JUDGMENT
1. "Shanti Villa", a house, was purchased in 1961 for a sum of Rs. 40,000 by Navin Chandra, Prabhat Chandra and Subhash Chandra, the three minor grandsons of the assessee, who was a leading civil lawyer of Hardoi having professional and property income, under the guardianship of their mother. In 1970, the ITO reopened proceedings for the assessment years 1962-63 to 1969-70, being of opinion that the assessee had failed to disclose the income from this property and to explain the investments made therein, in his returns. The explanation of the assessee supported by his own affidavit that the money was given to his grandsons by their grandmother who had owned property and had income therefrom was not accepted. The ITO held that the house was purchased by the assessee out of his past savings, the sale of agricultural land and National. Savings Certificates.
2. In consequence of this finding, notices under Section 271(1)(c) were also issued. But as the assessee had died, proceedings were initiated and continued against his son. The explanation that the default, if any, was not wilful or deliberate was rejected. In appeal, both the orders, of reassessment and penalty, were maintained. The Tribunal also did not find any merit in any of the appeals. It, however, allowed the application under Section 256(1), filed against the appellate orders in the penalty matters and referred the following questions of law in ITR No. 981 of 1976.
3. For the assessment year 1967-68 :
"Whether, on the facts and in the circumstances of the case the Tribunal was right in holding that the law as on the date of the filing of the return would be applicable for levy of penalty for concealment and not the law as it stood on April 1, 1967, the first day of the assessment year ?"
4. For the assessment years 1967-68 and 1968-69 :
"1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in rejecting the assessee's contention that he had not been allowed an opportunity of being heard before the levy of these penalties ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee was liable to penalty under Section 271(1)(c) of the Income-tax Act for these years?"
5. In ITR No. 602 of 1977 the following question of law was referred :
"Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee was liable to penalty under Section 271(1)(c) of the Income-tax Act for the year?"
6. In respect of the appeal relating to the assessment, the Tribunal having rejected the application of the assessee approached this court and the application under Section 256(2) was allowed. The Tribunal was directed to refer the following questions of law which are the subject-matter of ITR No. 108 of 1978 :
"1. Whether, on the facts and in the circumstances of the case, the notice under Section 148 of the Act issued to the assessee was valid ?
2. Whether, on the facts and in the circumstances of the case, the finding of the Tribunal that the house 'Shanti Villa' belonged to the assessee is vitiated on account of the omission of the Tribunal to consider material evidence and also the ground that it has taken into account irrelevant facts?"
7. As the fate of these references shall primarily depend on the answer given by us to question No. 2 in ITR No. 108 of 1978, we propose to take it first. The entire dispute was whether the house purchased by the minor grandsons of the assessee was his benami purchase. The Tribunal found that out of Rs. 40,000 only a sum of Rs. 12,400 was paid in cash at the time of execution of the sale deed while the balance which was to be paid to the successful party in the litigation pending for the ownership of the house was not paid or explained even till the hearing of the appeal. Further, the assessee failed to explain the source of Rs. 7,600 paid by the assessee's son to the owner of the house on July 30, 1962, by bank draft. It (the Tribunal) held that the authorities had brought sufficient material on record which established that what was apparent was not real. As the Tribunal relied on the circumstances mentioned by the ITO, we consider it necessary to mention them as well. The ITO found that assessee had explained that his wife had Rs. 5,286 out of past savings from agriculture from which she purchased the National Savings Certificates in the name of her grandchildren. But, the assessee could not give the exact date (as to) when the alleged bonds were received and sold by his wife. Nor could the assessee produce any documentary evidence regarding possession of money by his wife. He was further influenced in rejecting the explanation of the assessee by the absence of proof of possession of such a huge sum, "by an old lady, particularly the wife of a learned advocate". The ITO did not believe that she could have Rs. 5,000 or sufficient funds at home which she could have advanced to her daughter-in-law to purchase National Savings Certificates in the name of her sons. The ITO further found that there was contradiction in the explanation submitted by assessee that the certificates were purchased by the grandmother from the statement made in the affidavit that the money was advanced by his wife to her daughter-in-law to purchase these certificates for the benefit of her (latter's) minor sons. He did not find any merit in the explanation of the assessee that although the certificates were purchased in the names of the three minor sons and one daughter whereas the property was purchased in the names of the sons only, because the share of the daughter could be spent in her marriage. Further, he drew an inference from this that the entire fund actually belonged to the assessee and he utilised it according to his wishes. An inference was drawn against the assessee also from the fact that he had purchased 100 bighas of land in 1968 out of which he sold 72 bighas between 1959 to 1961. According to the ITO, the assessee having failed to disclose the utilisation of the sale proceeds of the agricultural land it must be assumed that this was utilised for purchasing the house in dispute. He did not see any merit in the contention of the assessee that bhumibhawan kar and other taxes were paid by the minors because the assessee was a leading civil lawyer and if he could manage to purchase the property benami in the names of minors it was natural for him to act in a manner so as to give a legal colour and avoid the payment of tax. He was also influenced by the fact that the property in dispute was the subject-matter of mortgage and such property could not have been purchased by his daughter-in-law who was a purdah-nashin lady, but (purchased) by a person like the assessee who was a clever lawyer and aware of the vagaries of litigation and could afford to fight it out in a court of law. Great reliance was placed by him on the issue of a cheque by one of the tenants, who was a retired civil surgeon, in favour of the assessee. He was not satisfied that the cheque was issued in favour of the assessee as his daughter-in-law was a purdah-nashin lady and, to avoid any trouble to her, the cheques were issued in the name of the assessee but formal receipts were issued under the signature of the mother of the minors. Apart from what has been stated above, the ITO narrated as many as seven circumstances, which, according to him, establish beyond doubt that the house in dispute was the property of the assessee. These circumstances were as under :
1. If Smt. Durga Devi gave the money to Smt. Shakuntala Devi or the minors, without consideration, why did she not pay any gift-tax. It proves she had no money to give.
2. Smt. Shakuntala Devi or her minor children had no independent source and all of them including the husband of Smt. Sakuntala Devi and the father of the minors were dependent on the assessee, Sri Shyama Charan, as he was a leading lawyer of the city and had regular income from agricultural (property) and the legal profession.
3. A sum of Rs. 7,600 was paid by Sri Suresh Chandra, son of the assessee, to Smt. Raj Rani on July 30, 1962, vide bank draft of the State Bank of India and not either by the legal guardian or by the minors.
4. The house was purchased in the names of three minors. Secondly, there is no specification of the share of each minor. This proves that the property was purchased benami for the assessee.
5. The assessee made a further construction in the property and invested a sum of Rs. 60,000. He could not prove the source of the money invested in the property as the minors and their mother are entirely dependent upon him.
6. The assessee has given contradictory statements at different times. He could not be examined as he died and his son shows his inability to prove, explain and furnish and adduce any evidence in his support.
7. The assessee states that he invested about Rs. 20,000 in the construction of the property in different years. He got it valued at Rs. 40,000 by Sri P. R. Gupta, Approved Valuer, who had not considered the rents it is fetching and also ignored that the property is let out under Rent Control Act, is fetching Rs. 9,000 at present.
8. Before examining whether any of these circumstances individually or collectively establish that the sale deed in favour of the minor grandsons was benami and in fact the assessee was the real owner we consider it necessary to mention the law as has been enunciated in various Supreme Court decisions from time to time. In Jaydayal Poddar v. Mst. Bibi Hazra, AIR 1974 SC 171, it was held (p. 172) :
"Though the question, whether a particular sale is benami or not, is largely one of fact, and for determining this question, no absolute formulae or acid test, uniformly applicable in all situations, can be laid down, yet in weighing the probabilities and for gathering the relevant indicia, the courts are usually guided by these circumstances : (1) the source from which the purchase money came ; (2) the nature and possession of the property, after the purchase ; (3) motive, if any, for giving the transaction a benami colour ; (4) the position of the parties and the relationship, if any, between the claimant and the alleged benamidar ; (5) the custody of the title deeds after the sale ; and (6) the conduct of the parties concerned in dealing with the property after the sale."
9. In Bhim Singh v. Kan Singh. AIR 1980 SC 727, it was held (p. 734) :
" The principle governing the determination of the question whether a transfer is a benami transaction or not may be summed up thus : (1) the burden of showing that a transfer is a benami transaction lies on the person who asserts that it is such a transaction ; (2) if it is proved that the purchase money came from a person other than the person in whose favour the property is transferred, the purchase is prima facie assumed to be for the benefit of the person who supplied the purchase money, unless there is evidence to the contrary ; (3) the true character of the transaction is governed by the intention of the person who has contributed the purchase money, and (4) the question as to what intention was, has to be decided on the basis of the surrounding circumstances, the relationship of the parties, the motives governing their action in bringing about the transaction and their subsequent conduct, etc."
10. These principles laid down by the Supreme Court, although not exhaustive, indicate that the primary factors which go to establish a transaction to be benami are the source from which the consideration flowed and the possession or enjoyment of the usufruct of property. In fact, in Bhim Singh's case, AIR 1980 SC 727, the intention was held to be decisive. We shall explain whether on the findings recorded by the ITO, which have been endorsed by the Tribunal, the criteria of determining whether the transaction was benami have been established or not, but we may further point out that the burden to establish whether the transaction is benami or not is on the person who claims it to be so. For instance, in this case, it was for the Department to prove that the sale deed in favour of the minor grandsons was in fact a purchase by the assessee himself. It was, necessary for it to establish, by cogent evidence, that the transaction was in fact benami and it was given a colour only to escape the rigour of income-tax. None of the authorities have pointed out any evidence which was led on behalf of the Department nor the learned standing counsel for the Commissioner of Income-tax could point out any. It may be that, once evidence had been led, the burden of proof was not very material, yet, before recording a finding against the assessee, it was necessary to have found that from the circumstances and probabilities there could have been no other inference possible except that the purchase was by the assessee. If the circumstances only created a suspicion then, howsoever strong it might have been, it could not be held sufficient in law. The ultimate deciding factor could not be the possibility of chance that the purchase might have been made by the assessee but that it was. In absence of direct or clinching evidence the surrounding circumstances must result in one and only inference that there was direct nexus between the assessee and the transaction. While examining the law in respect of burden of proof of benami transactions a Division Bench of our court in Prakash Narain v. CIT/CWT [1982] 134 ITR 364, after noticing nearly all the decisions given by the Supreme Court and other High Courts, culled out the following propositions :
1. The burden of proof regarding benami is upon the one who alleges benami.
2. To prove benami the most important point is to examine the source of consideration and along with that there are certain other criteria which should be taken into account. Such criteria have been laid down in Jaydayal v. Bibi Hazra, AIR 1974 SC 171.
3. A finding regarding benami is a finding of fact.
4. A finding of fact cannot be questioned in the reference proceedings unless it is without any evidence in support of it or is perverse in the sense that 'no person acting judicially and properly instructed as to the relevant law' would reasonably come to such a finding.
5. The mere rejection of an explanation would not entitle the Department to claim that the consideration for the purchase of the property in the name of a non-assessee was provided by the assessee.
6. Apart from the relationship between the parties, there must be some material or evidence to support the case of the benami nature of a transaction.
7. When a finding is based on material, partly relevant and partly irrelevant, then such a finding is vitiated in law.
11. We now proceed to examine, in the light of these, if the circumstances which have been found by the ITO, can be said to be sufficient to establish the claim of the Department that the sale deed was benami. It has not been found by any of the authorities that the wife of the assessee did not have agricultural property in her own name. Probably it was not possible for the Department to challenge it as the claim of the assessee appears to have been well supported by khewat entries in the revenue records and other documents which were filed. Further, there is no finding that she did not receive compensation and rehabilitation bonds from the State in lieu of the vesting of her property in the State. Nor is it disputed that the National Savings Certificates were purchased in 1956 in the names of three minor grandsons and one grand-daughter. In the absence of any evidence how could the ITO draw an inference that the grandmother could not have been possessed of Rs. 5,000 when she had agricultural property in her own name. What was inherently improbable in it. She was the wife of a leading lawyer. Her own income was, therefore, available to her. The sum of Rs. 5,000 did not appear to be so exorbitant an amount which could not have been possessed by her. In any case the Department could not refute it and the authorities indulged in conjectures and surmises.
12. Then, the ITO expected the impossible to be performed by the assessee, when in 1970, he expected him to disclose the exact date when the bonds were received by his wife and sold for Rs. 10,714. The assessee was not a businessman but a lawyer who could not be expected to have maintained the date of receipt of bonds and its sale which took place more than 10 years before the I.T. proceedings were started against him. It was not an account relating to his profession. And even if he did not disclose the date of bond purchased and sold by his wife how could this circumstance be taken against him.
13. The finding of the ITO that the assessee failed to produce any documentary evidence regarding possession of money by his wife appears to be strange. What did he expect is not easy to comprehend. It is not necessary for a lady whose husband has an extensive practice to maintain a separate bank account or even postal account. Having income from agricultural property or from other source is one thing and maintaining a separate account another. A wife having independent income may yet give it to her husband for being deposited in his account. It is not necessary, and at times not feasible, for a wife having property income to maintain a separate account specially when she is a purdah-nashin lady. Merely because she did not have any account, which only could have been the documentary evidence (to be) accepted by the ITO, it could not be disbelieved that she was not possessed of Rs. 5,000. It having been admitted that the assessee was a leading lawyer it was indeed too much for the ITO to infer that his wife could not have had Rs. 5,000 of her own. It was indeed uncharitable on his part to conclude that the assessee's wife could not have been possessed of Rs. 5,000 because, "she" was old and the wife of an "advocate only". No material was brought on record to rebut the nucleus available in the shape of compensation bonds and modest savings from agricultural property, which was converted into National Savings Certificates later on and encashed for purchasing the house.
14. Nor was the ITO justified in drawing an inference against the assessee from what was stated in the explanation in respect of the purchase of National Savings Certificates by his wife in the name of her minor grandsons and daughter and the statement in the affidavit that the sum was advanced by his wife to the mother of the children for purchasing the certificates. It was, meaningless contradiction, which had absolutely no bearing on the issue. At least no inference could be drawn from this that the consideration for the sale deed came from the assessee. Not only this, one is left amazed at the unnecessary emphasis laid by the ITO against the assessee because the National Savings Certificates were in the names of three minor grandsons and one minor grand-daughter, whereas the house was purchased only in the name of the minor grandsons. Even if the explanation of the assessee, that the house was not purchased in the name of the minor grand-daughter as she would have been adequately compensated at the time of her marriage, is ignored, how could this circumstance establish the benami nature of the transaction ? It was not only too remote but irrelevant to draw an inference against the assessee. Similarly the sale of 72 bighas of land which according to the ITO must have been for Rs. 20,000 could at the utmost give rise to suspicion but by itself it was hardly any circumstance which could establish that the consideration for the sale deed was paid by the assessee or that the assessee's wife did not have adequate fund from which she could have purchased the National Savings Certificates which on being encashed was utilised in purchasing the house. Further, the ITO stretched the profession of a lawyer to the limit when he observed that the payment of Buhmi-Bhawan Kar by minors, the passing of an allotment order against them and the litigations in a court of law do not establish the ownership of minors, as the grandfather of the childern having managed to purchase the property benami could have easily managed these proceedings to give it the colour of the ownership of minors. To say the least the inference is not only baseless but exhibits complete lack of understanding and appreciation of evidence to ascertain if the transaction was benami. Subsequent conduct is material and may reflect back But in this case it was otherwise, yet the inference was drawn not because of conduct but because the assessee was a lawyer. Equally fallacious was his reasoning when he observed that as the property was the subject-matter of a mortgage and the purdah-nashin ladies could not have appreciated the import of it, except on the knowledge and advise of the assessee, he should be deemed to have been the purchaser. The ITO appears to have been under some delusion about a lawyer.
15. Issuing of cheques by Dr. Mullick in favour of the assessee also could not have led to the conclusion that he was the purchaser. It was explained by the assessee that it was to avoid any complication or trouble to the purdah-nashin lady, who in fact issued receipts under her own signature in favour of the tenant. It is not unusual or uncommon in families where properties are held by female members, or by minors, that the transactions on their behalf are looked after by the male members. By issuing a cheque in favour of the assessee, therefore, it could not be held that he was the real owner of the property. In Jaydayal Poddar's case, AIR 1974 SC 171, the Supreme Court refused to draw an inference that a purchase in the name of the wife was benami, even though out of Rs. 43,000, the sale consideration of Rs. 17,000 were paid by the husband towards a part of the price before the sub-registrar, because it was natural for the husband to look after the affairs of his purdah-nashin wife. How could then the acceptance of the cheque by the assessee on behalf of the minor grandsons, for which a receipt was issued by the mother, the guardian, be taken to establish that the purchase was benami. In the absence of any account of the minors the payment by cheque to the grandfather was obviously a convenient method adopted by the tenant.
16. As regards the seven surrounding circumstances, or to use the expression of the ITO, the "activities of assessee", they were not only irrelevant but leave one astonished if any of them except probably (5) could have been adverted to for deciding if the transaction was benami. Assuming what has been observed by the ITO, that the assessee's wife should have paid gift-tax, that could only establish the avoidance or evasion of tax by her. Action could be taken against her for that but it could not give rise to an inference that-a person who gives money to another without paying the gift-tax does not own money. The inference, to say the least, was imaginary.
17. True that the minor children, their father and their mother, were dependent on the assessee, as he was a leading lawyer, but how does it detract from the circumstance that his wife had her own income from agricultural property. There is not even a whisper in the order of the ITO disbelieving the case of the assessee or the Revenue entries that she was not the owner of the Zamindari property which could have yielded a sum of Rs. 5,000.
18. Similarly, the payment of Rs. 7,500 by the assessee's son to the owner of the property could not lead to a remotest inference that the property was purchased by the assessee. Sri Suresh Chandra may not have been the legal guardian, but he certainly was the father of the minor and a payment made by him was most natural. The house was fetching a rent of Rs. 9,000 (found by the ITO himself) ; therefore, the income from it must have been utilised towards the payment of the balance of consideration. Instead of taking this circumstance in favour of the assessee the ITO pressed his imagination to draw an inference against him because the payment was neither made by the legal guardian nor the minors. Non-maintenance of an account for the rent, mentioned by the AAC, was "wholly immaterial". It was not denied that the property was fetching a rent. And everyone was living with the assessee. The income, therefore, from rent was available. And, if an account was not maintained by the minors or their guardian, how could it result in the rejection of the assessee's case or in a finding that he was the purchaser of the property ?
19. One has to admire the ingenuity of the ITO to infer a benami sale because there was no specification of the share of the minors in the sale deed. It is well known that, in the absence of a specification, the transferees are entitled to equal shares. In any case, how could this establish that the consideration came from the assessee ?
20. Subsequent alterations, renovation, construction, etc., have been taken to have been made by the assessee by all the authorities merely because an account of the rent or the source from where this amount came was not satisfactorily explained. The minor sons were not assessees under the I.T. Act. They were not required to maintain any account. Additions were found to have been made in 1964-65 to 1968-70 by the appellate authority, that is, after five years the property had fetched rent. Its owners were living with their grandfather who was a leading lawyer. That is, the income from the property was available for investment. How could, in the circumstances, an inference be drawn that the money for the alteration came from the assessee, is not easy to understand. Even otherwise, asking the assessee to establish the source of investment in the alterations, etc., was putting the burden on him negatively. Even assuming that money was spent in the alterations by the assessee it did not result in a change of the proprietary interest. In Bhim Singh's case, AIR 1980 SC 727, the Supreme Court rejected a similar contention in para. 27.
21. About the contradiction in the statement of the assessee in the explanation and the affidavit, we have already mentioned. It was unfortunate that the assessee died just on the day next to the filing of the affidavit and he could not be cross-examined. Bat the affidavit could not be rejected on the flimsy contradiction pointed out by the ITO.
22. The ITO further erroneously drew an inference against the assessee because the valuer did not value the property correctly. Assuming it to be so it was necessary for the ITO to find the intention, who was going to gain from it, and then, could it give rise to an inference that the purchase in 1962 was benami ?
23. From what has been stated above it is obvious that none of the circumstances either individually or collectively established that the transaction was benami. It has not been found if the assessee had any motive in purchasing the property in the name of his grandsons. At least no evidence has been led. Assessee was an income-tax payee. He was a leading lawyer. He had property too. In the absence of any evidence of motive it could not be readily inferred that the assessee was the real purchaser.
24. In Jaydayal Poddar's case, AIR 1974 SC 171, the absence of motive was one of the circumstances taken into consideration for holding that the transaction was not benami. It appears, the ITO was obsessed that the assessee was a lawyer and, therefore, the transaction must be viewed with suspicion. In fact, there was no material on record which could conclusively establish that the source of money came from the assessee or that he was in beneficial enjoyment of it. The AAC and the Tribunal equally faltered in affirming these findings. It is surprising that the Tribunal bad referred to the facts but did not advert to any of the considerations which are decisive for deciding the nature of such transactions. To us it appears that the assessee was harassed and put to this unnecessary litigation because he had the good fortune of being a leading civil lawyer. We have no hesitation in saying that the finding of the Tribunal that the house "Shanti Villa" belonged to the assessee cannot be sustained.
25. Coming to the references arising out of the penalty proceeding, we propose to take up the question referred to us in I.T.R. No. 602 of 1977, as it is common to question No. 3 in ITR No. 981 of 1976. Learned counsel for the assessee urged that even if it was assumed that the sale was benami and the house was purchased with the concealed income of the assessee, he having died during the pendency of the assessment proceedings, the penal liability ceased to exist and no proceedings, Under Section 271(1)(c) could have been initiated or continued against his son even by virtue of the fiction contained in Section 159 of the Act. Reliance was placed on Gardner v. Akeroyd [1952] 2 All ER 306 (QB) (at page 311).
26. It appears unnecessary to go into this question. Further, the decision in Gardner's case [1952] 2 All ER 306 was on vicarious liability. And, the assessee had not raised this question before the Tribunal. It having been held that the sale was not benami and the property was not purchased from the concealed income of the assessee no penalty could have been levied on the assessee Under Section 271(1)(c).
27. As regards the other two questions referred in ITR No. 981 of 1976, in view of our answer to question No. 3 we consider it unnecessary to answer these questions.
28. For reasons stated by us above our answer to the questions referred are as under :
I.T.R. No. 108 of 1978 :
We answer question No. 2 in the affirmative, in favour of the assessee and against the Department by saying that "Shanti Villa" was not the benami purchase of the assessee. The finding of the Tribunal that it belonged to the assessee is vitiated.
In view of our answer to question No. 2 we do not answer question No. 1 as it has been rendered academic.
I.T.R. Nos. 981 of 1976 and 602 of 1977 :
As "Shanti Villa" was not a benami purchase of the assessee he was not liable to penalty Under Section 271(1)(c). Question No. 3 in ITR No. 981 of 1976 and the question referred in ITR No. 602 of 1977 are, therefore, answered in the negative, against the Department and in favour of the assessee. In view of our answer to question No. 3 the other two questions in ITR No. 981 of 1976 have been rendered academic and are not answered.
29. The assessee shall be entitled to his costs which are assessed at Rs. 250 in each reference.