Income Tax Appellate Tribunal - Bangalore
G.L. Chabada vs Income-Tax Officer on 9 January, 1995
Equivalent citations: [1995]53ITD53(BANG)
ORDER
S. Bandyopadhyay, Accountant Member
1. The only issue concerned in these three appeals for the three successive years relates to treating another firm M/s. Vishal Traders as a benami concern of the assessee-firm and in that way, in including the income of the other firm within that of the assessee. For the sake of convenience, the appeals have been consolidated and a common order is being passed.
2. The facts of the case as can be found out from the orders of the lower authorities are as follows: Shri G.L. Chabada was carrying on business in the line of sale of leather and plastic footwears, as an individual, for about 15 years. With effect from 1 -4-1985, he converted his proprietary business concern into a partnership firm called 'M/s. G.L. Chabada consisting of three partners, viz., himself, his son Shri B.G. Chabada and Smt. V.C. Chabada being the wife of the other son Shri Chandrasekhar Chabada. Another firm viz. M/s. Vishal Traders, having partners as Shri Chandrasekhar Chabada and Mrs. Parvatibai Chabada, being wife of Shri G.L. Chabada, doing the business in the same line had already come into existence on 1-4-1984. The Department conducted two surveys in the premises of these two firms on 23-11-1988 and on 7-12-1988, during the course of which the Department took the depositions of Shri Chandrasekhar Chabada as well as of Shri Bharat G. Chabada about the affairs of the two firms. The assessment orders for assessment year 1986-87 mentions that the cash found at Rs. 32,602 in the business premises of M/s. G.L. Chabada during the course of the survey conducted on 23-11-1988, was said to be inclusive of the cash belonging to M/s. Vishal Traders also but that the said cash could not be bifurcated firm-wise. The assessment order further states that the stock kept in the godown could also not be bifurcated and identified as to which portion of the stock belonged to which firm. It was also found during the survey that a small room said to be the office of M/s. Vishal Traders was used to keep the excess stock of M/s. G.L. Chabada. In the assessment order under consideration, the ITO also relied on some of the answers given by Shri Chandrasekhar Chabada to the query raised by him in the course of his deposition recorded on 6-12-1989. He thus came to the conclusion that the creation of M/s. Vishal Traders was an attempt to reduce the incidence of taxation of M/s. G.L. Chabada only. He also stated that apart from above, Mrs. Chabada was stated to be a house lady having no experience in the business line and that the entire business of M/s. Vishal Traders was said to be run by one partner only. The ITO, thereafter, stated that even this version was also not correct inasmuch as Shri C.G. Chabada, who was an employee of the proprietary concern of M/s. G.L. Chabada had no experience in the line of the business and that for the business transactions he depended on Shri G.L. Chabada of M/s. G.L. Chabada. Taking into consideration all these facts, the ITO came to the opinion that there were no two firms but the entire business of M/s. Vishal Traders belonged to M/s. G.L. Chabada only. In that view, he clubbed the total sales of both the firms and proceeded to assess the income of both the firms in the hands of M/s. G.L. Chabada, the present assessee.
3. Shri Vinod D. Kulkarni, learned counsel for the assessee stressed on the fact that the two firms were located at two different addresses,viz. whereas the assessee-flrm was located in Pangul Galli, Belgaum, the other firm M/s. Vishal Traders was, however, located at a different address viz. Ganpath Galli, Belgaum. He stated that the locations of the two firms was distanced by about a furlong. In support of this contention, he placed on our record copies of the respective rent receipts. He also emphasised on the point that the two firms had separate sales-tax registrations and were being assessed to sales-tax by the Commercial tax authorities separately. He furthermore drew our attention to the finding of the CIT(A) that the stocks of the two firms were found to be identifiable separately by the Income-tax Inspector on his visit to the respective business premises on 7-12-1988. The CIT(A), who confirmed the action of the ITO, stated in this regard that the separate stock investory made on 7-12-1988 was subsequent to the survey and was perhaps at the instance of the assessee. The CIT(A) also did not take into consideration the other contention of the assessee that Shri Chandrasekhar Chabada was staying separately from his father due to certain disputes, as the CIT(A) found that Shri Chandrasekhar Chabada's wife was a partner in the assessee-firm.
The learned counsel for the assessee also drew our notice to the sales-tax assessment orders of both the firms in which it was mentioned that the CTO found the separate existence of M/s.Vishal Traders on 3-9-1988, whereas on 19-8-1988 the firm M/S. G.L. Chabada had already been found as a separate firm by the CTO. Shri Vinod D. Kulkarni, learned counsel for the assessee, furthermore contended that the Department did not have any evidence excepting some vague statements of S/Shri B.G. Chabada and Chandrasekhar Chabada to come to the conclusion that there was no separate existence of the two firms. He also stated that when Shri Chandrasekhar Chabada mentioned in his statement that it was not possible to bifurcate the stock", he did not mean the bifurcation of stock between the two firms but meant division of the stock according to qualities. Shri Kulkarni furthermore argued that the position of capital contribution of the two firms was not at all examined and the contribution of capital in the firm M/s. Vishal Traders was not added in the hands of the partners of the assessee-firm. In support of his contention that the Department was not entitled to club the income of the other firm in the hands of the assessee-firm, Shri Kulkarni relied on the following decisions :
(i) Vinayakrao D. Chaudhary v. ITO [1986] 15 ITD 180 (Nag.),
(ii)l TTO v. U.P. Tractors [1986] 19 ITD 199 (Jab.), and
(iii) IAC v. Shree Gita Tea Trading Co. [1991] 39 TTJ (Ahd.) 489.
The learned Departmental Representative, on the other hand, strongly relied on the orders of the lower authorities. He asserted that questions had actually been raised about the capital contribution. He also placed reliance on the depositions of Shri Bharat G. Chabada given on 28-11-1988 during the course of which he stated that he did not remember how much amount of capital had been contributed by each partner. In support of the action of the lower authorities, the departmental representative placed reliance on the following decisions :
(i) Kurella Pullayya v. CIT [1962] 45 ITR 364 (AP),
(ii) Uttamchand Jain v. CIT [1988] 173 ITR 298 (MP), and
(iii) First ITO v. M.R. Dhanalakshmi Ammal [1978] 112 ITR 413 (Mad.).
The learned departmental representative also brought to our notice a judgment of this Bench of the Tribunal in the case of K.M. Bhadwankar & Sons [IT Appeal No. 311 (Bang.) of 1990, dated 1-11-1993] in which the benami nature of one of the concerns and consequent inclusion of income of the same in the hands of the main representative was upheld.
4. It has been held by the Supreme Court in the case of Sree Meenakshi Mills Ltd. v. CIT [1957] 31 ITR 28 and also various other decisions following the same that whether one person holds property as a benamidar of another is essentially a question of fact and that each case is required to be determined on its own facts. We cannot, therefore, seek any guidance from the decision in the case of K.M. Bhadwankar & Sons (supra).
5. Furthermore, with regard to benami transactions, the Supreme Court, in the two cases of Krishnanand Agnihotri v. State of MP AIR 1977 SC 796, 806-807 and Jaydayal Poddar v. Mst. Bibi Hazra AIR 1974 SC 171, 172 held as follows :
The burden of showing that a particular transaction is benami and the owner is not the real owner always rests on the person asserting it to be so and this burden has to be strictly discharged by adducing legal evidence of a definite character which would either directly prove the fact of benami or establish circumstances unerringly and reasonably raising an inference of that fact. The essence of benami is the intention of the parties and not unoften, such intention is shrowded in a thick veil which cannot be easily pierced through. But such difficulties do not relieve the pers6n asserting the transaction to be benami of the serious onus that rest on him, nor justify the acceptance of mere conjectures or surmises as a substitute for proof. It is not enough merely to show circumstances which might create suspicion, because the court cannot decide on the basis of suspicion. It has to act on legal grounds established by evidence.
It would thus be evident that the onus is very strong on the Department to prove in this case that M/s. Vishal Traders is actually a benami concern of the assessee-flrm. Although for determining an issue relating to benami nature of a property or even a business concern, as in the present case, no absolute formulae or acid tests, uniformally applicable in all situations, can be laid down, yet in weighing the probabilities and for gathering the relevant indicia, the Courts are usualy guided by these circumstances:
(i) The source from which the purchase money came;
(ii) The nature and possession of the property, after the purchase;
(iii) Motive, if any, for giving the transaction a benami colour;
(iv) The position of the parties and the relationship, if any, between the claimant and the alleged benamidar;
(v) The custody of the title-deeds after the sale; and
(vi) The conduct of the parties concerned in dealing with the property after the sale.
Although the above criteria are applicable to the cases of benami purchase of properties, the same would, mutatis mutandis apply to the cases of claims of benami nature of business concerns also.
6. In the instant case, the firm M/s. Vishal Traders had evidently been formed one year prior to the coming into existence of the assessee-firm. At the outset, therefore, it would be very difficult to say that M/s. Vishal Traders started as a benami concern of the assessee-firm. Again, it has not at all been shown by the Department that the capital contributions of the partners of M/s. Vishal Traders came from the assessee-firm. In fact, such course of action was not at all possible inasmuch as the assessee-firm had not come into existence at the time of formation of M/s. Vishal Traders. It might have at best been tried to be shown that it was Shri G.L. Chabada who provided capital to his wife and son to form M/s. Vishal Traders. That would have been a case of M/s. Vishal Traders being a benami concern of Shri G.L. Chabada in his personal capacity. That is however, not the departmental contention here. The department has also not come up with the contention that the assessee-firm is also a benami concern of Shri G.L. Chabada. In any case, no evidence has been laid out with regard to the position of contribution of capital by the partners of the two firms under consideration. Geographically, the two firms are surely situated in two different premises. They are also found to be having separate sales-tax registrations and are also being assessed to sales-tax separately. In question No. 4 of the sworn statement of Shri Chandrasekhar Chabada recorded on 6-12-1989, a query was raised that when the departmental authority had been to the premises of M/s. G.L. Chabada, Pangul Galli, he had not seen any board of M/s. Vishal Traders. It is difficult to understand how the said authority expected to find aboard of M/s. Vishal Traders in the business premises of M/s. G.L.Chabada and how the absence of such a board could have led him to the conclusion that M/s. Vishal Traders was nothing but a benami concern of M/s. G.L. Chabada. The other answers about the inability to bifurcate the stock and cash were also rather vague. Shri Chandrasekhar Chabada, however, emphatically asserted the separate existence of M/s. Vishal Traders during the course of this deposition. Factually therefore, we are of the opinion that the Department has got virtually no evidence at all to show that M/s. Vishal Traders was a benami concern of the assessee-firm. It has also not at all been tried to be shown by the Department that the assessee-firm actually enjoys the income of M/s. Vishal Traders. Because of the proximity in relation of the partners of the two firms, it might quite be possible to have part of the stock of the two firms located side-by-side at some particular point of time. Even cash of one firm also might have been brought to the business premises of another firm for various reasons or even for the sake of security. These do not go to prove any thing at all. The case-laws cited by the Departmental Representative do not help his case in any way inasmuch as the AP High Court merely decided in the case of Karelia Pullayya (supra) that it is a settled law that the burden of establishing benami is on the party who alleges. In the case of Uttamchand Jain (supra) the Tribunal had come to the finding of benami character on the basis of the facts of the case that the benamidar was suffering from mental disease and had no source of income and that it was therefore evident that the investments had been made in his name by the assessee of that case. In the case of M.R. Dhanalakshmi Ammal (supra) also the critieria for proving the benami character of transactions as detailed by us above, have been discussed. No general proposition of law can be found in any of these three citations.
The three citations relied upon by the assessee also relate to the specific facts of those cases and do not guide us in deciding the present issue.
7. Finally therefore, after taking into consideration all the facts of the present case, we are of the opinion that apart from raising a very weak suspicion, the Department has not at all been able to discharge its onus in proving the benami character of M/s. Vishal Traders in the present case. As discussed by us above, the fact that M/s. Vishal Traders had come into existence prior to the assessee-firm, itself goes against the departmental contention. The other facts as relied upon by the counsel for the assessee and as discussed by us above also rather militate against the departmental contention. We, therefore, hold that the two firms are separate concerns and there is no question of treating one as the benamidar of another. Hence, we reverse the decisions of the lower authorities for all the three years under consideration and direct that the income of M/s. Vishal Trust be excluded from that of the assessee-firm.
8. In the result, the appeals filed by the assessee are allowed.