D. RAMASWAMY REDDIAR VS COMMISSIONER OF INCOME-TAX
2000 P T D 1612
[234 I T R 148]
[Madras High Court (India)]
Before K. A. Thanikkachalam and S. M. Sidickk, JJ
D. RAMASWAMY REDDIAR
Versus
COMMISSIONER OF INCOME-TAX
Tax case No. 208 of 1982 (Reference No. 120 of 1982), decided on /01/.
st
February 1997. Income-tax---
----Income from undisclosed sources---Money-lending business ---Pronotes in the names of relatives of assessee discovered during search in assessee's premises--Finding by Tribunal that pronotes did not belong to assessee--- Interest on amount representing pronotes could not be added to income of assessee---Indian Income Tax Act, 1961.
The assessee returned a sum of Rs.5,034 as income from interest received from certain parties. The assessee's premises and also the premises of certain other relatives of the assessee, like his father-in-law, brother-in -law, etc., were searched by the Department. The search revealed that the assessee was in possession of pronotes executed in favour of the assessee's relations. The Income-tax Officer found that the seized books contained transactions of the above parties for various years. The Income-tax Officer questioned the assessee with regard to the seized materials. The assessee claimed that the pronotes belonging to these persons, in whose names they were standing, were kept in the custody of the assessee for the sake of convenience. Each one of the above persons had his or her own funds for advancing money to others and they were enjoying the interest income derived there from. The Income-tax Officer did not, however, accept this contention and held that the business alleged to have been carried on in the names of these parties actually belonged to the assessee and the entire income was assessable in his hands. The Tribunal came to the conclusion that though the parties in question were closely related to the assessee, there was no evidence to hold that the assessee was holding these amounts in benami names. The Tribunal held that these persons could not be held as the benemidars of the assessee, who had invested moneys in their names. Ultimately, the Tribunal sustained interest at 22 percent. instead of 24 percent. adopted by the authorities below. The Tribunal further held that the interest payable to the outsiders could be put at about 10 percent. on an average. The Income-tax Officer had found that the amounts standing in the names of the alleged bienamidars came to Rs.5,08,340. The. Tribunal treated a sum of Rs.50,000 in round figures at 10 percent. interest as owing to these parties, the overall outstanding of the assessee was fixed at Rs.6,14,764. Reducing the interest to 22 percent., the Tribunal reduced the interest on the above by another Rs.12,000. From the amount sustained by ways of interest, the Tribunal has reduced a sum of Rs.62,000 (Rs.50,000 plus Rs.12,000). On a reference:
Held, that the Tribunal was of the view that the principal amount standing in the pronotes belonged to those in whose names the pronotes stood. Therefore, the principal amount was not included in the hands of the assessee. Interest follows the principal amount. If the principal amount did not belong to the assessee, on the same reasoning it should also be held that the interest also belonged to the persons in whose names the pronotes stood. There was no evidence on record to show that the assessee would have utilised a portion of the interest income for his own purpose. Under such circumstances, the Tribunal was not correct in sustaining a sum of Rs.85,545, under the head "Interest" after deleting a sum of Rs.62,000. The Tribunal the entire interest amount from the hands of the assessee.
CIT v. Calcutta Discount Co. Ltd. (1973) 91 ITR 8 (SC) and CIT v. Daulat Ram Rawatmull (1973) 87 ITR 349 (SC) ref.
A. Devanathan for K. C. Rajappa for the Assessee.
C. V. Rajan for the Commissioner.
JUDGMENT
K. A. THANIKKACHALAM, J.---Pursuant to the direction by this Court in T. C. P. No.251 of 1980, dated November 4, 1980, the Tribunal referred the following question for the opinion to this Court, under section 256(2) of the Income Tax Act, 1961 (hereinafter referred to as the "Act").
"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in sustaining an addition of Rs.85,543?"
The assessee is a Hindu undivided family. For the assessment year 1971-72, the assessee returned a sum of Rs.5,034 as income from interest received from certain parties. The assessee's premises and also the premises of certain other relatives of the assessee, like his father-in-law, brother-in- law, etc., were searched by the Department. The search revealed that the assessee was in possession of pronotes executed in favour of the assessee's relations, viz., Sint. Padmalochani Animal (wife), Muthukumarappa Reddiar (father-in-law), Jayalakshmi Animal (mother-in-law), Veerappa Rajaram Reddiar (brother-in-law), and Bangaru Reddiar (close relative). Cerain cash books were also found 'and seized. The Income-tax Officer found that the seized books contained transactions of the above parties for various years. The Income-tax Officer questioned the assessee with regard to the seized materials. The assessee claimed that the ponotes belonging to these persons, in whose names they are standing, were kept in the custody of the assessee for the sake of convenience. Each one of the above persons had his or her own funds for advancing money to others and they are enjoying the interest income derived there from, The Income-tax Officer did not, however, accept this contention and held that the business alleged to have been carried on in the names of these parties actually belonged to the assessee and the entire income was assessable in his hands. The assessee did not produce any books of account. No books had been stated to have been maintained. A list of persons from whom interest is alleged to have been received was produced. There was no evidence to support the actual extent of the interest collected. A list of the out standings at the end of the year was also filed. The total amounts standing in the names of these persons including the assessee came to Rs.6,14,764, including the sum of Rs.1,06,424 relating to the assessee.
The Income-tax Officer estimated the assessee's income from money-lending business by adopting 24 percent. on the above outstandings as per pronotes at Rs.1,47,543. On the assessee's appeal, the Appellate Assistant Commissioner upheld the Income-tax Officer's estimate of money-lending business at Rs.1,47,543, while deleting the other additions by the Income-tax Officer. Both the assessee and the Department appealed against the Appellate Assistant Commissioner's order, the former against the Appellate Assistant Commissioner's sustenance of the addition of money-lending income of Rs.1,47,543.
On hearing both the parties, on appeal, the Tribunal carne to the conclusion that though the parties in question were closely related to the assessee there was no evidence to hold that the assessee was holding these amounts in benami names. The Tribunal held that these persons cannot be held as the benamidars of the assessee, who had invested moneys in their names. Ultimately, the Tribunal sustained interest at 22 percent. instead of 24 per cent adopted by the authorities below. The Tribunal further held that the interest payable to the outsiders could be put at about 10 percent. on an average. The Income-tax Officer has found that the amounts standing in the names of the alleged benamidars came to Rs.5,08,340. The Tribunal treated a sum of Rs.50,000 in round figures at 10 percent. interest as owing to these parties. The overall outstanding of the assessee is fixed at Rs.6,14,764. Reducing the interest to 22 percent. the Tribunal reduced the interest on the above by another Rs.12,000. From the amount sustained by way of interest, the Tribunal has also reduced a. sum or Rs.62,000 (Rs.50,000 plus Rs.12,000). Both the appeals were allowed partly.
Before us, learned counsel appearing for the assessee submitted that when the authorities below accepted the explanation offered by the assessee with regard to the entire principal sum as belonging to the persons in whose names the pronotes were standing. They ought to-have held that the interest income should also belong to them. When the Tribunal found reason to allow interest at Rs.62,000, the Tribunal on the same reasoning ought to have allowed the entire interest. The Tribunal came to the conclusion that the assessee is not a benamidar and his relatives are only the true owners of the amounts advanced by them and their capacity to advance was also not doubted by the Tribunal. It was further submitted that when the Tribunal was good enough to reduce the interest rate to 22 percent. from 24 percent. the Tribunal ought to have deleted the inclusion of a portion of the of the interest in the hands of the assessee. It was, therefore, submitted that the Tribunal ought to have deleted the entire addition.
On the other hand, learned standing counsel appearing for the Department, submitted that considering the fact that the assessee was rendering services to his relatives in the matter of advancing amounts to third parties, the Tribunal held that the assessee would have used a portion of the interest collected for his personal purpose, and, therefore, to that extent, the addition is called for. It was, therefore, contended that the order of the Tribunal in deleting Rs.62,000 out of the entire interest amount is not in order. According to learned standing counsel the Tribunal ought to have sustained the entire interest amount of Rs.1,47,543.
We have heard the rival submissions. The fact remains that the assessee's premises was searched wherein the Department found pronotes standing in the names of the close relatives of the assessee. According to the Department, it is the assessee's amounts, which were advanced in the names of various relatives, and, therefore, these amounts should be assessed in the hands of the assessee. However, the Tribunal held that the assessee is not a benamidar for close relatives. It was further held that his close relatives are having means to advance the amounts on the pronotes. Therefore, according to the Tribunal, the amounts standing in the names of the relatives of the assessee belong to them and the assessee has got nothing to do with that. Therefore, the principal amount was not assessable in the hands of the assessee, is the conclusion of the Tribunal.
In so far as the interest income is concerned, the assessee is not maintaining any books of account. The Income-tax Officer estimated the interest at the rate of 24 percent. per annum. On the other hands, on appeal the Appellate Assistant Commissioner confirmed the interest estimated by the Income-tax Officer. However, on further appeal, the Tribunal reduced the rate of interest from 24 per cent to 22 percent. The Tribunal has also given concessions in the matter of ascertaining the consolidated amount under the head "Interest" and accordingly gave a concession of Rs.F2,000 in ascertaining the total interest on the pronotes amounts. According to the Tribunal, sum of Rs.62,000 collected by way of interest is not assessable in the hands of the assessee, but a sum of Rs.85,543 is assessable under the head "Interest".
Learned counsel appearing for the assessee submitted that, when the Tribunal found reasons to allow Rs.62,000 out of Rs.1,47,543, on the same reasoning, the Tribunal ought to have allowed the balance of interest
It remains to be seen that the principal amounts were not added in the hands of the assessee. The Tribunal sustained out of Rs.1,47,543 a sum of Rs.85,543. According to the Tribunal, the assessee would have appropriated certain interest amount to himself out of the total collection of the interest amount.
In CIT v. Daulat Ram Rawatmull (1973) 87 ITR 349, the Supreme Court held as under (headnote):
"There should be some direct nexus between the conclusion of fact arrived at by the authority concerned and the primary facts upon which that conclusion is based. The use of extraneous and irrelevant material in arriving at that conclusion would vitiate the conclusion of fact, because it is difficult to predicate as to what extent the extraneous and irrelevant material has influenced the authority in arriving at the conclusion of fact. "
In CIT v. Calcutta Discount Co. Ltd. (1973) 91 ITR 8, the Supreme Court held that where a trader transfers his goods to another trader at a price less than the market price, and the transaction is a bona fide one, the taxing authority cannot take into account the market price of those goods, ignoring the real price fetched to ascertaining the profit from the transaction. According to the facts arising in the present case, the total interest included amounting to Rs.1,47,543 is on the basis of estimate. The Tribunal was of the view that the principal amounts standing in the pronotes are benami in whose names the pronotes stand. Therefore, the principal amount was not included in the hands of the assessee. Interest follows the principal amount. If the principal amount does not belong to the assessee, on the same reasoning it should also be held that the interest also belongs to the persons in whose names the pronotes stand. There is no evidence on record to show that the assessee would have utilised a portion of the interest income for his own purpose. Under such circumstances, we consider that the Tribunal was not correct in sustaining a sum of Rs.85,543 under the head "Interest" after deleting a sum of Rs.62,000. In view of the foregoing discussion, we consider that the Tribunal ought to have deleted the entire interest amount from the hands of the assessee. In that view of the matter, we answer the question referred to us in the negative and in favour of the assessee. No costs.
M.B.A./3394/FCReference answered.