Benami ownership of business upheld on cumulative facts; protective assessment fell once real ownership was found.

The Madras HC treated the question whether the business in U. G. Krishnaswami Naidu's name was really that of Ramaswami Naidu as one of fact, based on the cumulative circumstances showing a close nexus, including participation in records, contracts, sales instructions, overdraft surety and unsecured transfers. As no error of law or perversity was shown, the benami finding stood and the business was held to belong to Ramaswami Naidu, against the assessees. Once that finding was reached, the protective assessment on Krishnaswami Naidu could not survive. The cancellation of that assessment was therefore upheld in favour of the revenue.

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Issues: (i) Whether the business carried on in the name of U. G. Krishnaswami Naidu really belonged to Ramaswami Naidu in the relevant assessment years. (ii) Whether, in consequence, the cancellation of the protective assessment on U. G. Krishnaswami Naidu was justified in law.

Issue (i): Whether the business carried on in the name of U. G. Krishnaswami Naidu really belonged to Ramaswami Naidu in the relevant assessment years.

Analysis: The findings of the Tribunal showed a close and intimate nexus between Ramaswami Naidu and the business conducted in Krishnaswami Naidu's name. The materials relied on included Ramaswami Naidu's role in bringing in Krishnaswami Naidu, his signing of business records and contracts, his instructions regarding sales and insurance, his standing surety for overdrafts, and the transfer of advances without security. The Tribunal was entitled to draw a factual inference from the cumulative effect of these circumstances. The question whether the arrangement was benami was treated as one of fact, and no error of law or perversity was shown.

Conclusion: The business was rightly held to belong to Ramaswami Naidu, and this finding was against the assessees.

Issue (ii): Whether, in consequence, the cancellation of the protective assessment on U. G. Krishnaswami Naidu was justified in law.

Analysis: Once the business was found to be that of Ramaswami Naidu, the protective assessment on Krishnaswami Naidu could not survive. The second reference was purely consequential to the first finding and did not call for a different conclusion on the facts found by the Tribunal.

Conclusion: The cancellation of the protective assessment was justified, and the issue was answered in favour of the revenue.

Final Conclusion: The reference on ownership of the business was answered against the assessees, while the consequential cancellation of the protective assessment was sustained.

Ratio Decidendi: In a tax reference, a finding that a business is benami and belongs to another person is a finding of fact based on the cumulative effect of proved circumstances and is not open to interference unless shown to be unsupported by evidence or perverse.

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