1972 (1) TMI 107 - HC - Income Tax

Business ownership dispute resolved in favor of revenue authority; burden of proof upheld.

Commissioner of Income-Tax Versus U.G. Krishnaswami Naidu And V. Ramaswami Naidu

The High Court upheld the Tribunal's findings that the business carried on by U. G. Krishnaswami Naidu belonged to Ramaswami Naidu. The Court emphasized ... - Issues Involved:1. Ownership of the business carried on by U. G. Krishnaswami Naidu.2. Justification for treating the business as belonging to Ramaswami Naidu.3. Cancellation of assessment on U. G. Krishnaswami Naidu.4. Burden of proof in benami transactions.Issue-wise Detailed Analysis:1. Ownership of the Business:The primary issue was whether the business carried on by U. G. Krishnaswami Naidu was his own or whether it was the business of Ramaswami Naidu. The Tribunal found that Ramaswami Naidu had a proprietary interest in the business, and U. G. Krishnaswami Naidu was merely a representative. This conclusion was based on several factors, including Ramaswami Naidu's involvement in signing day books, cash receipts, and contracts, as well as his instructions regarding business operations. Additionally, advances made by the mills to cotton growers were transferred to U. G. Krishnaswami's account without security, and Ramaswami Naidu stood as a surety for overdrafts.2. Justification for Treating the Business as Belonging to Ramaswami Naidu:The Tribunal upheld the Income-tax Officer's and Appellate Assistant Commissioner's findings that the business in question was that of Ramaswami Naidu. The Tribunal noted that Ramaswami Naidu had a proprietary interest in the business, as evidenced by his signing of business documents and his financial involvement. The Tribunal also considered the fact that U. G. Krishnaswami had no experience in business and was brought in by Ramaswami Naidu to circumvent a technical difficulty. The Tribunal's conclusion was supported by the fact that Ramaswami Naidu had issued instructions regarding business operations and had arranged for insurance and overdrafts.3. Cancellation of Assessment on U. G. Krishnaswami Naidu:The Tribunal canceled the protective assessments made against U. G. Krishnaswami Naidu, concluding that the business in question belonged to Ramaswami Naidu. The Tribunal found that the circumstances pointed out by the Income-tax Officer and the Appellate Assistant Commissioner were sufficient to connect Ramaswami Naidu with the business. The Tribunal's decision was based on the materials on record, which showed a close and intimate nexus between Ramaswami Naidu and the business.4. Burden of Proof in Benami Transactions:The Tribunal did not shift the burden of proof onto Ramaswami Naidu to prove that the business was not his. Instead, the Tribunal decided the case based on the materials on record. The Tribunal found that there was sufficient evidence to infer that Ramaswami Naidu carried on the business in the name of U. G. Krishnaswami Naidu. The Tribunal's finding was based on the cumulative effect of the facts and circumstances, rather than on the basis that the assessee had not discharged the onus of proving that the business was not his.Conclusion:The High Court upheld the Tribunal's findings, concluding that the business carried on by U. G. Krishnaswami Naidu did indeed belong to Ramaswami Naidu. The Court noted that the Tribunal's finding was based on sufficient materials and did not involve the application of any principle of law. The Court also emphasized that the question of benami was a finding of fact and could not be attacked in the reference under section 66 of the Income-tax Act. The Court answered the reference in T. C. No. 66 of 1965 in favor of the revenue and against the assessees, and sustained the cancellation of the protective assessments in T. C. No. 17 of 1965. The revenue was entitled to its costs in T. C. No. 66 of 1965.