2024 (9) TMI 130 - AT - Benami Property

Benami transaction - Adjudicating Authority refused to confirm the provisional attachment order passed u/s 24(4)(a)(i) of the Act of 1988 - on a search conducted by the Income Tax Department u/s 132 of the Income Tax Act, cash and gold was found with the non-appellants and accordingly their statements apart from the statement of Sh. Nagarajan were recorded HELD THAT - On a search conducted by the Income Tax Department under section 132 of the Income Tax Act, cash and gold was found with the non- appellants and accordingly their statements apart from the statement of Sh. Nagarajan were recorded. The exception in the definition of benami transaction given under section 2(9)(A) would exclude it from benami transaction. It is on the peculiarity of the facts available on record. At this stage, it needs to be clarified that holding of the property may be as trustee, executor, partner etc. referred under sub-clause (ii) but it is not inclusive definition rather illustrative in nature. In this case, property was held for safe custody and thus would fall in the exception to the definition of benami transaction. The transaction in question would fall under one of the exception to section 2(9)(A) of the Act of 1988. However, we cannot endorse the finding of the Adjudicating Authority for denial of confirmation to the reference. In fact we have not taken this a case to be of benami transaction in reference to one of the exception given under sub-clause (ii) of section 2(9)(A) of the Act of 1988, otherwise the transaction involves not only transfer and holding of the property but also the consideration of it was paid by other person. Even after the aforesaid, the property was kept by the alleged benamidar for safe custody and as per their statement, they did not claim ownership of the property, rather it was shown to be of the alleged beneficial owner, i.e. Sh. Nagarajan. Thus, while not agreeing with the reasons given by the Adjudicating Authority, we have recorded our own reasoning for not endorsing the reference for the attachment of the properties rather the references are rejected for the reason recorded by us. Thus, while disagreeing with the reasoning given by the Adjudicating Authority, we do not find reference can be answered favourable to the appellant, rather it is rejected and accordingly attachment of the properties cannot be confirmed which was otherwise assessed by the Income Tax Department and passed an order in favour of non- appellant, Sh. Nagarajan, though it is subsequent to the search and attachment. However, reference of the assessment order has been made to show that cash and gold belonging to Sh. Nagarajan and has been assessed by the Income Tax Department followed by an Assessment Order - The appeal preferred by the Deputy Commissioner, Income Tax is accordingly dismissed.

Summary

Issues Involved:
1. Legality of the Adjudicating Authority's refusal to confirm the provisional attachment order.
2. Interpretation of the definition of "benami transaction" under section 2(9) of the Prohibition of Benami Property Transactions Act, 1988.
3. Consideration of fiduciary capacity as an exception under section 2(9)(A)(ii) of the Act of 1988.

Issue-wise Detailed Analysis:

1. Legality of the Adjudicating Authority's Refusal to Confirm the Provisional Attachment Order:

The Deputy Commissioner of Income Tax challenged the Adjudicating Authority's order dated 20.06.2019, which refused to confirm the provisional attachment order dated 22.11.2018. The attachment was based on information regarding suspect benami transactions involving M/s SPK Group of Companies and Firms, following a search under section 132 of the Income Tax Act, 1961. The search revealed significant amounts of cash and gold, which were claimed by Sh. Nagarajan to belong to him and were given to various persons for safe custody. The Adjudicating Authority, however, did not confirm the attachment, leading to the appeal.

2. Interpretation of the Definition of "Benami Transaction" under Section 2(9) of the Act of 1988:

The appellant argued that the Adjudicating Authority erroneously interpreted the definition of "benami transaction." According to section 2(9) of the Act of 1988, a benami transaction involves a property held by one person where the consideration is provided by another person, and the property is held for the benefit of the person who provided the consideration. The appellant contended that cash and gold transferred and held by different persons for Sh. Nagarajan's benefit fell within this definition. The Adjudicating Authority, however, concluded that the transactions did not constitute benami transactions, as the cash and gold were held for safe custody and not for the benefit of the person who provided the consideration.

3. Consideration of Fiduciary Capacity as an Exception under Section 2(9)(A)(ii) of the Act of 1988:

The respondents argued that even if the facts presented by the appellant were accepted, the transactions would fall under the exception provided in section 2(9)(A)(ii) of the Act of 1988. This section exempts transactions where the property is held in a fiduciary capacity for the benefit of another person. The respondents maintained that the cash and gold were held in trust and for safe custody, which constitutes a fiduciary relationship. The Tribunal agreed with this interpretation, noting that the property was held for safe custody based on trust, and thus, the transactions fell within the fiduciary capacity exception.

Conclusion:

The Tribunal found that the transactions in question fell under the fiduciary capacity exception to the definition of "benami transaction" as provided in section 2(9)(A)(ii) of the Act of 1988. Consequently, the Tribunal dismissed the appeal by the Deputy Commissioner of Income Tax, concluding that the attachment of the properties could not be confirmed. The Tribunal's decision was supported by the principles of fiduciary relationships as outlined in the judgment of the Apex Court in the case of Sri Marcel Martins Vs M. Printer & Ors, which emphasized trust and confidence as the basis of such relationships.