessee's business in her name and the creation of the partnership firm was genuine and bona fide family arrangement. Another finding given by the Tribunal at paragraph No. 10 is that the above lady admittedly did not withdraw any money from the partnership firm that was allegedly constituted with effect from 17-8-1961 for her maintenance.

3. After considering all these facts, the Tribunal has given its decision and findings at paragraph No. 14 of its order to the effect that the above lady was being duly maintained out of the family funds prior to the execution of deeds on 17-8-1961 and she continued to be so maintained by Shri S.R. Kalani out of family funds after the execution of those documents as well and that the transaction entered into between Shri S.R. Kalani and Smt. Badamibai, as evidenced by those two documents, in question which cannot at all be said to be genuine or a bona fide arrangement between them and they are sham documents. The Tribunal gave further finding that the alleged capital of Rs. 1 lakh was neither in fact paid nor could be deemed to have been paid to Smt.

Badamibai out of the HUF business assets. With this background, the Commissioner (Appeals) sustained the action of the ITO.4. At the time of hearing, it is vehemently and eloquently urged by the assessee's learned counsel that as far as the findings of the Tribunal are concerned, the assessee cannot dispute the same at this stage. It is, however, submitted that even assuming that Smt. Badamibai being a benamidar of the assessee, the lady in her capacity as a benamidar can dispose of the properties entrusted to her as is in the present case by her making gifts to the minors and other transactions. According to him, the action of the benamidar would also bind the real person or the real owner, for whose behalf the benamidar is acting. This argument of the learned counsel is based on the decisions discussed and dealt with by my learned brother in the preceding paragraphs, which I need not discuss again.

5. But in this connection, it has to be mentioned that nowhere in the Tribunal's order, mentioned above, is the finding that the above lady was a benamidar of the assessee. There was not even a whisper of the same. What the Tribunal has found was, as briefly discussed by me in the immediately preceding paragraph, to the effect that the documents were sham and the alleged family arrangement was not genuine and no payment of Rs. 1 lakh was paid, as claimed. In my opinion, benamidar cannot be equated with a sham transaction. At this stage, I may profitably refer to the ratio in the decision of the Hon'ble Supreme Court of India in the case of Sree Meenakshi Mills Ltd. (supra), in which it was held, inter alia, that 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. The Hon'ble Supreme Court opined that this is the class of transaction which is usually termed as benami. It went on to say that 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 also held that it is only in the former class of cases that it would be necessary, when a dispute arises as to whether the person named in the deed is the real transferee or B, to enquire into the question as to who paid the consideration for the transfer. But in the latter class of cases, when the question is whether the transfer is genuine or sham, the point for decision would be, not who paid the consideration but whether any consideration was paid. In that decided case, it was held that the point, which was actually in issue in the proceedings, was a question of benami in the second sense and not in the first and to decide that the Tribunal had only to find whether any price was paid by the intermediaries for the sales and not who paid the price for them.

6. In the case before us, the Tribunal, as repeatedly mentioned earlier, has given a finding that the documents were sham and the family arrangement was not genuine. No finding was given that the above lady was benamidar of the assessee as sought to be made out by the assessee in the present appeals. Thus, on the findings of the Tribunal, the question whether the lady was a benamidar for the assessee could not arise. Again, as mentioned briefly earlier, the Tribunal has given a categorical finding that the alleged capital of Rs. 1 lakh was neither in fact paid nor could be deemed to have been paid to Smt.

Badamibai from out of the HUF business assets. This finding is conclusive. In view of the ratio decided in the case mentioned as discussed above, the claim of the assessee cannot be conceded that certain gifts were made by the lady out of the money paid to her as a result of the family arrangement, particularly when no money was paid to her in pursuance of the non-genuine family transaction.

7. Having regard to the facts 6T the case before us and the decision of the Hon'ble Supreme Court in the case of Sree Meenakshi Mills Ltd. (supra), I am unable to agree with the view and opinion expressed by my learned brother above. The claim of the assessee in the present appeals cannot be allowed. It may be mentioned that the Commissioner (Appeals) has given certain directions in respect of the inclusion of the income of Shri Narendrakumar to the extent that the department had accepted the fact that Smt. Badamibai was owning some stridhan funds. The Commissioner (Appeals) noted that as far as the gifts relatable to the stridhan funds, they should be held to be genuine and the income as arising from the gifted funds should be taxed in the hands of the donee and not in the hands of the assessee. The Commissioner has given certain directions in this respect, i.e., income arising out of the stridhan funds should be excluded from the computation of the assessee's income. No further direction is necessary in this respect.

8. In a different situation in the case of CED v. Aloke Mitra [1980] 126 ITR 599, the Hon'ble Supreme Court has held, inter alia, that in the case of a benami transaction, the real owner has got the title though the property is in the name of the benamidar. The real owner can deal with the property without reference to the latter. A benamidar has no interest at all in the property standing in his name. From the fact that, if a person purchases from a benamidar, the real owner cannot recover unless he shows that the purchaser had actual or constructive notice of the real title, it does not follow that the benamidar has real title to the property : he is merely an ostensible owner thereof.

9. But as mentioned earlier in the present case before us, the Tribunal has not given a finding that Smt. Badamibai was a benamidar of the assessee. Even otherwise, the claim and contentions made by the assessee before us in the present appeals cannot be accepted. The appeals are dismissed.

1. This is a case assigned to me by the President under Section 255(4) of the Act to resolve a difference of opinion that arose between the members of the Indore Bench, who heard these appeals originally. The learned Judicial Member in a well reasoned order pointed out that the authorities below were not justified in including the entire income of S.R. Kalani & Co. in the hands of the assessee. He also held that there was no justification for the inclusion of the income of Shri Narender Kumar Kalani, the minor son of S.R. Kalani, in the assessment of the assessee. The learned Accountant Member in an equally reasoned order held the opposite view insofar as the second question was concerned.

Thus, the following point of difference of opinion is framed by the learned Members and was referred to the President, which is now referred to me for my opinion : That there was a partial partition by which Rs. 1 lakh were given to the mother of the karta out of the capital business of the family which was found to be not genuine or bona fide family arrangement by the Appellate Tribunal. It was also held that the documents are sham and the above sum was neither income paid nor could be deemed to have been paid out of the HUF assets. On those facts, whether for the subsequent years, under appeal, the assessee could claim that the mother could be treated as a benamidar of the assessee-HUF and in that capacity can meddle and dispose of HUF assets by way of gifts, etc.

Now I shall advert to the relevant points. One Shiv Prasad Kalani died issueless leaving behind him his widow Badarnibai, sometime in the year 1921. She adopted one Sita Ram Kalani in 1927, who was about 10 years of age by then. On attaining majority sometime in 1935, he became the karta of a joint family consisting of himself, his wife and children along with his adopted mother. Assessments to income-tax were completed on the income of this family in the status of joint family for a number of years. Owing to some family disputes, it was claimed that on 17-8-1961 a partial partition of the joint family took place in which a sum of Rs. 1 lakh was given to the adopted mother of the assessee Smt.

Badamibai and that she was separated from the family. A claim under Section 171 of the Act was put up before the ITO for the recognition of this partial partition. The ITO did not accept this partial partition.

It was held that no partial partition as claimed had taken place or could have taken place because Smt. Badamibai being a widow was not entitled to claim partition. The claim of the assessee was that after partial partition, the HUF business was converted into a partnership business styled as S.R. Kalani & Co. for the assessment year 1962-63.

Since the partial partition- was not accepted, the entire income of the firm was treated as the income of the assessee-HUF and was so assessed.

An assessment on S.R. Kalani & Co. was also made on a protective basis.

The assessee appealed to the AAC against the rejection of the claim of partial partition but in vain. There was then a second appeal before the Tribunal, where also the assessee failed. The Tribunal confirmed the view taken by the revenue that there was no partial partition and that the whole transaction was a sham. An argument was taken before the Tribunal that the sum of Rs. 1 lakh allotted to Smt. Badamibai was under a family arrangement. To get this matter enquired into, the Tribunal sent back the case to the ITO for fresh assessment, whereupon the ITO after the enquiry came to the conclusion that even that claim was not proved or correct and, therefore, incorrect. This view was again upheld by the AAC and also by the Tribunal again. The eventual finding reached by the Tribunal was as stated earlier, the transactions were not genuine nor the documents supporting it, nor the claim of a family arrangement. Thus, this matter is concluded by the order of the Tribunal in IT Appeal Nos. 218 to 220 of 1974-75 dated 25-3-1975.

2. Subsequent to the partition, it was claimed that Smt. Badamibai made certain gifts both by way of cash and cheques to her grandchildren Vijay Kumar and Narender Kumar both of whom were minors at the time of gifts. These gifts were offered for gift-tax assessment and were duly subjected to gift-tax. Subsequent to the gifts, the minor sons Vijay Kumar and Narender Kumar deposited these amounts in different firms in which they were admitted to the benefits of the partnership. The ITO held for the reasons recorded in the assessment order, which we think is not necessary to reproduce, that the gifts claimed to have been made by Smt. Badamibai to the grandchildren could not have been made by her as it was held that there was no family arrangement and that the money never passed to her from the joint family. Since Smt. Badamibai did not own any money as her own she could not have gifted any money to the grandchildren. A claim was raised before him that she had an amount of Rs. 43,000 by way of stridhan. Even to this the ITO steadfastly disagreed even though there was a finding to the contrary by the AAC on appeal in the earlier stages. The ITO treated the income arising in the name of the minor sons as the income of the assessee and included in the assessments. I am not here concerned with the figures except with the principle involved. I am, therefore, not referring to the figures nor to the assessments. The matter thereafter reached to the Commissioner (Appeals), who partially agreed with the ITO and partially disagreed with him. Insofar as the gifts made out of family arrangement were concerned, he held that those gifts were as bogus as the family arrangement itself. But insofar as the gifts attributable to the stridhan were concerned, he held that the ITO without any material or adequate reasons disturbed the established facts which were accepted in appeal by the higher authorities. Having expressed his displeasure and disfavour with this view of the ITO, he directed the ITO to investigate as to the source of the gifts. To the extent the gifts were traceable to the stridhan property of Smt. Badamibai, he directed that income should be excluded from the inclusion in the assessment of the assessee. But to the extent they are relatable to the amounts said to have been received on family arrangement, he held that the same should be taxed in the hands of the assessee-HUF. But in case the funds were so intermixed as not to be allocable, a pro rata basis should be adopted for ascertaining the income assessable in the hands of the assessee-HUF and the minor children. Aggrieved by -this direction, the assessee preferred appeals before the Tribunal contending (a) that the Commissioner (Appeals) was not justified in confirming the inclusion of the entire income of S.R. Kalani & Co. in the hands of the assessee and that he was not justified in confirming the inclusion of the income of the minor children in the hands of the assessee subject to the above directions. As stated earlier, on the first question the learned Members agreed that the inclusion of the entire income of S.R. Kalani & Co. in the hands of the assessee was justified for the reason that the Tribunal held that the theory of partial partition was sham and fictitious but differed on the later question. It is to be pointed out at this stage that the department is not in appeal against the order of the Commissioner (Appeals) which means that the portion of the order of the Commissioner (Appeals) where he held that Smt. Badamibai had stridhan property and if the gifts could be traceable to that amount, the income attributable to that amount should be excluded from the assessment of the HUF was accepted by the revenue.

3. Now adverting back to the order of the learned Judicial Member, he was of the opinion that even though the partial partition was sham, fictitious and unacceptable and so held by the Tribunal, yet Smt.

Badamibai did make gifts and that she made those gifts in her capacity as the benamidar of the HUF, that Smt. Badamibai had meddled with the HUF business assets in which the father of the minor sons and the other coparcener of the joint family had acquiesced. He also relied upon the subsequent events that took place after the gifts, namely, completion of gift-tax assessment on the gifts and assessment of the share income of the minors in their income-tax returns and the factum of gifts. He placed reliance upon a judgment reported in Ch. Gur Narayan's case (supra) for the view that action is maintainable against the benamidar though he is only a representative of the real owner, which shows that the benamidar could act on behalf of the real owner. He also drew support from a decision of the Madras High Court in the case of Sinnachami Chettiar (supra), where the Madras High Court held that the relationship between the beneficiary and the benamidar was not that of a principal and an agent but of an obligation in the nature of a trust.

The learned Accountant Member, however, was of a totally different opinion. He observed that the basis for the finding of the learned Judicial Member was that Smt. Badamibai acted as a benamidar for the assessee-HUF and in her capacity as a benamidar could dispose of the properties entrusted to her by making gifts to the minors and those gifts will be valid if acquiesced to by the other persons having interest in it, but in the order of the Tribunal for the earlier years by which it was held that the transaction of partial partition was a sham and bogus, there was no finding at all that Smt Badamibai was acting as a benamidar of the assessee. When there was no whisper in the order of the Tribunal that Smt. Badamibai was acting as a benamidar it cannot now be said that she was acting as a benamidar thereby elevating the sham transaction to that of a benami transaction. Referring to the distinction pointed out by the Supreme Court in the famous case of Sree Meenakshi Mills Ltd. (supra), he pointed out that the benami nature of the present transaction was such as not to involve any transfer of the title in the property and, consequently, the entire assets belonged to the joint family except to the stridhan property no gifts could be said to have taken place when the income attributable to that part of the gifts which are related to the joint family arrangement should be included in the assessment of the assessee-HUF.4. The learned advocate for the assessee by taking me through the passages in Hindu Law by Mulla particularly paragraph 242 and referring to the decision of the Supreme Court in Sree Meenakshi Mills Ltd.'s case (supra), Ch. Gur Narayanans case (supra) AIR 1971 Nag. 205 (sic) submitted that the gifts having been made by Smt. Badamibai and accepted on behalf of the minors, they are only voidable and not void and that since the voidable nature of the gifts was not questioned by those who should have questioned and by those who are directly concerned, connected and affected by them, these gifts must be held to be valid. Once they are valid gifts, the question of including the income arising on the investment of those gifts could not arise in the assessment of the assessee-HUF. In any case, the direct source for the arisal of the income was not the investment of the funds represented by the gifts but the admission to the benefits of the partnership. This is, if I have understood the arguments of the learned counsel for the assessee correctly, is the gist of the arguments addressed. On the other hand, the learned departmental representative contended, relying on Ram Lal Ganpat Rai v. CIT [1978] 112 ITR 462 (Bom.) that the funds continued to belong to the joint family, the minors represented the joint family, if at all a representation was necessary and the income directly flowed to the joint family as a mode of return on investment made through the minors and the question of benamidar was alien to the issue and never arose out of the facts. Smt. Badamibai was debited in the books of the HUF to create an artifice of gifts but in fact, except for the cloak of gifts no gift had taken place, the entire thing is a camouflage. Referring to the arguments addressed so eloquently on behalf of the assessee that when the firms were granted registration, where the minors were admitted to the benefits of the partnership, it meant that the minors were accepted as partners and, therefore, their income should not be clubbed again in the hands of the HUF, he submitted very fervently that the grant of registration was no fetter to the enquiry as to who the real owner was. If the real owner was found to be a person other than the partner, or if the partner was acting in a capacity as a trustee or as the karta of a joint family, the income belonged either to the beneficiary or to the joint family, and assessment of that income in the hands of the joint family or the beneficiary was never a bar under the Act and in fact Courts have recognised this principle of taxing the income in the hands of the person to whom it belonged even though it arises in the hands of some one else on the theory of representative capacity or overriding title.

He also submitted that the fact that the gifts were accepted was neither conclusive nor did it debar an enquiry to be made by the department to trace the ultimate owner of income and even question the validity of the gifts. He submitted that when the Tribunal found that the partition was sham, the question of lady acting as benamidar for the joint family could never have arisen or contemplated. To the extent of stridhan property available to her, she can deal with that money in whatever way she pleases but not with other moneys unless they were gifted to her by her son and that was not the case here. He stoutly defended the order of the learned Accountant Member and the actions of the department.

5. On a careful consideration of the entire facts in its proper prospective, I am inclined to agree with the view canvassed by the learned Accountant Member. I do not wish at this stage to go into the question as to whether transaction in this case was such as to fall within the first category of benami transaction or second category of benami transaction as explained by the Supreme Court in the case of Sree Meenakshi Mills Ltd. (supra) as that is not germane to the issue all because except for a contention raised that the lady could in law act as a benamidar, the factum that she acted as a benamidar was never investigated nor sought to be proved. The fact that those gifts were made, the fact that the account of Smt. Badamibai was debited in the books of the assessee-firm, the fact that gift-tax assessments were made on Smt. Badamibai, the fact that minors were admitted to the benefits of the partnership by investing the gifted money, the fact that registration was granted to those firms accepting the minors as admitted to the benefits of the partnership, the fact that even assessments were made on the minors are not inconsistent with the contention advanced on behalf of the revenue and do not by themselves singly or collectively establish the assessee's case. These facts are more consistent with the theory that gifts were made by the assessee by using the mother's name as donor taking advantage of the credit balance standing to the account of Smt. Badamibai in the HUF's books. The karta of the HUF can do all these things that were supposed to have been done by Smt. Badamibai, as a consequence of the gifts received from Smt.

Badamibai. Therefore, since these facts are consistent both with the assessee making the gifts through Smt. Badamibai and Smt. Badamibai directly making the gifts to the minor children, nothing can turn upon the existence of those facts to prove the basic fact whether Smt.

Badamibai acted as a benamidar, whether she had recourse to the funds of the joint family and whether the continuous gifts made beyond her stridhan money was a fact. There is another approach to this problem.

Assuming, Smt. Badamibai made these gifts as benamidar of the joint family and assuming that Smt. Badamibai can meddle with the joint family property as benamidar, what is the effect of this transaction on the real owner. As pointed out by the Supreme Court in Sree Meenakshi Mills Ltd.'s case (supra), when she is acting as a benamidar, she is acting for a real owner which is the HUF. Thus, when she is acting for the real owner, she acts as an agent and not as the owner of the property, the real owner being the joint family. When the real owner is, thus, joint family, it only means that the joint family funds were gifted by Smt. Badamibai as the agent of the HUF to the minor sons, then the income must belong to the joint family only, the minors being only the connecting links. There may be validity for the gifts in the sense that as benamidar, she could have made the gifts acquiesced in by the father of the minor sons but the source of the money belonged to the joint family. Thus, looked at from any angle, I am unable to see any justification or a way out to say that the income belonged to the minors and not to joint family. The income can be said to belong to the minors only when the money gifted to them came out of the personal funds of Smt. Badamibai as in the case of stridhan. If the money does not come out of the personal funds of Smt. Badamibai, over which she has no ownership, possession, power of disposal in her own right, then that money cannot be said to belong to her. Thus, the differentiation made by the Commissioner (Appeals) between stridhan funds and funds belonging to the joint family continues to exist and that distinction is not blurred or metamorphosed into treating the entire money as belonging to her all because she could have acted as a benamidar even assuming for the sake of argument that she did act as a benamidar.

Since the ownership of the money is traceable to the joint family, the partial partition having been held to be sham and now accepted to be so by the assessee also, the consequence of that finding is that money belonged to the joint family and any income arising from the investment of those funds must as a corollary belong to joint family unless otherwise divested by a means known to law but not particularly caught by the provisions of the Act by deeming it to be the income of the joint family.

6. These considerations weighted with me in agreeing with the view of the learned Accountant Member and I express my inability to sail along with the view of the learned Judicial Member.

7. Before I conclude I would like to make it clear that neither the grant of registration nor the acceptance of gifts places a fetter on the power of the ITO to enquire as to who the real owner of the income was and to assess the income in the real owner's hands provided it is supported by acceptable legal evidence.

8. The matter will now go back to the regular Bench for disposal according to the majority view.


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