Prohibition of Benami Property Transactions Act: Payment of advance salary by employer to its employee to defeat purpose of demonization didn’t come under purview of Benami Transaction

[2018] 100 taxmann.com 179 (PBPTA – AT) , G. Bahadur   v.  K. Visakh, Assistant Commissioner of Income-tax, Chennai

JUSTICE MANMOHAN SINGH, CHAIRMAN

FPA/PBPT/26, 32, 41, 42, 43, 44, 52, 56 & 62/CHN/2018

OCTOBER  31, 2018

Section 3, read with sections 24 and 46 of the Prohibition of Benami Property Transactions Act, 1988 – Prohibition of benami transactions – Appellant was employed in a College run by a Trust – He received Rs. 50 thousand as advance salary from said Trust – Appellant deposited entire amount in his bank account, which was subsequently withdrawn by him and consumed for his personal purposes – Initiating Officer (I.O) assumed that Chairman of said Trust had forced employees to distribute, deposit and retain his own money in demonetized currency in guise of loan received, which had to be repaid after some time in new currency – I.O, thus, held Chairman of college as beneficial owner and appellant as benamidar and passed order provisionally attaching salary bank account of appellant – However, according to appellant alleged benami property (i.e. cash) did not exist as he had deposited entire amount in his bank account which was subsequently withdrawn and used by him, much before date of attachment of salary account – Whether Authorities had purely gone on premise that cash was transferred from one person to another with an object to defeat demonetization, but same was insufficient to establish a benami transaction – Held, yes [Para 44]

FACTS

■   The appellant was employed as a security in Engineering College and was drawing salary of Rs. 28,529 p.m. The said college was run by a Trust.

■   The appellant had received an amount of Rupees 50,000 in cash from said Trust. The appellant deposited the entire amount of Rs. 50,000 in his bank account, which was subsequently withdrawn by him and consumed for his personal purposes.

■   The initiating Officer (I.O.) was of view that the Chairman had forced his employees to distribute, deposit and retain his own money in demonetised currency in the guise of loan received, which had to be repaid after some time in new currency as per his convenience, and, thus, held the chairman to be the beneficial owner and appellant as benamidar thereafter, attaching his salary bank account.

■   According to appellant IO had completely disregarding fact recorded in his sworn statement before IT Authorities that sum received in cash was his salary in advance and same was immediately returned to trust. Therefore, there was no benami property lying in the Bank account which had been attached.

■   The Adjudicating Authority had passed the order under sub-section (3) of section 26 upholding the order passed by the I.O. The main case of the appellant was that the order passed by the I.O under sub-section (4) of section 24 was wrong as it was related to a property (i.e. cash) which did not exist at all. Thus, the Approving Authority had also failed in his duties to do justice with the appellant.

HELD

■   Every cash transaction cannot be termed as a ‘benami’ transaction. As per section 2(9)(A) the following twin conditions need to be satisfied- (1) the property being held by a person who has not provided the consideration, (2) the property is held by that person for the immediate or future benefit, direct or indirect of the person who has provided the said consideration. [Para 21]

■   The characteristic of a ‘benami’ transaction is that there must be a mere lending of name without any intention to benefit the person in whose name it is made i.e. a mere name lender. The mischief sought to be punished by the Act are only such transactions which have a name lending element without deriving any benefit therein i.e. ‘benami’ transactions. [Para 22]

■   The appellant is merely employee of the Trust. The statement of Chairman has already been recorded. From the entire record, it has not been established that the appellant had any point of time hatched any conspiracy with the employer in order to conceal any cash amount or they have any link and nexus with the employer pertaining to any criminal activities. It is admitted by the respondent that they were employees with the Trust and the advance-salary received by them was against the services to be provided by them. The same would have to be treated as earned money and disclosed income. It is not a case where they have received the advance salary amount and left the job. In the present cases, there is no direct or indirect evidence available on record to show that they were involved in assisting any crime. They have already paid/adjusted the entire amount towards their salaries. [Para 25]

■   The impugned order assumes that the object of the disbursement was to bring undisclosed amount into circulation by depositing into 3rd person accounts, who did not own the money legitimately. There is no material on record about any 3rd persons accounts. Furthermore, there is no material on record to show that the lecturers owned the money illegitimately. [Para 27]

■   The only material present with the initiating officer were sworn statements. These statements only disclose a receipt of cash. This is insufficient to construe the existence of a ‘benami’ transaction. [Para 28]

■   These statements would show that the money in question was no longer with the college staff and was either returned or spent and could not have been attached. [Para 29]

■   The impugned order assumes that the object of the disbursement was to bring undisclosed amount into circulation by depositing into 3rd person accounts, who did not own the money legitimately. There is no material on record about any 3rd persons accounts. Furthermore, there is no material on record to show that the lecturers owned the money illegitimately. [Para 37]

■   The impugned order is also contrary to record with respect to the findings the sworn statements, which were recorded, were withdrawn and that the advance was beyond the paying capacity of the lecturers and staff. [Para 38]

■   The facts of the present case are clear that the property was never held by the appellants. The amount received by them have returned/adjusted towards salaries. Even the question of any arrangement in the present case does not arise as the appellants have received only advance salary from the employer under oral contract at the asking of the respondent, the same was immediately returned. The said factual position has not been denied by the respondent. This is also not a case where the person providing the consideration was not traceable or fictitious. The admitted position is that the management/employer was very much traceable, his statement was recorded, the money returned by the appellants was dealt by the department. [Para 41]

■   The existence of the ‘benami’ transaction has to be proved by the authorities i.e. the person who alleges the transaction. The authorities have failed to discharge the burden of proof. The authority has purely gone on the premise that cash is transferred from one person to another, with an object to defeat, demonetization. This is insufficient to establish a ‘benami’ transaction. [Para 42]

■   The transaction where cash is paid to person in lieu of a future promise cannot be a ‘benami’ transaction as there is no lending of name. There can be no ‘benami’ transaction if the future benefit is due from the person who is also the holder of property. The impugned order is not sustainable as it punishes the appellants for wanting to defeat the purpose of demonetization, which has no direct nexus with the Act and is beyond the purview of the Act. [Paras 43 and 44]