1996 (8) TMI 48 - HC - Income Tax

High Court corrects Tribunal's error on benami transactions, orders re-examination.

Commissioner Of Income-Tax Versus Golcha Properties (Pvt.) Limited (In Liquidation)

The High Court found that the Tribunal erred in requiring positive evidence of benami transactions and failed to consider primary facts indicating the ... Income From Undisclosed Sources Issues Involved:1. Genuineness of the contracts between the assessee-company and Dhartidhan (P.) Ltd., Bombay, and Madans, Bombay.2. Whether the income arising from the exhibition rights belonged to the assessee-company.Summary:Issue 1: Genuineness of the ContractsThe Tribunal referred the question of whether the contracts between the assessee-company and Dhartidhan (P.) Ltd., Bombay, and Madans, Bombay, for leasing out exhibition rights to cinema houses were real and genuine. The Income-tax Officer (ITO) had concluded that these arrangements were sham and colorable, designed to divert profits to sister concerns facing financial crises. The Tribunal, however, found that Dhartidhan and Madans had their individual existence, executed contracts as per agreements, and utilized the income for their own benefit. The Tribunal emphasized that the Department needed to provide positive evidence to prove the case of benami, which it found lacking.Issue 2: Income AttributionThe ITO added substantial amounts to the income of the assessee-company for various assessment years, suspecting that the income from the exhibition rights actually belonged to the assessee-company. The Tribunal disagreed, stating that the Department failed to substantiate its claim with positive evidence. The Tribunal held that the contracts were genuine and the income did not belong to the assessee-company.Court's Findings:The High Court found that the Tribunal had erred in its approach by requiring the Department to provide positive evidence of benami transactions. The Court noted that the ITO had provided several primary facts indicating that the contracts were not genuine, such as:- Financial instability and losses of Dhartidhan and Madans.- Lack of security or guarantees from the contractors.- The assessee-company's direct involvement in booking films and dealing with distributors.- Relationships between the shareholders of Dhartidhan and the directors of the assessee-company.- The Tribunal failed to consider these primary facts and circumstances adequately.The High Court quashed the Tribunal's order and directed it to re-examine the matter de novo, taking into consideration the observations and primary facts highlighted by the ITO and the Court. The reference was returned unanswered, with no order as to costs.