1972 (1) TMI 15 - HC - Income Tax

Reference to HC - Whether the business carried on by U. G. Krishnaswami Naidu was his own or whether it was the business of Ramaswami Naidu - question of benami was one of fact and it cannot be questioned before the High Court

Issues Involved:
1. Whether the business carried on by U. G. Krishnaswami Naidu was his own or that of Ramaswami Naidu.
2. Justification for treating the business as belonging to Ramaswami Naidu for the assessment years 1952-53, 1953-54, and 1954-55.
3. Legality of the cancellation of the assessment on U. G. Krishnaswami Naidu.

Issue-Wise Detailed Analysis:

1. Whether the business carried on by U. G. Krishnaswami Naidu was his own or that of Ramaswami Naidu
The court examined the substantial question of whether the business conducted by U. G. Krishnaswami Naidu was genuinely his or whether it belonged to Ramaswami Naidu. The business in question involved a ginning factory initially intended to be run by Kadiri Mills Ltd., but due to the refusal of a license, it was purportedly leased to U. G. Krishnaswami Naidu. However, no formal lease agreement was executed. The court noted several factors indicating that Ramaswami Naidu had a proprietary interest in the business:
- Ramaswami Naidu signed day books, cash receipts, and contracts related to the business.
- He issued instructions concerning the business operations, including insurance and pricing.
- Financial transactions, including advances and overdrafts, were facilitated by Ramaswami Naidu.
- The financial records showed that Ramaswami Naidu had drawn significant sums from the business profits.

2. Justification for treating the business as belonging to Ramaswami Naidu for the assessment years 1952-53, 1953-54, and 1954-55
The Income-tax Officer, Appellate Assistant Commissioner, and the Tribunal all concluded that the business ostensibly run by U. G. Krishnaswami Naidu was, in reality, the business of Ramaswami Naidu. The reasons included:
- U. G. Krishnaswami Naidu was brought in to circumvent the refusal of a license.
- Ramaswami Naidu's significant involvement in the business operations.
- Letters and documents indicating Ramaswami Naidu's proprietary interest.
- Financial transactions and arrangements made by Ramaswami Naidu.

The Tribunal's findings were based on substantial evidence, and the court held that these findings were sufficient to establish a close nexus between Ramaswami Naidu and the business. The court emphasized that the Tribunal's conclusion was a finding of fact, supported by ample material, and thus not open to challenge under section 66 of the Income-tax Act.

3. Legality of the cancellation of the assessment on U. G. Krishnaswami Naidu
The Tribunal had canceled the protective assessments made against U. G. Krishnaswami Naidu, concluding that the business income should be included in the income of Ramaswami Naidu. The court found that the Tribunal's decision was justified based on the evidence and circumstances presented. The court also addressed the assessees' contention regarding the burden of proof, stating that the Tribunal had not shifted the onus onto the assessee but had made its decision based on the materials on record.

Conclusion:
The court answered the reference in T.C. No. 66 of 1965 in favor of the revenue, affirming that the business carried on by U. G. Krishnaswami Naidu indeed belonged to Ramaswami Naidu. Consequently, the cancellation of the protective assessments against U. G. Krishnaswami Naidu was upheld, and the question in T.C. No. 17 of 1965 was answered in the affirmative and against the revenue. The revenue was entitled to costs in T.C. No. 66 of 1965, and T.C.P. No. 54 of 1965 was dismissed.

← Previous Next →