TaxTMI 
TaxTMI 
TaxTMI 
1986 (9) TMI 129
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....iah, party of the second part, who is said to be a nominee of two minor sons and a minor daughter of Krishnamurthy, Proddatur, to the extent of 9/36th share in each case. The firm was granted registration. The original assessment was made in the case of the assessee on 27-6-1981 in which the share of income from the partnership firm of International Fibre Sacks Co. was taken at Rs. 14,392 being one-fourth of 36 per cent share in the firm. The assessment was completed under section 143(1) of the Act. The Commissioner exercising his jurisdiction under section 263(1) was of the view that as per the firm's assessment order dated 24-8-1981, a sum of Rs. 57,560 being 36 per cent share in the profits of the firm was apportioned to the assessee. But, in the assessment of the assessee, the share was taken only at Rs. 14,392 being one-fourth of 36 per cent. He also noticed that the assessee had clearly indicated in his return of income that out of 36 per cent share in the profits of the firm amounting to Rs. 42,495, a sum of Rs. 31,872 was deducted as being the share of profit referable to Juturu Guru Rajesh, Juturu Dinendra and Juturu Subbalakshmi, minor children of Shri Krishnamurthy of Pr....
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....ting the firm as genuine for the purposes of the Act. The assessment of the partners is only a consequential one emanating from the assessment of the firm. The return of income disclosed that the assessee had specifically drawn the attention of the ITO that out of the 36 per cent share which he derived from the firm three-fourth belonged to the minor children of Shri Krishnamurthy explaining why the assessee had deducted the amount representing three-fourth of 36 per cent share in income statement. This was also before the ITO. He had accordingly accepted the contention of the assessee that he is a benamidar of the minor children of Shri Krishnamurthy in respect of three-fourth of 36 per cent share. It is not as if he had blindly accepted the return of the assessee even though the assessment was made under section 143(1). Therefore, he submitted that the Commissioner's conclusion that the ITO had not applied his mind to the facts of the case or materials on record is not supported by evidence. In view of this, the Commissioner was not empowered to invoke the provisions of section 263(1). He submitted further that the assessee's representative Shri N.L. Narasimha Rao is an octogenar....
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.... of the ITO, it is the duty of the Commissioner to establish that the order suffered from both error and prejudice. In this case, there was neither error nor prejudice, and, therefore, even on merits, the Commissioner's order cannot be sustained. 5. Shri Sreerama Rao submitted that nothing was suppressed from the ITO in the course of the assessment of the firm or in the assessment of the partner-assessee. It is not always necessary for the benami transactions to remain underground ; either the real owner or the benamidar could proclaim the benami relationship. In this case, the assessee's benami relationship with the 'minor children of Shri Krishnamurthy to the extent of three-fourth of 36 per cent share in the profit or loss of the firm has been incorporated in the partnership deed itself to which all partners have subscribed their names and signatures. This very partnership was before the ITO ; other partners also have vouchsafed for this in Form No. 12A filed with the ITO. The assessee had also disclosed to the minors that he is their benamidar for specified shares in the partnership deed and that the minors' guardian had agreed to share their loss in case of loss in the firm. ....
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....s of the firm and these cannot be extended to any further inferences. The assessment of the partners is separate. In this assessment, the ITO is bound to consider whether the assessee is the real owner of the share income obtained from the firm, in order to determine the real ownership of share income for purposes of assessment in the hands of the partner. The ITO ought to have considered several factors such as : (i) in the case of minor who is incompetent to contract, any person other than the father and natural guardian could take upon himself the responsibility of being a benamidar of the minor, and (ii) whether any third party could act as a benamidar of the minor without the express consent of the father and natural guardian. Merely by accepting the partnership deed for purposes of registration or continuation thereof, it cannot be said that the ITO had applied his mind to any of these aspects before he proceeded to assess the partners. Therefore, the Commissioner was right in invoking the provisions of section 263(1). 7. We have heard rival submissions and perused records. We have no hesitation in upholding the order of the Commissioner under section 263(1). The learned C....
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....ot applied his mind to the claim of deduction made by the assessee in the statement accompanying the return of income. He is also of the view that the ITO had not enquired into the factual genuineness and the legal validity of the claim. Thus, the Commissioner has stated not only the reasons for invoking section 263 but also the basis on which his reasons are founded. Thus, the conditions precedent for invoking the power under section 263 as explained in the above two decisions are satisfied in this case. 9. The third case relied on by the learned counsel for the assessee is with regard to the order passed by an ITO in contravention of section 124 of the Act, which the Commissioner sought to revise. It was also held in that case that merely because there has been contravention of provisions of section 124 it cannot be held that the Commissioner could exercise the power under section 263(1) unless he is also satisfied that the assessment order in question is prejudicial to the interests of revenue. Thus, the facts of this case are not on all fours with the facts of the case before us. In our opinion, these cases relied on by the assessee are more in favour of the revenue than in hi....
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....eclaration made by Shri J. Sankaraiah to the effect that in the event of loss, their father and natural guardian had agreed to share the loss. This statement by the assessee is not worth the piece of paper on which it is written, because it purports to impose a liability on the father and natural guardian by a third party in case loss is sustained by the firm. Moreover, this is only a unilateral declaration. Obviously, minors, in view of their incapacity to contract, cannot act on this declaration. Shri Krishnamurthy, who is the father and natural guardian of the minors, had not recorded his consent to the contents of the declaration. Whatever be the nature of the declaration, it cannot be enforced by the minors or by their father and natural guardian. It cannot be presumed that the father of the minor children will enforce the declaration, because in that case he will be saddled with the liability to share the loss of the minors in case loss is sustained by the firm. Therefore, we reject the arguments of the learned counsel that the recitals in clause 14 of the partnership deed are not self-serving recitals. 11. It is the contention of Shri Ch. Sreerama Rao that once the genuinen....
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....int at issue before us. If the assessee is really the benamidar of some other persons, certainly he is entitled to be assessed in respect of his real share income. But, has it been proved by cogent evidence that the assessee, though a partner holding 36 per cent share in the profits and losses of the firm, is really a benamidar of the minor sons of Shri Krishnamurthy ? Apart from the self-serving recital in the partnership deed and crediting the share of profit to the accounts of the minor children, no other material has been brought on record to give positive proof of benami relationship. As far as self-serving recitals are concerned, the Supreme Court in the case of Durga Prasad More observed at page 545 that the taxing authorities were not required to put on blinkers while looking at the documents produced before them ; they were entitled to look into the surrounding circumstances to find out the reality of the recitals made in those documents. The surrounding circumstances in this case are quite peculiar. In this assessment year, the assessee is said to be benamidar of minor children of Shri Krishnamurthy, and in the preceding year, some other person is stated to be benamidar o....