Income Tax Appellate Tribunal - Pune
Deputy Commissioner Of Income Tax vs Mahadeo R. Mahadik on 9 December, 1997
Equivalent citations: (1998)61TTJ(PUNE)759
ORDER
K.C. Singhal, J.M. Since common issue is involved in all these appeals, the same were heard together and are being disposed of by common order for the sake of convenience.
2. The issue arising out of these appeals relates to the claim of the assessee regarding depreciation in respect of motor vehicles purchased in the name of benamidar and also in respect of vehicles purchased by the assessee but the registration under the Motor Vehicles Act stands in the name of the vendor.
3. The brief facts given rise to these appeals are these : In ITA Nos. 1198 to 1230/Pn/1992 the assessee is an individual while in ITA Nos. 1205 to 1206/Pn/1992 the assessee is a partnership firm in which Shri M.R. Mahadik is also a partner. The assessees in the present appeals are engaged in the business of plying trucks/tankers. On 28-9-1988, the premises of M.R. Mahadik and also of the associated concerns in which he was interested were searched under section 132 of the Income Tax Act. Certain incriminating documents found in the search were seized by the Department. The scrutiny of the seized material showed that certain vehicles bearing numbers MXL 7461, MXL 7761, MXL 7861 and MVK 363 were registered in the name of S.D. Patil, employees of M.R. Mahadik. In the letter date 30-8-1991 before the assessing officer it was admitted by Shri M.R. Mahadik that the motor vehicles registered in the name of S.D. Patil really belonged to him. S.D. Patil in his statement under section 131 dated 27-9- 1991, also admitted that vehicles registered in his name really belonged to M.R. Mahadik. The assessee, therefore, offered income relating to these trucks/tankers for taxation in his hands and claimed depreciation in respect of such vehicles. The assessing officer included the income in the hands of M.R. Mahadik in respect of the aforesaid vehicles but disallowed the claim of the assessee regarding depreciation on the ground that he was not the legal owner of such vehicles. In support of his stand, he relied on the decisions of the various High Courts in the case of Partha's Trust v. CIT (1988) 169 ITR 334 (Ker), Tamil Nadu Agro Industries Corpn. v. CIT (1987) 163 ITR 61 (Mad) and CIT v. Hindustan Cold Storage & Refrigerators (1977) 103 ITR 455 (Del).
4. In the case of the partnership firm, i.e., Mahadik Bros., it was found by the assessing officer on the scrutiny of seized material that assessee had purchased vehicle Nos. MWK 1262 and MTL 83 in the name of S.P. Mane. The assessee had stated vide letter date 30-8-1991, and in the statement date 13-10-1991, under section 131 of M.R. Mahadik, partner, that the said firm had purchased the vehicles in the name of S.P. Mane out of the funds of the firm S.P. Mane also in his statement date 4-10-1991, recorded under section 131 stated that these trucks were purchased in his name by the said firm and he was not the real owner of these vehicles. It was also found that the assessee firm had purchased 2 trucks bearing Nos. MXL 7722 and MXL 7747 form M.B. Konduskar and registration still continued in the name of the vendors. The income in respect of these trucks were included in the hands of the partnership firm but the claim of the assessee regarding depreciation was rejected by the assessing officer for the same reasons which we have mentioned earlier in the case of M.R., Mahadik.
5. Both the assessees filed appeals before the Commissioner (Appeals) who accepted the claim of the assessee after following the decisions mentioned below :
(1) CIT v. Sahani Steel and Press Works (P) Ltd. (1987) 168 ITR 811 (AP);
(2) CIT v. Nidish Transport Corpn. (1990) 185 ITR 669 (Ker), (3) Chandulal J. Jaswal v. CIT (1992) 195 ITR 635 (Guj);
(4) Sardar Joginder Singh Saluja v. ITO (1981) 11 TTJ 53 (Ind-Trib);
(5) Sardar Singh Karan Singh v. ITO (1981) 12 TTJ (Jp-Trib) 292 and (6) Shaik Babu v. ITO (1970) 3 Taxation 168 (Hyd).
6. The Commissioner(Appeals) was of the view that registration under the Motor Vehicles Act was not relevant factor in deciding the question of ownership. According to him, since it was an admitted position that assessee was de facto owner of the vehicles, the claim of the depreciation could not be rejected. He, therefore, allowed the appeals of the assessee on this issue. Aggrieved by the same, the present appeals have been preferred by the Revenue.
7. At the outset, it was contended by Sathe, the learned counsel for the assessee that the issue before the Tribunal was covered by the decision of the Hon'ble Bombay High Court in the case of CIT v. Dilip Singh Sardar Singh (1993) 201 ITR 995 (Bom), wherein it has been held that registration under the Motor Vehicles Act is not relevant for deciding the question of ownership of a vehicle. However, the learned Senior Departmental Representative Hari Krishna submitted before us that the present appeals are not covered by the said decision inasmuch as the Hon'ble Bombay High Court did not deal with the question of wonership in a case where the vehicles are owned by benamidar. According to him, the decision of the Bombay High Court can be applied only where the vehicles are purchased by the assessee but the registration continues in the name of vendors for want of formalities. Proceeding further, it was submitted by him that in order to claim depreciation under section 32, the assessee must be the legal owner of the asset. In support of his contention, he relied on the decisions of the High Courts considered by the assessing officer. It was submitted by him that the vehicles stood in the name of the employee of the assessee from the very beginning and it was the employee who was the legal owner of the vehicle. According to him, it was only the benamidar who could affect the transfer of such vehicles. Since the assessee could not affect the transfer of vehicles he could not be said to be the legal owner of such vehicles. He also referred to the decision of apex Court in the case of Seth Banarasi Das Gupta v. CIT (1987) 166 ITR 783 (SC), wherein it has been held that depreciation could not be allowed in the case of fractional owner. Proceeding further, it was contended by him that benami transactions are now governed by `Benami Transactions (Prohibition) Act, 1988 (hereinafter called Benami Act). He invited our attention to the provisions of section 2(a), sub sections 3,4 and 5. According to him, after commencement of this Act, the person who purchased the property in the benami names ceased to be the owner of such property and the person in whose name the property stood was legal owner of the motor vehicles purchased by him in the benami names and, therefore, the assessing officer had rightly disallowed the claim of depreciation.
8. On the other hand, the learned counsel for the assessee heavily relied on the decision of the Bombay High Court in CIT v. Dilip Singh Sardar Singh Bagga (supra) and also the decisions relied upon by the Commissioner(Appeals) in his order. According to him, the case law relied upon by the learned Departmental Representative are distinguishable inasmuch as non of the cases related to depreciation of movable properties. According to him, the transfer of the ownership of movable and immovable properties stand on different footing in view of the general law prevailing in the country. In the case of movable properties, the ownership is transferred by delivery of the possession while in the case of immovable property, the ownership cannot be transferred unless the conveyance deed is registered under the Indian Registration Act. Therefore, merely the documents stood in the names of other persons it cannot be said that assessee is not the owner of the vehicles. He drew our attention to the fact that even the Department has admitted that assessee is the real owner of the motor vehicles and the income from such vehicles has been assessed in the hands of the assessee. Therefore, the decision of the Bombay High Court was squarely applicable to the facts of present appeals. Proceeding further, it was submitted by him that Benami Act came into force in May 1988, and therefore, the provisions of such Act cannot be applied in the present case as the vehicles were purchased prior to the aforesaid date. It was further submitted by him that provisions of Benami Act do not determine the ownership of the property but merely prohibit the benami transactions after May, 1988. It was further submitted by him that it provides defence to the person in whose name property stands against the recovery of such property by real owner. As far as question of ownership is concerned, the same is not determined by Benami Act. He referred to the latest decision of the Supreme Court in the case of Raja Gopal Reddy v. Padmini Chandrasekharan (1995) 213 ITR 340 (SC) wherein their Lordships have considered the effect of provisions of the Benami Act. According to him, the benamidar holds the property in fiduciary capacity and, therefore, in law, the assessee can effect the transfer of the property held in the names of benami persons. He, therefore, concluded that Commissioner(Appeals) had rightly allowed the claim of the assessee.
9. Rival submissions of the parties as well as the case law relied upon by them have been considered carefully. The question to be considered by us is whether the assessee can be said to be the owner of the motor vehicles where (1) these were purchased by the assessee in the name of his employee or some other persons; (2) where these were purchased by the assessee in his own name but the registration under the Motor Vehicles Act continued in the name of the vendor.
10. As far as second part of the question is concerned, we are of the view that it is covered by the decision of the Hon'ble Bombay High Court in the case of CIT v. Dilip Singh Sardarsingh Bagga (supra) wherein it has been held that registration under the Motor Vehicles Act is not essential pre-requisite for the acquisition of ownership of the motor vehicle but is an obligation case upon an owner of the vehicle for the purpose of running the vehicles in any public place. In that case, admittedly, the vehicle was purchased by the assessee and also used by the assessee for the purpose of his business. However, the registration under the Motor Vehicles Act continue in the name of the vendor. It was the contention of the Department before the High Court that the assessee could not be said to be the owner of the vehicle unless the registration was transferred in the name of the assessee. In these premises it was held by the Hon'ble Bombay High Court that the assessee was the owner of the vehicle and was entitled to depreciation under section 32 of the Act. Following the same, we hold that the assessee is entitled to depreciation in respect of vehicles purchased by the assessee- firm though registration continued in the name of the vendor.
11. However, in respect of the vehicles purchased in the benami names, the learned Senior Departmental Representative was at pains in submitting that the aforesaid Bombay High Court judgment cannot be applied to a case where the assets are purchased in benami names, particularly after the commencement of the Benami Act. Firstly, we shall deal with the legal position prevailing in the country prior to commencement of the Benami Act. The sale of movable property is governed by Sale of Goods Act, 1930, and it is the settled law that the transfer of movable property by way of sale can be effected by delivery of the goods from seller to the purchaser. By this process, the ownership in the goods is changed from one person to another. Under the Transfer of property Act, 1882, section 54 deals with the transfer of immovable property by ways of sale. It provides that where the value of immovable property is more than Rs. 100 it cannot be transferred unless the sale deed is registered under the provisions of Indian Registration Act. However, it is pertinent to note that immovable property having value less than Rs. 100 can be transferred by mere delivery of the property. It does not lay down any condition regarding the transfer of movable property. Therefore, it appears that the law has made a distinction between the transfer of immovable property having value more than Rs. 100 on one hand and the transfer of movable property as well as transfer of immovable property having value less than Rs. 100 on the other. In the former case, legal ownership is not transferred unless sale deed is registered while in the later case no formality is required except the delivery of the property.
12. The benami transactions, i.e., purchase of the property in the name of some of the persons were governed by the provisions of section 82 of Indian Trust Act, 1882, which are being reproduced below :
"Section 82 : Transfer of one for consideration paid by another.Where property is transferred to one person for a consideration paid or provided by another person, and it appears that such other person did not intend to pay or provide such consideration for the benefit of the transferee, the transferee must hold the property for the benefit of the person paying or providing the consideration.
Nothing in this section shall be deemed to affect the CPC, section 317 or the Act No. XI of 1859 (to improve the law relating to sales of land for arrears of revenue in the Lower Provinces under the Bengal President), section 36."
According to the aforesaid provisions, the benamidar holds the property in a fiduciary capacity, i.e., for the benefit of the person paying or providing the consideration. In law, the legal ownership vested in the person who paid the consideration for purchase of the goods. The effect of this provision was considered by the Hon'ble Supreme Court in the case of R. Rajagopal Reddy & Ors. v. Padmini Chandrasekharan (supra) at page 348 of ITR. The relevant portion is extracted below :
"Therefore, it was a legal right of the plaintiff to contend in those days that even though the transfer of the property had been effected in the name of the defendant benamidar for the plaintiff from whom the consideration had moved the plaintiff was the real owner and, therefore, the defendant was bound to restore such property to the real owner. If the benamidar took up a defiant attitude, then the law provided a substantive right to the plaintiff to come to the Court for getting an appropriate declaration and relief of possession on that ground. Various Courts in India over a century, used a entertain such suits and such suits on proof of relevant facts used to be decreed."
In the light of the aforesaid observations of the Supreme Court, it can be said that a person who purchased the property in the name of other person was the legal owner and the benamidar was holding the property for the benefit of real owner.
13. Now we would like to mention about the decisions of Tribunal where similar question arose for consideration, before Hyderabad Bench in the case of Shaik Babu Sahib v. ITO (supra). In that case a firm was carrying on business of plying of trucks. On dissolution of firm the truck which came to the share of assessee was registered in the name of other erstwhile partner. The assessee claimed the depreciation in respect of such truck. The Revenue took the stand that it was only the ostensible owner who could be considered as owner of the truck for the purpose of section 32 of the Act. The Tribunal rejected this stand of the Revenue by observing as under :
"the expression `owned by the assessee' has not been defined, but, all the same, that expression must be understood not simply as de jure ownership, but also as de facto ownership. The Income Tax Act takes into consideration not only the ostensible owner, but also the beneficial owner, for the purposes of charging tax and necessarily, therefore, it cannot exclude a beneficial owner when it comes to the granting of a certain deduction."
14. In the case of Sardar Joginder Singh Saluja v. ITO (supra) the Indore Bench of the Tribunal considered a case where the truck was purchased in the name of assessee lady who was also not the wife of assessee. The Tribunal allowed the claim of assessee under section 32 by making following observations:
"Since the lady was not the wife of the assessee, and as nothing was paid by her towards the cost of the truck, she can, at the worse, be treated as benamidar for the assessee, but even in respect of benami transaction, it is the de facto ownership which has to be taken into account. Now, in the present case, the facts and circumstances clearly go to show that it was the assessee who was the de facto owner and in these circumstances he alone was entitled to depreciation as per the provisions of section 32 of the Income Tax Act. We, therefore, uphold the decision of the Assistant Appellate Commissioner."
15. The aforesaid decisions of the Tribunal relied upon by the Commissioner(Appeals) are directly on the point for consideration before us. In view of what has been discussed above, in our opinion, the legal position prior to the introduction of Benami Act was that it was not the ostensible owner but the real owner who could claim the depreciation even in the case of benami properties. In case of benami purchaser of property, the ostensible owner was holding the property in fiduciary capacity for the benefit of person who paid the consideration and in view of section 82 of Indian Trust Act. The person who paid the consideration was the legal as well as beneficial owner. Documentation and registration under the Motor Vehicles Act are irrelevant material in order to determine the legal ownership. As soon as the property was purchased against consideration and delivery was taken, the sale was complete and the legal ownership vested in the person who paid the consideration in view of the provisions of Sale of Goods Act, 1930 read with the provisions of section 82 of Indian Trust Act, 1882. The Hon'ble Bombay High Court in the case of Dilip Singh Sardarsingh Bagga (supra) recognised the concept of `beneficial ownership' for the purpose of claiming depreciation allowance. The learned Senior Departmental Representative's plea that Bombay High Court did not lay down the ratio that beneficial owner was entitled to depreciation cannot be accepted. The questions posed before the Hon'ble Bombay High Court were as under :
"1. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in upholding the order of the Assistant Appellate Commissioner allowing depreciation on the truck which was registered in the name of another person ?
2. Whether the depreciation was admissible under section 32 of the Act to the beneficial owner of the truck and the decision of the Tribunal was in accordance with the provisions of law ?"
The answer to the aforesaid questions was given in favour of the assessee. In view of the aforesaid legal position, we hold that depreciation could be allowed to the person who paid the consideration for the purchase of property prior to the commencement of Benami Act.
16. Now the question to be considered is whether any legal change has taken place after commencement of Benami Act. The relevant provisions of sections of Benami Act are being reproduced as under :
1. Short title, extent and commencement. (1) This Act may be called the Benami Transactions (Prohibition) Act, 1988.
(2) ...
(3) The provisions of sub sections 3,5 and 8 shall come into force at once, and the remaining provisions of this Act shall be deemed to have come into force on the 19th day of May, 1988.
2. Definitions.(a) `benami transaction, means any transaction in which property is transferred to one person for a consideration paid or provided by another person;
(b) ....
(c) ....
3. Prohibition of benami transactions.(1) No person shall enter into any benami transaction.
(2) ....
(3) Whoever enters into any benami transaction shall be punishable with imprisonment for a term which may extend to three years or with fine or with both.
(4) ....
4. Prohibition for the right to recover property held benami.(1) No suit, claim or action to enforce any right in respect of any property held benami against the person in whose name the property is held or against any other person shall lie by or on behalf of a person claiming to be the real owner of such property.
(2) No defence based on any right in respect of any property held benami, whether against the person in whose name the property is held or against any other person, shall be allowed in any suit, claim or action by or on behalf of a person claiming to be the real owner of such property.
5. Property held benami liable to acquisition.(1) All properties held benami shall be subject to acquisition by such authority in such manner and after following such procedure, as may be prescribed.
(2) ....
The perusal of the aforesaid sections shows that this Act does not apply to the benami transactions entered into by the parties before commencement of the Act. The provisions of sub-sections 3 and 5 are effective from 19-5-1988, while the provisions of section 4 are applicable from 5-9-1988, when the assent of the President was given. These provisions have been considered by the Larger Bench of the Supreme Court in the case of R.Rajagopal Reddy (supra). It has been held by Their Lordships that the provisions of section 3 are prospective only and not retrospective. At page 350, it was held as under :
"A mere look at the above provisions shown that the prohibition under section 3(1) is against persons who are to enter into benami transactions and it has laid down that no person shall enter into any benami transaction which obviously means from the date on which the prohibition comes into operation, i.e., with effect from 5-9-1988. That takes care of future benami transactions."
However, while construing the provisions of section 4(1), it was held by their Lordships that a substantive right vested in the real owner prior to the commencement of the Act and in case any suit was filed by the real owner before the commencement of the Act then such a right was not affected by this piece of legislation and the real owner was entitled to recover the property from the benamidar. It was, however, further held that after the commencement of the said Act, the right of the real owner to recover the property was effected if no suit had been filed before the commencement of the Act. If the suit was filed after the commencement of the Act then section 4(1) prohibited the real owner to recover the possession of the property from the benamidar. To this extent, the provision was only retrospective.
Relevant portion of judgment at page 352 is extracted below :
"Even when we come to section 4, it is easy to visualise that sub-section (1) of section 4 states that no suit, claim or action to enforce any right in respect of any property held benami against the person in whose name the property is held or against any other person shall lie by or on behalf of a person claiming to be the real owner of such property. As per section 4(1) no such suit shall thenceforth lie to recover possession of property held benami by the defendant. Plaintiff's right to that effect is sought to be taken away and any suit to enforce such a right after the coming into operation of section 4(1) that is 19-5- 1988, shall not lie. The legislature in its wisdom has nowhere provided in section 4(1) that no such suit, claim or action pending on the date when section 4 came into force shall be proceeded with and shall stand abated. On the contrary, the clear legislative intention thereby that no such suit, claim or action shall be permitted to be filed or entertained or admitted to the portals of any courts for seeking such a relief after the coming into force of section 4(1)."
While dealing with section 4(2) it was held as under :
"So far as section 4(2) is concerned, all that is provided is that if a suit is filed by a plaintiff who claims to be the owner of the property under the document in his favour and holds the property in his name, once section 4(2) applies, no defence will be permitted or allowed in any suit, claim, or action by or on behalf of a person claiming to be the real owner of such property held benami. The disallowing of such a defence which earlier was available, itself suggests that a new liability or restriction is imposed by section 4(2) on a pre-existing right of the defendant."
17. The perusal of the provisions of Benami Act and the judgment of the Hon'ble Supreme Court, in our opinion, shows that there is no legal change as far as the aspect of ownership is concerned. The ownership continues to vest in the real owner. The provisions of section 4(1) of Benami Act only prohibits the real owner to recover the possession of the property from the benamidar. Similarly if the benamidar files a suit for declaration in respect of such property then the real owner will have no legal defence as he had prior to the commencement of the Benami Act. In our opinion, the real owner can still dispose of the property so long as he enjoys the possession and fruits of the property and the benamidar does not object to it. The only change brought out by the Benami Acts is that where the possession is with the benamidar and he refused to deliver the possession of the property on the fruits of such property, then no legal action can be taken by the real owner against the benamidar. But the benamidar does not become the owner automatically by virtue of such provisions. He cane be declared owner of such property by the court if such benamidar files a suit under 4(2) of Benami Act. Till such decree is passed by the court, he does not become the owner.
18. In view of the above, the legal position that emerges can be summarised as under :
(1) That prior to commencement of Benami Act, the benamidar was holding the property in a fiduciary capacity and the person who paid the consideration was legal owner.
(2) The judicial opinion in respect of benami transaction was that real owner could claim depreciation under section 32 of the Income Tax Act.
(3) Benami Act does not apply to transactions effected prior to 19-5-1988.
(4) After the commencement of Benami Act the real owner is prohibited to recover the possession of the property from the ostensible owner.
(5) The provisions of Benami Act do not determine the ownership of property purchased prior to the commencement of the Act.
19. In the present appeals all the benami transactions were in fact, effected prior to commencement of the Benami Act and, therefore, the transactions of purchase of vehicles by the assessee would be governed by the legal position prevailing prior to the commencement of the Benami Act. There is no dispute about the fact that assessees were enjoying the properties and fruits of the property. The benamidars were merely name-lenders. According to the provisions of section 82 of the Indian Trust Act, the assessees were the real owners of the vehicles and, therefore, they were entitled to the claim of depreciation under section 32 of the Act. The contention of the learned Senior Departmental Representative to the effect that it was benamidar who could transfer the ownership of the vehicles cannot be accepted in view of the provisions of section 82 of the Indian Trust Act. For all legal purposes, the benamidar was accountable to the real owner. In case of breach of trust, the benamidar could be sued for damages. Therefore, in our opinion, the assessee were the legal and real owners and could claim depreciation under section 32. The Bombay High Court decision in the case of Dilip Singh Sardar Singh Bagga (supra) supports this view. The legal position was not changed after the commencement of Benami Act, 1988. Accordingly we uphold the orders of the Commissioner(Appeals).
20. In the result, all the appeals of the Revenue are dismissed.