Law: Income Tax Act, 1922

Section: 26,26A,66(1)

(a) Income-tax Act (RI of 1922)---S. 26-A--Income-tax--Partnership firm--Tax liability--Even if Constitution of partnership firm and execution of partnership deed made with ulterior object to reduce liability to pay income tax there was, held, no bar to assessee firm to take recourse to method or device to escape tax liability if otherwise permissible in law. (b) Benami transaction-- ---Benamidar or name lender--Distinction between two--Difficult to make--Benamidar presupposes existence of two persons, one of whom having legal ownership and other having beneficial ownership--But in addition to fact that one is a name-lender or Benamidar there might be various other facts which might lead to conclusion that firm has been brought into existence as a subterfuge to escape tax liability. (c) Income-tax Act (XI of 1922)-- ---S. 26-A--Registration--Firm--Section 26-A, Income-tax Act, 1922, providing for registration of a firm--Firm should be constituted bona fide and not to use same as a cloak to deprive state of its revenue--Such a case, held, would amount to a fraud on statute. (d) Benami transaction-- ---A Benamidar, held, possessed a legal character--Benami transaction being common, word 'Benamidar' had a legal concept which had definite legal consequences. If a partner is a Benamidar and the Benamidar has executed the document as a partner in the partnership deed for the purpose of partnership transactions and for its records, the Benamidar is the person with whom the firm is concerned although by internal arrangement between the Benamidar and the real owner the profits may be diverted to the man behind the transaction, that is, the real partner. If a partnership has been constituted in accordance with the provisions of the Indian Partnership Act and if such partnership firm and a partner carried on the business as a name-lender the name lender will have the legal character so far as the partnership firm is concerned. He will not only be the agent of the partners and partnership firm but also he will be liable to the outside world on the ground that he is holding out himself as a partner to the outsiders. Thus, a distinction between a name-lender and a Benamidar…

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