Commissioner of Income Tax vs M.D. Kasthuri

Thanikkachalam, J.—In pursuance of the order passed by this Court in TCP Nos. 63 and 64 of 1980 dt. 3rd Nov., 1980, the Tribunal

referred the following question of law for our opinion under s. 256(2) of the IT Act, 1961 :

Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the assessee is the owner of the property

under consideration and that income therefrom is properly assessable in her hands ?

The property at Nos. 11 and 11A, Sait Colony, Egmore, Madras, was originally owned by one R. A. Sundaram Chettiar, who purchased the

same under a sale deed dt. 16th March, 1955. Sundaram Chettiar died on 6th March, 1960. On 4th Sept., 1961, the legal heirs of the said

Sundaram Chettiar, namely, Mrs. Saraswati Ammal and others, mortgaged the said property under a mortgage deed for a sum of Rs. 1,20,000 to

discharge the antecedent debts of Sundaram Chettiar. The mortgage deed was executed in favour of one M. A. Ethirajulu Naidu, the father-in-law

of the assessee. The abovesaid property was brought to Court auction on 17th March, 1966. In the Court auction, one Mr. Lingaiah Naidu, stated

to be the family friend and tuition master, has purchased the said property for a sum of Rs. 3,100 subject to the discharge of the above mortgage

for Rs. 1,20,000 plus interest and also prior charge of Rs. 10,000. Thus, the property was purchased by Lingaiah Naidu in the Court auction. In

the meanwhile, the validity of the above mortgage and the subsequent sale were questioned in the suits filed by the sons of Sundaram Chettiar. The

trial Court upheld the validity of the mortgage. On appeal, it was the case of the assessee that Lingaiah Naidu purchased the property in the Court

auction with the pin money from Smt. Kasthuri, the assessee. Therefore, according to the assessee, the property was purchased benami in the

name of Lingaiah Naidu for the benefit of the assessee. There was also an agreement dt. 22nd Sept., 1973, stating that the property was thus

taken to avert any rival claim by the heir-at-law of Lingaiah Naidu. Lingaiah Naidu declared that the purchase of the property was for the benefit of

the assessee.

Lingaiah Naidu was rendering accounts for the income derived by way of rent from the said property to the assessee. Lingaiah Naidu died on

13th Dec., 1973, leaving behind him, his wife as his only legal heir. She was a witness to the abovesaid agreement dt. 22nd Sept., 1973. She did

not claim any right over the said property. The appeal filed by the sons of Sundaram Chettiar against Ethirajulu Naidu and others ended in a

compromise recorded on 10th July, 1974, in O.S.A. No. 37 of 1972 before the High Court, Madras. As per the above compromise, the assessee

herein purchased the property in question for a sum of Rs. 20,000. Thus, the assessee became the absolute owner of the property. No

proceedings were initiated to set aside the compromise decree passed by the High Court in O.S.A. No. 37 of 1972.

While completing the assessment for the asst. yrs. 1973-74 and 1974-75. the ITO held that the real owner of the property in question was not

the assessee, but the assessee''s father-in-law, Ethiralaju Naidu. However, as a protective measure, he assessed the income from the property in

the hands of the assessee. On appeal, the AAC held that the assessment made by the ITO is in order. On further appeal, the Tribunal. on

considering the facts arising in the case, held that as per the compromise decree passed in O.S.A. No. 37 of 1972, the assessee is the absolute

owner of the abovesaid property. In that view of the matter, the Tribunal held that the property income is assessable in the hands of the assessee

for the assessment years under consideration.

The Tribunal pointed out that the property was purchased by the assessee according to the abovesaid compromise decree and subsequently a

major portion of the property was sold for a sum of Rs. 2,15,000 under a sale deed dt. 21st Aug., 1975 by the assessee to the Tamil Nadu Govt.

Agricultural Graduates Association, Madras, and the sale proceeds were invested by the assessee. Throughout the period in question the assessee

was in possession of the property and enjoying the income therefrom. The assessing authorities, ignoring all these aspects, probed the matter and

ultimately came to the conclusion that the assessee is not the owner of the property. As against the compromise decree passed in O.S.A. No. 37

of 1972 such a finding rendered by the assessing authorities is not acceptable. The question as to who is the owner of a particular property

depends upon the facts of each case and on appraising the facts arising in this case, the Tribunal came to the conclusion that the assessee is the

owner of the property in question. Under such circumstances, we consider that no question of law arises out of the order of the Tribunal as framed

and suggested at the instance of the Department. Accordingly, we answer the question referred to us in the affirmative and against the Department.

There will be no order as to costs.