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O.N. Mohindroo Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtDelhi High Court
Decided On
Case NumberIncome-tax Reference No. 40 of 1973
Judge
Reported in[1975]99ITR583(Delhi)
ActsIncome Tax Act, 1961 - Sections 64
AppellantO.N. Mohindroo
RespondentCommissioner of Income-tax
Appellant Advocate S.C. Manchanda and; W.S. Barlingay, Advs
Respondent Advocate R.H. Dhebar and ; Rishi Kesh, Advs.
Excerpt:
.....of 1954.'11. the relevant portion of the affidavit of the assessed's wife which is annexure 'a-1' to the statement of the case reads as follows :that because of my father's love with me and desire to see me settled at- delhi, he, on my asking, had permitted the use of the word 'baluja 'in respect of baluja shoe stores, karol bagh, delhi. in this affidavit, it is stated as follows :that because of her father's love with shrimati raj kumari mohindroo and his desire to see her settled at delhi, he on her asking had permitted the use of the word 'baluja 'in respect of 'baluja' shoe stores, karol bagh, delhi......amount was paid by way of consideration for the assessed agreeing to discontinue the use of the name, baluja, for his business. he also found that this amount of rs. 12,000 had been deposited in the assessed's own account in the bank and subsequently invested in his own name with m/s. forward india finance company. he, thereforee, held that the purchase price of the house to the extent of rs. 12,000 had been paid by the assessed himself. even with regard to the balance of rs. 8,000, the income-tax officer did not accept the explanationn given by the assessed and held that even the balance of the purchase price had been paid by the assessed himself. he, thereforee, included the income from this property amounting to rs. 4,976 in the income of the assessed. this assessment was confirmed.....
Judgment:

Ansari, J.

1. In compliance with the direction given by this court under Section 256(2) of the Income-tax Act, 1961 (hereinafter referred to as ' the Act '), the Income-tax Appellate Tribunal, Delhi Bench (hereinafter called ' the Tribunal '), has referred the following two questions to this court:

'1. Was there material on record for the Appellate Tribunal to hold that consideration for the sum of Rs. 12,000 received by the assessed's wife moved from the assessed and that the title to that amount was given to the assessed ?

2. Whether there was material on which the Appellate Tribunal could hold that towards the sum of Rs. 20,000 being the cost price of the property No. 1710-11, Partap Street, Chuna Mandi, Paharganj, funds to the extent of Rs. 12,000 were provided by the assessed and that three-fifths of the income from the property was, thereforee, assessable in the hands of the assessed under Section 64(iii) of the Income-tax Act, 1961 '

2. The relevant facts may now be briefly stated. The assessed in this case is Shri 0. N. Mohindroo, an Advocate of Delhi, and the assessment year under reference is the year 1962-63, the relevant previous year being the financial year 1961-62. In the return of income filed for this assessment year, the assessed disclosed an income of Rs. 6,991 as income from his profession as an advocate. He did not disclose any income either under the head ' Business ' or under the head ' Income from property '. In the earlier assessment years, income from a shoe business run under the name of ' A to Z ' Shoe Stores had been assessed in the hands of the assessed, although the assessed had claimed that this business belonged to his wife. Following the earlier assessments, the Income-tax Officer included the income from this business also in the assessed's income. The Income-tax Officer also found that a house property bearing No. 1710-11, Partap Street, Chuna Mandi, Paharganj, Delhi, had been purchased in the name of the assessed's wife for Rs. 20,000. The Income-tax Officer called upon the assessed to disclose the source of the purchase price of the house. The assessed explained that a sum of Rs. 12,000 had been given to his wife by her father in 1952 and that the balance of the purchase price came out of the savings of his wife from withdrawals from the business ' A to Z ' Shoe Stores. The Income-tax Officer did not find any entries in the books of account of the assessed's father-in-law to prove the payment of Rs. 12,000 to his daughter. Even assuming that this amount was in fact paid by the assessed's father-in-law, the Income-tax Officer was of the view that this amount really belonged to the assessed inasmuch as this amount was paid by way of consideration for the assessed agreeing to discontinue the use of the name, Baluja, for his business. He also found that this amount of Rs. 12,000 had been deposited in the assessed's own account in the bank and subsequently invested in his own name with M/s. Forward India Finance Company. He, thereforee, held that the purchase price of the house to the extent of Rs. 12,000 had been paid by the assessed himself. Even with regard to the balance of Rs. 8,000, the Income-tax Officer did not accept the Explanationn given by the assessed and held that even the balance of the purchase price had been paid by the assessed himself. He, thereforee, included the income from this property amounting to Rs. 4,976 in the income of the assessed. This assessment was confirmed by the Appellate Assistant Commissioner, The Tribunal, however, accepted the assessed's Explanationn to the extent of Rs. 8,000 as representing the savings of the assessed's wife. But the Tribunal agreed with the findings of the Income-tax Officer and the Appellate Assistant Commissioner with regard to the balance of the amount of Rs. 12,000. The Tribunal, thereforee, held that only 3/5ths of the income from the house property was assessable in the hands of the assessed and 2/5ths of the income should be excluded from his assessment. The Tribunal also confirmed the findings of the Income-tax Officer and the Appellate Assistant Commissioner in respect of the shoe business carried on under the name of ' A to Z ' Shoe Stores.

3. The findings of the Tribunal with regard to the ownership of the shoe business are not the subject-matter of the present reference, and these findings have become final so far as the assessment year under reference is concerned. We have, thereforee, to proceed on the basis that the shoe business belonged to the assessed himself and not to his wife. It is on the basis of this finding that the Tribunal has given the further finding that the amount of Rs 12,000 was paid to the assessed's wife by her father by way of consideration for the assessed agreeing to discontinue the use of the name of Baluja for his shoe business. The contention of the assessed is that even on the basis that the shoe business belonged to him, there was no justification for the finding of the Tribunal that consideration for the amount of Rs. 12,000 proceeded from the assessed or that the title to this amount vested with the assessed. It is the assessed's contention that this finding is not supported by the evidence placed before the Tribunal. The finding of the Tribunal is in the nature of a finding of fact and it is well settled that this court is bound by such findings and cannot interfere with them except under special circumstances. These special circumstances have been explained by the Supreme Court in a number of cases, the latest being the case of Commissioner of Income-tax v. S.P. Jain, : [1973]87ITR370(SC) ., in which the earlier cases have been considered and the position has been re-stated in the following terms:

' In our view, the High Court and this court have always the jurisdiction to intervene if it appears that either the Tribunal has misunderstood the statutory language, because the proper construction of the statutory language is a matter of law, or it has arrived at a finding based on no evidence or where the finding is inconsistent with the evidence or contradictory of it, or it has acted on material partly relevant and partly irrelevant or where the Tribunal draws upon its own imagination, imports facts and circumstances not apparent from the record, or bases its conclusions on mere conjectures or surmises, or where no person judicially acting and properly instructed as to the relevant law could have come to the determination reached. In all such cases the findings arrived at are vitiated.'

4. The Supreme Court interfered with the finding of the Tribunal in that case on yet another ground, namely, that the Tribunal had failed to take into account the relevant material on record in arriving at its findings.

5. We have now to consider whether the finding of the Tribunal that the title to the amount of Rs. 12,000 really vested in the assessed is vitiated by any of the circumstances mentioned by the Supreme Court. The very first defect from which the findings of the Tribunal suffer is that it has not clearly understood the scope of Section 64(iii) of the Act under which the income from the property standing in the name of the assessed's wife has been included in the assessed's income. That section reads as under :

' 64. In computing the total income of any individual, there shall be included all such income as arises directly or indirectly--......

(iii) subject to the provisions of Clause (i) of Section 27, to the spouse of such individual from assets transferred directly or indirectly to the spouse by such individual otherwise than for adequate consideration or in connection with an agreement to live apart.'

6. Clause (iii) of Section 64 of the Act does not apply to sham or nominal transactions or to benami transactions. On the other hand, it applies to real transactions. In the words of Kanga and Palkhiyala :

' This section does not avoid or invalidate transfers made in favor of the transferor's spouse or minor child. On the contrary, it assumes that the transfer is genuine and valid and that the income from the assets transferred is in fact the income of the spouse or minor child. If the transfer is not genuine and the spouse or minor child is only a nominee or benamidar of the transferor, apart from the provisions of this section, the income may be included in the transferor's total income under the general law. Similarly, if the transfer to the spouse or minor child is not valid, effective and complete, the income will continue to remain that of the intending transferor under the general law and the provisions of this section could not apply. '

7. While the income from the property standing in the name of the assessed's wife has been included in the assessed's income under Section 64(iii) of the Act, the Tribunal has examined the material placed before it from the standpoint of the property being purchased benami in the name of the assessed's wife. The Tribunal has referred to the fact that even after the purchase of the property, the rent was credited in the assessed's bank account and not in the account of the assessed's wife and further thatthe lease deed executed in favor of the tenant, Laxmi Commercial Bank, was in the assessed's name and further that the assessed had full enjoyment of the income from the property, because after crediting the rent realisation to this account, there were no withdrawals. In another portion of its appellate order, the Tribunal has observed as follows :

' On this basis, the appellant contends that the apparent should be treated as real until the contrary is proved. We have no hesitation in accepting this general proposition for which there is ample case law. But the difficulty that arises in the case is to determine whether the property was purchased with the funds of the ostensible owner, namely, the appellant's wife or of the appellant himself. '

8. These observations indicate that the Tribunal had in mind the benami nature of the transaction. The Income-tax Officer as well as the Appellate Assistant Commissioner have also fallen into the same error, because both of them have held that the property was purchased by the assessed benami in the name of his wife. This erroneous approach to the point at issue has resulted in some confusion and the Tribunal's findings are apparently affected by this confusion.

9. The evidence before the Tribunal which was relevant to the question whether the amount of Rs. 12,000 belonged to the assessed or to his wife consisted of the following :

(1) The affidavit of Shri Amar Nath Baluja,

(2) The joint affidavit of the two sons of Shri Amar Nath Baluja.

(3) The affidavit of the assessed's wife.

(4) The answers given by the assessed's wife in her cross-examination.

(5) The deposit of Rs. 12,000 in the assessed's bank account.

(6) The investment of this amount with M/s. Forward India Finance Company.

10. The affidavit of Shri Amar Nath Baluja, the assessed's father-in-law, which is annexure ' A ' to the statement of the case submitted by the Tribunal, reads as follows ;

' That Shri Mohindroo was running a shoe shop at Jullundur, in the name of ' Raj Boot House ' prior to his coming over to Delhi in the year 1948, after partition of the country.

That at Delhi, in Bank Steet, Karol Bagh, Shri Mohindroo (with his own and his wife's funds) started a shop of shoes and because of my daughter I permitted him to name the shop as ' Baluja Shoe Stores'.

That in 1951, my brothers objected to his using the word ' Baluja ' in the trade since Baluja is our family name and duly registered for shoes.

That then at the advice of Shri Ranbir of Daily Milap, New Delhi, a common friend, Shrimati Raj Kumari Mohindroo (my daughter) was paidRs. 12,000 in hard cash by me and my brothers so that she be helped financially and Shri Mohindroo then changed the name of his shop from 'Bulaja' Shoe Stores to ' A to Z ' Shoe Stores, which shop is still going on in the same name, old course, under the proprietorship of Shri Raj Kumari Mohindroo since Shri Mohindroo himself became an advocate at the end of 1954.'

11. The relevant portion of the affidavit of the assessed's wife which is annexure 'A-1' to the statement of the case reads as follows :

' That because of my father's love with me and desire to see me settled at- Delhi, he, on my asking, had permitted the use of the word ' Baluja ' in respect of Baluja Shoe Stores, Karol Bagh, Delhi.

That in the year 1952-53 my father paid me Rs. 12,000 in cash for giving up the use of the word ' Baluja ' and thereafter the name of Baluja Shoe Stores was changed to M/s. A to Z Shoe Stores.'

12. The assessed's wife was cross-examined by the Income-tax Officer and the following answer was elicited from her :

' This amount was given to me because earlier I have been allowed to used the word 'Baluja' to the shoe shop and his brother had objected that if to day you have allowed your daughter to use that name, our daughters will ask for that. In view of the change in the name of my shop, this amount was given to me as compensation.'

13. The assessed also filed a joint affidavit of S/Shri Gurucharan Das Baluja and Jagmohan Baluja, sons of Shri Amar Nath Baluja. In this affidavit, it is stated as follows :

' That because of her father's love with Shrimati Raj Kumari Mohindroo and his desire to see her settled at Delhi, he on her asking had permitted the use of the word ' Baluja ' in respect of 'Baluja' Shoe Stores, Karol Bagh, Delhi.

That in the year 1952-53, our father paid Srimathi Raj Kumari Mohindroo, his daughter, Rs. 12,000 in cash for giving up the use of the word ' Baluja ' and thereforee the name of Baluja Shoe Stores was changed to M/s. A to Z Shoe Stores.'

14. The Tribunal has not disbelieved the above evidence. There is no finding that what was stated in the affidavits or in the cross-examination of the assessed's wife is not true. On the other hand, it is on the basis of this evidence that the Tribunal has given a finding that the amount of Rs. 12,000 was in fact paid to the assessed's wife by her father. Question No. 1 referred by the Tribunal implies that this amount was in fact received by the assessed's wife. We have now to consider how far this evidence supports the further finding of the Tribunal that this amount was received by the assessed's wife on account of the assessed or that the considerationior this amount proceeded from the assessed and that the title to this amount vested with the assessed.

15. This evidence undoubtedly shows that there was some connection between the payment of Rs. 12,000 to the assesssee's wife and the discontinuance by the assessed of the use of the name of Baluja for his shoe business. But does it further show that the consideration for this amount proceeded from the assessed or that the title to this amount vested in the assessed. The answer must be in the negative. Although, according to the finding of the Tribunal, the shoe business belonged to the assessed, the use of the name of Baluja for this business was permitted because Shri A.N. Baluja wanted to benefit his daughter and when the use of this name was given up, the amount was paid to the assessed's wife by way of compensation for the deprivation of this benefit. This evidence does not indicate either that this amount was paid to the assessed's wife on the assessed's account or that it was intended by the assessed's father-in-law that this amount should be passed on to the assessed. This evidence, thereforee, does not support the finding of the Tribunal that the consideration for this payment proceeded from the assessed or that the title to this amount vested in the assessed.

16. Even if it is assumed that the consideration for the amount of Rs. 12,000 proceeded from the assessed in the sense that this amount was paid to his wife in consideration of his giving up the name of Baluja, even then the provisions of Clause (iii) of Section 64 of the Act are not attracted. This amount was not transferred directly or indirectly by the assessed to his wife. This amount was never intended to be paid to the assessed by his father-in-law and the payment by him to the assessed's wife cannot be construed to be an indirect transfer by the assessed to his wife. The payment of this amount was by way of a family arrangement by which a certain amount was paid to the assessed's wife and the assessed gave up the name of Baluja. It is only if the intention of the parties was that the amount of Rs. 12,000 was to be paid to the assessed himself that it can be said that having received this amount the assessed transferred it directly or indirectly to his wife without adequate consideration. But that is not the case here.

17. The other evidence on which the Tribunal relied in support of its finding that the title to this amount vested in the assessed is the deposit of the amount in the assessed's own name in the finance company. This evidence has to be appreciated in the light of the close relationship between the parties. The amount was deposited in the assessed's bank account at a time when the assessed's wife had no separate bank account. This fact has been overlooked by the Tribunal. The deposit of the amount in the assessed's bank account does not justify the inference that theamount belonged to the assessed. Similarly, the investment of the amount in the assessed's name in the finance company does not justify the contention that the assessed treated the amount as his own. This evidence is consistent with the ownership of the amount of Rs. 12,000 continuing to remain with the assessed's wife.

18. The other evidence on which the Tribunal relied for its findings that the amount of Rs. 12,000 really belonged to the assessed and not to his wife consists of (1) the execution of the lease deed by the tenant of the property, viz., Laxmi Commercial Bank, in favor of the assessed and (2) the deposit of the rent from the property in the bank account of the assessed when the assessed's wife was also having a separate bank account. This evidence may be relevant to the question whether the property was purchased benami in the name of the wife and whether the assessed was the real owner of the property. But, as already observed, the income from the property was included in the assessed's income under Section 64(iii) of the Act and not on the basis that the assessed was the real owner of the property. This evidence is not relevant to the question whether the income from the property is liable to be included in the assessed's income under Section 64(iii) of the Act.

19. The findings of the Tribunal are thus based upon an erroneous construction of Section 64(iii) of the Act; they are inconsistent with the relevant evidence ; they are based partly on irrelevant evidence ; and they are based upon conjectures and surmises. The findings of the Tribunal come within the mischief of the rule laid down by the Supreme Court in S.P. Jain's case.

20. We, thereforee, answer both the questions referred to us in the negative, i.e., in favor of the assessed and against the revenue. The assessed is also entitled to the costs of these proceedings. The counsel's fee is fixed atRs. 250.


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