1973 (3) TMI 28 - HC - Income Tax

Wives of members of a family form a firm and carry on the same business as the family - Tribunal s finding is that the firm was benami for the family - Whether on the facts and in the circumstances of the case the Tribunal had material before it to come to the conclusion that the firm of E.A.E.T. Sundararaj and Co. is not a genuine firm but is only a benami firm for the Hindu undivided family? Question answered in the affirmative

Issues Involved:
1. Whether the firm of E.A.E.T. Sundararaj and Co. is a genuine firm or a benami firm for the Hindu undivided family.

Detailed Analysis:

Issue 1: Whether the firm of E.A.E.T. Sundararaj and Co. is a genuine firm or a benami firm for the Hindu undivided family.

Facts and Circumstances:
The assessee, a Hindu undivided family (HUF) represented by its karta, E.A.E.T. Sundararaj, was engaged in the business of manufacturing and selling fire-works under the name Prithivi Fire Works Industries. For the assessment year 1960-61, the HUF returned an income of Rs. 15,853. A separate return was filed by the firm E.A.E.T. Sundararaj and Co., disclosing an income of Rs. 7,381. The Income-tax Officer treated the firm as benami for the HUF, including the firm's income of Rs. 5,805 in the HUF's assessment. The assessee objected, leading to an appeal before the Appellate Assistant Commissioner, who deleted the firm's income from the HUF's assessment. The revenue appealed to the Tribunal, which upheld the Income-tax Officer's view, leading to the present reference.

Tribunal's Findings:
The Tribunal, affirming the Income-tax Officer's conclusion, found the following factors indicative of the firm being benami for the HUF:
1. Partners' Relationship: The two partners were the wife of the karta and the wife of his brother, both members of the HUF.
2. Capital Source: The capital was initially borrowed from the HUF, with partners bringing in their capital later.
3. Business Line: The firm's business was in the same line as the HUF's, with no specific reason for starting a rival business.
4. Business Premises: The firm operated from the same premises as the HUF and used the same telegraphic address.
5. Partners' Experience: Both partners lacked business experience and were ignorant of the firm's operations.
6. Management: The business was managed by the karta of the HUF, Sundararaj.

Arguments:
- Assessee's Counsel: Argued that the Tribunal's conclusion was unreasonable and lacked relevant material, asserting that the reasons provided were insufficient to prove the firm was not genuine.
- Revenue's Counsel: Contended that the cumulative effect of all reasons should be considered, not each reason separately.

Court's Analysis:
The court examined the Tribunal's reasoning and found it reasonable. It noted that the business being in the same line and premises as the HUF's, managed by the karta, and the partners' lack of experience supported the conclusion that the firm was benami. The court emphasized the improbability of the HUF allowing a rival business unless it was for its benefit.

Legal Precedents:
- Madura Knitting Company v. Commissioner of Income-tax: The court acknowledged the test of beneficial ownership of profits but found the Tribunal's application of this test valid.
- S. S. A. Gangamrithammal & Co. v. Commissioner of Income-tax: The court distinguished this case based on its specific facts.
- Commissioner of Income-tax v. Durga Prasad More: The Supreme Court's guidance on the reliability of evidence and the necessity of considering human probabilities was cited.

Conclusion:
The court concluded that the Tribunal had sufficient material to determine that the firm was not genuine but benami for the HUF. The question was answered in the affirmative, against the assessee, with costs awarded to the revenue.

Final Judgment:
- Question Answered: In the affirmative.
- Costs: Revenue awarded costs of Rs. 250.

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