Income Tax Appellate Tribunal - Bangalore
Income-Tax Officer vs Suresh Mahindra on 2 February, 1995
Equivalent citations: [1995]54ITD401(BANG)
ORDER
A.V. Bandyopadhyay, Accountant Member
1. The appeal has been filed by the Department against deletion of the penalty of Rs. 51,105 levied by the ITO under Section 271(1)(c).
2. The facts of the case in a nut-shell are that the ITO was of the view that the income of the assessee from Broad Acres Stud Farm, Yelahanka of the amount of Rs. 66,370 had not been included by the assessee in his return of income filed for assessment year 1976-77. This Broad Acres Stud Farm was purchased from one M/s. Hill & others by a registered deed dated 31 -7-1974. It is an admitted fact that the purchase was made in the name of the assessee late Shri Suresh Mahindra and there was no mention in the said purchase deed about the purchase having been made by him in a fiduciary capacity. Later on however, the assessee took the stand that the purchase of the Stud Farm had actually been made by him in the capacity of the guardian of his minor son Master Marthand S. Mahindra and, therefore, the assessee had no right whatsoever in the above Stud Farm. In this connection, the assessee produced before the ITO, judgment of the District Judge, Bangalore, delivered on 13-10-1977 wherein permission had been granted by the Court to raise loans on the property of the minor. As regards the sources of the purchase, it was the contention of the assessee that his minor son had received two gifts of Rs. 10,000 and Rs. 40,000 from his grand-mother (mother-in-law of the assessee) Smt. Kusumkumari, formerly Rani of Mandi. These gifts were stated to have been received in cash on 27-2-1974 and 10-7-1974 respectively. In suppprt of the said gift, a letter from the Chartered Accountants M/s P.C. Hansotia & Co., dated 13-9-1976 was produced before the ITO. However, at the same time again, the ITO also found out from a study of the books of the assessee with regard to maintenance of his undisputedly own stud farm viz., Green Acres Estate & Agricultural Farm, that he had paid an amount of Rs. 40,000 in cash on 12-2-1975 for the purchase of the Broad Acres Stud Farm. Undisputedly again, the assessee did not include the income of Rs. 66,370 from the Broad Acres Stud Farm in his return of income for assessment year 1976-77, as his plea was that the said Stud Farm actually belonged to his minor son Marthand S. Mahindra.
However, the aforesaid income from the Broad Acres Stud Farm was assessed in the hands of the assessee, thereby denying the claim of the assessee about the Stud Farm being belonging to his minor son. This action on the part of the ITO was upheld even up to the Tribunal stage by the successive orders of the Tribunal, Bangalore Bench, for different years like assessment year 1976-77 [order dated 4-12-1985 in ITA No. 429(PN.)/80] and later on assessment years 1977-78 to 1984-85 [order dated 5-10-1994 in ITA Nos. 545 to 547,1082 & 1083 (Bang.)/1987 and ITA No. 780(Bang.)/1988]. Subsequently, the assessee also executed a declaration of trust on 1-7-1975 stating that the Stud Farm was actually held by him in the capacity of the guardian of his minor son. Finally, the assessee also executed another indenture of release on 25-3-1977 under which he released all his rights in the said Stud Farm in favour of his son Marthand S. Mahindra and that document was also got registered. The Tribunal held that the son of the assessee got a right to the property only by virtue of this release deed dated 25-3-1977.
3. In the impugned penalty order passed by the ITO, the facts of the case as discussed above, were discussed in detail. The ITO furthermore discussed therein that a matter of utmost importance to note was that the Trust Deed declaring the assessee as a guardian of his son for the Broad Acres transaction had been executed nearly one year after the acquisition of the said Stud Farm, i.e., on 1-7-1975, when the Finance Act, 1975 taking away the exemption available to stock-breeding income under Section 10(27) was passed on May 5, 1975. The ITO thus opined that on account of this amendment to the law, the assessee made an attempt to segregate the income from this farm from his own income and to show the said income as his son's. As regards the Court order passed by the District Judge, Bangalore, on 13-10-1977, holding that the property in question was the property of the minor, the ITO stated that the obvious purpose to get the order of the Court was to allow the assessee to raise a loan from the banks for the purchase of the estate on behalf of his minor son. The ITO furthermore pointed out that the Court passed the abovementioned order upon the assessee's own averment that he was the guardian of his minor son and that the Court had neither any reason nor any occasion to examine the correctness of this averment. The ITO thus concluded that the aforesaid order of the Court is inconsequential to determine the present issue.
The ITO finally concluded that the claim of the assessee that he had purchased the Broad Acres Stud Farm in the capacity of a trustee for his minor son was a sham claim motivated by the desire to reduce his tax liability consequent upon the deletion of Section 10(27) from the Income-tax Act effective from assessment year 1976-77. Finally, therefore, he considered the assessee as guilty of concealing his income to the abovementioned extent of Rs. 66,370 and levied penalty as above.
4. The CIT(A) allowed the appeal filed by the assessee before him on the following grounds : The assessee had discharged the initial onus cast on him by adducing necessary evidence to show that even before the return of income had been filed by him, there was a claim that the property belonged to his minor son by relying upon his affidavit dated 30-6-1975 also declaring in the same line, by pointing out to the evidences given before the Court and by relying upon the permission granted by the Court to raise loan on behalf of the minor and, lastly, by pointing out the sources of the funds of the minor. The CIT(A) also discussed that the income from the Broad Acres Stud Farm had actually been assessed in the hands of the minor son of the assessee for assessment year 1976-77. He also examined the issue relating to the sources of the fund in the hands of the minor by way of gifts received by him from his grand-mother and pointed out that it had not been established by the ITO that the gifts were false or that they were not made. The CIT(A) also emphasised on the fact that even long before filing of the return by the assessee for this year on 30-6-1975, the assessee had declared clearly that the property belonged to the minor and had been advanced out of the minor son's funds. The CIT(A) thus came to the conclusion that the assessee had acted on his belief that the stud farm belonged to his son and filed a return on behalf of the minor. Ultimately, the CIT(A) held that in spite of the fact about the Tribunal having considered the Broad Acres Stud Farm being belonging to the assessee, there was no case of concealment or furnishing of inaccurate particulars by the assessee. On that basis, the CIT(A) cancelled the penalty.
5. Before us, the learned counsel for the assessee has strongly contended that all the facts and the particulars relating to the purchase of the property and all the connected documents were found during the course of the search and seizure proceeding in the premises of the assessee on 1 -7-1976 and furthermore that all the information including an explanation from the side of the assessee were duly filed before the ITO. He thus argued that penalty has been levied by the Department merely on account of a difference in opinion. He, thus strongly contended that penalty is not leviable in such circumstances. In support of this contention, he has relied upon the decision of the IT AT, Delhi Bench, in the case of Nuchem Ltd. v. Dy. CIT[1993] 47 ITD 487.
6. The learned Departmental Representative, on the other hand, has strongly argued that the assessee was ultimately found to be the owner of the property, the income from which he did not show in his return of income filed for this year. The claim of the assessee was also, according to the departmental representative, found to be sham and even a make-belief one. He thus strongly urged that the penalty be restored.
7. The facts of the case are rather quite strange here. A huge property like Broad Acres Stud Farm is stated to have been purchased on behalf of the minor son of the assessee by making payment of a paltry amount of Rs. 50,000 only as advance. Further payments are stated to have been made on much later dates out of the self-generating income of the Stud Farm itself. So far as the initial payment of advance is also concerned, it is a fact that an amount of Rs. 40,000 was paid by the assessee out of his own bank account. Although source of this amount as well as of another amount of Rs. 10,000 has been tried to be explained by way of gifts by the mother-in-law of the assessee to his minor son, yet, apart from the letter dated 13-9-1976 from the C.A. of the mother-in-law of the assessee, there was no other direct evidence about the genuineness of the said gifts. How the gifted money was kept has also not been explained in detail by the assessee anywhere. The Tribunal also raised some suspicion about the genuineness of the entries made in the ledger account of the minor son of the assessee in respect of the receipts of gifts and payment of Rs. 10,000, on different dates at para 10 of its combined order dated 5-10-1994. Why in spite of gift having been received by the minor son of the assessee, the assessee himself had to make payment of Rs. 40,000 on 12-2-1975 is also not very clear. Another important aspect of the case to be noted here is that at the time of purchase of the said Broad Acres Stud Farm, no mention at all was made about the purchase having been made in the status of the guardian of the minor, in the said purchase deed. If the purchase had really been made on behalf of the minor, surely, the deed should have a recital to that effect. This strongly indicates that the contention of the Department that the purchase of the Stud Farm had actually been made by the assessee for himself is true.
So far as the Court decree is concerned, we agree with the point raised by the ITO in this regard that the said Decree is inconsequential inasmuch as the Court passed its order simply on the basis of the averment of the assessee that he had purchased the Stud Farm on behalf of his minor son, without making any inquiry as to the genuineness of the said claim, inasmuch as there was no opposition to the aforesaid averment of the assessee. The declaration of Trust dated 1-7-1975 also seems to have been made on account of deletion of Section 10(27) from the Income-tax Act by the Finance Act, 1975, passed on 5-5-1975. In this connection, we would like to rely on some portions of the aforesaid two judgments of the ITAT, Bangalore Bench, in the assessee's own case, where the Tribunal has clearly come to the conclusion that the assessee's claim is not only untenable but also false. The Tribunal rightly doubted the genuineness of the declaration of trust on 1-7-1975 in para 13 of its order dated 5-10-1994 by stating as below :
The trust was in favour of Marthand Singh Mahindra. If the beneficiary of the trust is himself the owner, where was the question of making a trust ? The assessee who had no interest in the property makes a declaration of the trust in favour of the beneficiary who himself is the owner according to the stand taken up. This is wholly inconceivable in law. That is why the civil court declined to grant permission to raise a loan on the security of the Broadacres and a copy of the order passed by the civil court dated 22-1-1977 is on record.
8. In its aforesaid order dated 5-10-1994, the Tribunal also quoted extensively from the earlier order of the Tribunal dated 4-12-1985 (para 3), at para 14 of its order as below :
In short, the ITO's argument is that the trust deed is a mere afterthought to divert the income of Broadacres from the hands of the assessee to his minor son consequent upon the withdrawal of the exemption earlier available to stock breading income. I consider that these points have been validly taken up by the ITO. The claim of the assessee that he purchased Broadacres as the trustee of. his minor son appears to be claim motivated by his desire to reduce his tax liability consequent upon the deletion of Section 10(27), effective from the assessment year 1976-77. It is worthnoting that in a purchase deed under which a substantial estate like Broadacres was purchased even a mere mention of the socalled trusteeship of the assessee was not made anywhere. This is very unusual and indicates clearly that such a trusteeship did not exist and was not in anybody's mind at the time when the purchase deed was executed. The other points raised by the ITO such as absence of any gift return by the donor, absence of receipt of these amounts in the books of the assessee are also very telling.
Further extract was quoted by the Tribunal in the same para of its order dated 5-10-1994 from the earlier order of the Tribunal dated 4-12-1985 as below :
In our opinion, looking to the fact that the assessee is a well-to-do man who is properly advised by eminent counsel and the chartered accountants, it is difficult to believe that if he had the intention of purchasing the stud farm for and on behalf of his minor son he would not make even the mention of this fact either in the agreement or in the sale deed or even in the guarantee bonds executed by him. It just do not stand to reason that an experienced man of the world would get the sale deed executed in his name if the intention was that his son was to be the real owner thereof. The explanation that it was only a mistake is too glib to be accepted. The stories that the assessee was only a benamidar has been rejected in a convincing order passed by the Additional District Judge under Section 8(2) of the Hindu Minority Guardianship Act, on 22-1-1977. Before that, the assessee had sworn an affidavit on 30-6-1975 and had also executed an unregistered trust deed dated 1-7-1975 claiming that his son was the real owner and not he himself.
9. The Tribunal also found out at para 15 of its aforesaid order dated 5-10-1994 that the plea that there was a gift of Rs. 50,000 in favour of Marthand S. Mahindra and that this sum had been put in the bank account of the assessee was unestablished. The Tribunal furthermore held that it was equally untenable contention that the name of the assessee had been wrongly shown in place of his son Marthand S. Mahindra.
10. Another important aspect of the case, to which the Tribunal drew its own attention at para 16 of its aforesaid order dated 5-10-1994 is regarding the indenture of release executed on 25-3-1977. In this connection, the Tribunal expressed its wonder as to when the releaser (assessee) was saying that the property actually belonged to his minor son from the inception, he had, to put the reeords straight, executed this document releasing all his right, title and interest in the said property in favour of the releasee (his son). The Tribunal finally held in that connection that though the document is titled as ah indenture of release, in substance however, it conveys the interest that the assessee had in the property to his son and in reality this is a deed of transfer for which the assessee had received no consideration. The Tribunal, thus, finally held that the owner of the son of the assessee, namely, Marthand S. Mahindra, acquired the ownership of the property on and from 25-3-1977 by virtue of this release deed alone.
11. So far as the issue raised by the assessee about income from Broad Acres Stud Farm having been assessed in the hands of Marthand S. Mahindra for assessment year 1976-77 is concerned, the ITO has rightly pointed out in the impugned penalty order that the said assessment order was later on set aside by the CIT by his order under Section 263 dated 28-2-1981.
12. As regards the reliance placed by the learned counsel for the assessee on the decision of the ITAT, Delhi Bench, in the case of Nuchem Ltd. (supra), the assessee in that case had disclosed all material facts pertaining to the computation of income and the same were not found false but additions / disallowances were made on account of difference of opinion. In the instant case, however, the assessee knew it himself that he was the owner of Broad Acres Stud Farm and yet omitted to include the, income therefrom in his return of income. He had even made some manipulations with the obvious motive to evade the tax in respect of the income from the said farm, consequent on deletion of Section 10(2 7) from the statute book. Hence, the aforesaid decision of the Tribunal, Delhi Bench, is not applicable to the present case.
13. From a consideration of all the above facts, it can be seen that actually Broad Acres Stud Farm had been purchased by the assessee out of his own funds and later on only, consequent on the deletion of Section 10(2 7) from the Statute Book, with effect from 1-4-1975, the assessee tried to manipulate the matter by declaring the purchase having been made on behalf of his minor son. The alleged gifts have not been proved sufficiently and even the gift-tax returns are also stated to have been filed by the lady in a much later year. There was thus no contemporaneous evidence about the genuineness of the gifts of money by the lady to the minor son of the assessee. The guilty mind of the assessee gets exposed by the further actions of him by way of declaring a trust on 1 -7-1975 and later on executing a release-deed in favour of his son on 25-3-1977. Thus, it must be concluded that although the assessee was actually the owner of Broad Acres Stud Farm, he made all possible efforts to show that this belonged to his minor son. Manipulations on the part of the assessee are manifest. It cannot at all be said that the assessee was under the bona fide belief that his minor son was actually the owner of Broad Acres Stud Farm. The facts of the case strongly indicate otherwise. It has got to be concluded that the assessee actually knew that he himself was the owner of the Broad Acres Stud Farm and he tried to create various evidences to show that the said farm belonged to his minor son. Ultimately when he was not satisfied about the strength of these evidences, he finally executed a release deed by virtue of which he transferred all his rights in the said farm to his son. This was done as the last resort to overcome all possible doubts about the case. We are thus, finally of the opinion that the assessee cannot be considered to be cherishing the bona fide belief that he was not the owner of Broad Acres Stud Farm. Therefore, non-inclusion of the income from the said Farm to the extent of Rs. 66,370 in his return of income for the assessment year 1976-77 certainly constitutes the offence of concealment of his income as contemplated under Section 271 (1)(c). The assessee should, therefore, suffer the penal consequences. Hence, we reverse the decision of the CIT (Appeals) and order for restoration of the penalty as imposed by the ITO.
14. In the result, the departmental appeal is allowed.