1995 (11) TMI 29 - HC - Income Tax

Issues Involved:

1. Ownership of the property and validity of the gift deeds.
2. Claim by the Income-tax Department on the sale proceeds.
3. Applicability of the Benami Transactions (Prohibition) Act.
4. Entitlement to notice under section 156 of the Income-tax Act.
5. Validity of the attachment of sale proceeds by the Income-tax Department.

Issue-wise Detailed Analysis:

1. Ownership of the property and validity of the gift deeds:

The objector, Smt. Usha Gupta, claimed to be the absolute owner of the property by virtue of a gift deed dated March 16, 1970, from her mother-in-law, Smt. Shanti Devi. However, it was established that the property originally belonged to Mr. J. C. Gupta, who gifted it to his wife, Smt. Shanti Devi, in 1949. Smt. Shanti Devi later gifted the property to Smt. Usha Gupta. Despite these transactions, evidence including letters from Smt. Shanti Devi and Smt. Usha Gupta indicated that the property was held benami for Mr. J. C. Gupta, who remained the real owner. The court concluded that Smt. Shanti Devi and Smt. Usha Gupta were merely benamidars and did not hold actual ownership.

2. Claim by the Income-tax Department on the sale proceeds:

The Income-tax Department claimed the sale proceeds of Rs. 6,45,000 for the recovery of tax liabilities of Mr. J. C. Gupta. The objector argued that the sale proceeds belonged to her and were wrongfully attached. However, the court found that the property, and consequently the sale proceeds, were indeed owned by Mr. J. C. Gupta, making the attachment by the Income-tax Department valid for recovering his tax dues.

3. Applicability of the Benami Transactions (Prohibition) Act:

The court noted that benami transactions do not affect the rights of third parties. Citing the case of Gopal Bariha v. Satyanarayan Das, it was held that the Income-tax Department, as a third party, could claim recovery from the property held benami. The court also referenced R. Rajagopal Reddy v. Padmini Chandrasekharan, noting that the Benami Transactions (Prohibition) Act does not apply retrospectively to affect vested rights.

4. Entitlement to notice under section 156 of the Income-tax Act:

The objector contended that she was not issued a notice of demand under section 156 of the Income-tax Act. The court clarified that the notice of demand is relevant only between the assessee (Mr. J. C. Gupta) and the Income-tax Department. Since Mr. J. C. Gupta did not raise any objection regarding the notice, the court found that the objector, who is not the assessee, was not entitled to such notice.

5. Validity of the attachment of sale proceeds by the Income-tax Department:

The court referred to Iqbal Begum v. TRO, which held that properties held benami could be attached for the recovery of dues from the real owner. Applying this principle, the court ruled that the sale proceeds held by the Registry were liable to be attached for the tax liabilities of Mr. J. C. Gupta. The court dismissed the objector's argument that a gift deed, once executed and delivered, could not be revoked, stating that benami transactions cannot affect third-party rights.

Conclusion:

The court dismissed E. A. No. 142 of 1989, ruling that the Income-tax Department was entitled to enforce recovery of its dues from the sale proceeds deposited in the name of the objector, Smt. Usha Gupta. The amount of Rs. 6,45,000 was ordered to be paid to the Tax Recovery Officer, Mayur Bhawan, New Delhi.

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