1992 (3) TMI 121 - AT - Benami Property

Summary

Issues Involved:

1. Determination of the assessee's share in the profits of DKB & Co.
2. Validity of the benami relationship between the assessee and Vinayaka Traders.
3. Application of the Benami Transactions (Prohibition) Act, 1988.

Issue-wise Detailed Analysis:

1. Determination of the assessee's share in the profits of DKB & Co.:

The primary issue in this case was the correct amount of income to be assessed from the share of profit in DKB & Co. The assessee claimed that he held 8% of the share in DKB & Co. in his own right and another 8% as a benamidar for Vinayaka Traders. The Income Tax Officer (ITO) had assessed the assessee's share at 16% based on the partnership deed of DKB & Co., which did not mention the benami relationship. The Tribunal reviewed the records and found that DKB & Co. had filed a declaration in Form No. 12A indicating the benami relationship, which was accepted by the assessing authority. Thus, the Tribunal concluded that the assessee's share should be 8% in his own right and 38% of the 8% share held for Vinayaka Traders.

2. Validity of the benami relationship between the assessee and Vinayaka Traders:

The Tribunal examined the concept of benami relationships, which are recognized under general law and have been subject to judicial decisions. The Taxation Law (Amendment) Act, 1970, introduced an Explanation to Section 185(1), which allows for the declaration of benami relationships in the prescribed manner. The Tribunal found that DKB & Co. had made such a declaration, and the firm was granted registration. The Tribunal noted that the assessee's fiduciary relationship with Vinayaka Traders was evidenced by the firm's balance sheet and the investment arrangement. Therefore, the Tribunal held that the assessee could not claim the entire 16% share to the exclusion of Vinayaka Traders.

3. Application of the Benami Transactions (Prohibition) Act, 1988:

The Tribunal considered the provisions of the Benami Transactions (Prohibition) Act, 1988, particularly Section 4, which prohibits the enforcement of rights in respect of benami properties. However, the Act provides exceptions for properties held in a fiduciary capacity. The Tribunal found that the assessee's fiduciary relationship with Vinayaka Traders fell within this exception. The Tribunal also noted that the Explanation to Section 185 of the Income Tax Act, 1961, had not been repealed, and the Benami Transactions (Prohibition) Act, 1988, did not override the provisions of the Income Tax Act or the Partnership Act. Consequently, the Tribunal held that the benami relationship was valid for income tax purposes, and the assessee was entitled to 8% of the share in DKB & Co. plus 38% of the 8% share made over to Vinayaka Traders.

Conclusion:

The appeal was allowed, and the ITO was directed to quantify the assessee's share of profit from DKB & Co. as 8% in his own right and 38% of the 8% share held for Vinayaka Traders.