COMMISSIONER OF INCOME TAX Vs. MRIDU HARI DALMIA

JUDGEMENT

(1.) This income -tax reference at the instance of the Commissioner raises an interesting question. It arises out of the assessment of Shri Mridu Hari Dalmia (hereinafter referred to as "the father") for the assessment year 1970 -71, the corresponding previous year which ended 31 -3 -1970. While completing the assessment of the father for the assessment year in question, the ITO noticed that a sum of Rs. 3,542 had been earned by way of interest on a deposit of Rs. 40,000 made with Industrial Credit Co. Ltd. ("ICC", for short) in the name of the assessee's minor son Gaurav Dalmia (hereinafter referred to as "the minor son"). There was an account of the minor in the books of the father. This showed various amounts as having been advanced by the father to the minor son from time to time. The father had issued cheques in favour of the minor son as follows:

(2.) The ITO was of opinion that the deposits with the TCC had been made out of moneys belonging to the assessee and that therefore the interest thereon belonged to him though shown as having accrued or arisen to the minor. He, therefore, included the interest in the assessee's total income.

(3.) On behalf of the assessee, it was claimed that the interest earned by the minor on the deposits could not be included in the assessee's total income as the concerned deposits had been made not by the assessee but by the minor out of moneys which had been lent to him free of interest by his father. It was urged that the assessee, as the guardian of the minor son, had full power to act for his benefit: that, having regard to the statutory provisions contained in Ss. 60 to 64 of the Income - tax Act, 1961, he had so arranged matters that the transaction did not fall within the purview of these sections; and that, therefore, the interest could not be included in his hands. The ITO did not accept this version of the assessee. He pointed out that the transaction did not reflect a "loan", particularly as there could be no relationship of lender and borrower between the assessee and his minor son. According to him, the theory of a so called advance or loan by the father to the minor son was merely a make -believe, a sham and colorable transaction, a collusive arrangement and a farce. The assessee had only attempted by a device to evade the proper levy of tax. It was open to the taxing authorities to unravel the device employed by the assessee and determine the true character of the relationship. Having regard to the facts here, the minor son was not the real owner of the deposits but was only a benamidar or nominee of the assessee. In this view of the matter the ITO included in the assessment of the father the sum of Rs. 3,542 which had arisen byway of interest on the deposits with the ICC.