Income Tax Appellate Tribunal - Madras
S.K. Umar vs Assistant Commissioner Of Wealth-Tax on 16 July, 1993
Equivalent citations: [1993]46ITD463(MAD)
ORDER
T.N.C. Rangarajan, Vice-President
1. These appeals reiterate the claim of the assessee for excluding certain properties standing in the names of his minor children from his net wealth.
2. The assessee is an individual. He was a partner of the firm M/s. S.K. Umar & Co. dealing in lottery tickets. On a search conducted in his premises on 20-2-1986, certain documents showing investment in immovable properties in the names of his minor children were found. The assessee contended that these investments had been made with the agricultural income of the minor children as well as loans given by him. But the assessee was not able to establish this explanation with satisfactory accounts showing agricultural income and the loans. In the assessment made for the assessment year 1981-82 on 31-12-1986, the ITO gave a finding that the funds for the purchase of these properties came from the assessee and that the income from these properties were also enjoyed by the assessee and, therefore, the assessee was to be treated as the real owner of these properties though they stood in the names of the minor children. The ITO further noted that in his reply dated 17-12-1986, the assessee has not objected to that proposal and accordingly he treated these properties as belonging to the assessee. Subsequently, there was a settlement and by order dated 26-6-1990 for the assessment years 1981-82 to 1986-87, the Settlement Commission accepted the proposal of the assessee that the unexplained investment in these properties by the assessee, after taking into account the peak credit available to the assessee, should be taken as the income of the assessee spread over several assessment years. For the current assessment years 1986-87 and 1987-88 corresponding to the valuation dates 31-3-1986 and 31-3-1987, the WTO added the value of the properties standing in the names of the minor children as in the earlier years. The assessee appealed and contended that these properties were benami properties and after the enactment of the Benami Transactions (Prohibition) Act, 1988, they ceased to belong to the assessee and could not be taken as part of his net wealth. The CIT(A) did not accept this contention as he was of the view that that Act only precluded the recovery of the property whereas the benami-dars could relinquish their right in favour of the real owner even after the Act came into force. He, therefore, confirmed the inclusion of these properties in the net wealth of the assessee.
3. In the further appeals before us, it was contended on behalf of the assessee that the right of the assessee in these properties have been extinguished by law and, therefore, they cannot be included in his net wealth. On the other hand, it was contended on behalf of the revenue that the assessee was only prevented from filing a suit for recovery of the properties whereas there was no bar on the ostensible owner accepting the title of the assessee as the real owner. In the alternative, it was submitted that there being a transfer of property to the minor children otherwise than for adequate consideration, the value of these assets are includible under Section 4(1)(a) of the Wealth-tax Act. The reply of the assessee to this alternative ground was that there was no actual transfer by the assessee to the children of the property especially in the face of the finding that the assessee held the properties benami and, therefore, Section 4(1) (a) was not attracted.
4. We have considered the submissions on both sides and we have perused the orders of the authorities for the earlier years on the basis of which the present assessments were made. There is a clear finding in the assessments of the earlier years that the properties were held benami, i.e., the children were only the ostensible owners but it was the assessee who was the real owner. The Benami Transactions (Prohibition) Act, 1988, states by Section 3 that no person shall enter into any benami transaction. Under Section 4, no suit or action to enforce any right in respect of a property held benami will lie against a person in whose name the property is held by the real owner or any person acting on his behalf. It follows that the assessee is in no position to file a suit for recovering the properties which are in the names of the children. Consequently, the assessee is precluded from transferring any title in the properties to anyone else who could recover the same by a suit from the children. Thus the assessee has no disposable right in the properties which is the sine qua non of a title in the property. The contention of the revenue is that even though the assessee may not use the process of law for recovering the properties, he may do so by extra legal procedures. We do not think we can recognise such a right for the purpose of wealth-tax unless the existence of such a facility is proved by evidence. After all, the children are separate persons entitled to defend their title and need not transfer the property to the assessee or his nominee in the absence of any coercion or fraud. In the circumstances, the material on record clearly indicate that the assessee will not be in a position to obtain or transfer title in the properties by ordinary means. In this connection, we may refer to Section 27 of the Limitation Act which provides that where limitation provided for filing a suit for recovery of possession of an immovable property expires, the right in the property is extinguished. On the same analogy, when the filing of the suit itself is prohibited for obtaining possession of a benami property, the right of the real owner in that property must be taken to have been extinguished. We have, therefore, to hold that the assessee has ceased to be the owner of the properties as the title of the ostensible owner gets perfected by operation of law. Therefore, the properties standing in the names of the children, even though purchased by the assessee with his funds, cannot be added as part of the net wealth of the assessee.
5. The CIT(A) had referred to the decision of the Madras High Court in the case of Rangaswami v. Krishnan [1969] 1 MLJ 173. In that case, reference was made to Section 66 of the Code of Civil Procedure which prohibited a suit against a certified purchaser of a Court auction on the ground that it was a benami transaction. The pourt pointed out that though a suit was prohibited, the section did not prohibit benami transaction which had always been recognised by the courts and the ostensible owner could always release his rights in favour of the real owner. We are of the opinion that that decision is distinguishable because the Benami Transactions (Prohibition) Act specifically prohibits the benami transactions unlike Section 66 of the C.P.O. Since a benami transaction has been made a punishable offence even the possibility of the ostensible owner releasing the property in favour of the real owner is excluded. It may be noted that Section 4 prevents the real owner from even setting up a defence for protecting possession of the property against the ostensible owner. In these circumstances, we are convinced that the effect of the Benami Transactions (Prohibition) Act, 1988 is to distinguish the right of the real owner as against the ostensible owner. Even if it is presumed that the right exists without a remedy, the market value of such a right will be practically nil because no willing purchaser would be prepared to purchase such a right which cannot be enforced or protected. The Supreme Court has held in the case of Nawab Sir Mir Osman Ali Khan v. CWT [1986] 162 ITR 888, that the mere possession unaccompanied by a right to be in possession or ownership of property would not bring the property within the definition of "net wealth" for it would not then be an asset "belonging" to the assessee. The asset in the present case falls within that category for even if the assessee had possession it was not coupled with any right to be in possession which could be transferred and, therefore, it cannot be held that these properties belonged to the assessee and could be added to his net wealth.
6. The alternative ground taken by the revenue to support the addition is also untenable. The finding of a benami nature of a property is inconsistent with a situation where the property is transferred to the minor children otherwise than for adequate consideration. This is because the very finding that the assessee was the real owner of the property militates against the transfer of the property. As we have noted above, the minor children were the ostensible owners but their title was clouded by the right of the assessee as a beneficial owner. This beneficial interest in the property being extinguished by the Benami Transactions (Prohibition) Act, 1988, the legal title of trie minor children gets perfected. In other words, their title has become clear by operation of law and not by reason of any transfer by the assessee. In the circumstances, it is not possible to say that these assets were assets transferred by the assessee to the minor children without adequate consideration. The prohibitions of Section 4(1)(a) cannot, therefore, be applied to the facts of the case. Thus, in any view of the matter, we are unable to sustain the addition of the assets standing the names of the children in the net wealth of the assessee. We, therefore, direct the WTO to exclude these properties and recompute the net wealth. The appeals are allowed.