Civil Appeal No 1712 of 1973
From the Judgment and Order dated 20 5 1971 of the Allahabad High Court in Estate Duty Reference No 9566 connected with Estate Duty Reference No 7869
SC Manchanda KC Dua and Miss A Subhashini for the Appellant
PK Mukherjee and Pramod Swarup for the Respondent
The Judgement of the Court was delivered by SEN J
This appeal on certificate under section 651 of the hereinafter referred to as the Act  arises from a judgment of the Allahabad High Court delivered on a case stated under section 64 of the Act by which the High Court answered two of the questions against the accountable person and in favour of the Controller of Estate Duty but the third in the negative against the Controller of Estate Duty and in favour of the accountable person
We are not concerned with the first two questions but only the third which reads Assuming that the shares in dispute really belonged to Sri KM Mitra deceased whether those shares in the circumstances of the case constituted property which passed on the death of Sri KM Mitra for the purposes of section 5 of the 
 The facts giving rise to the reference are these The late Sri KM Mitra died on February 11 1957 leaving a large and extensive estate
On his death his son Aloke Mitra the accountable person filed a return of estate duty valuing the estate of deceased at Rs 375235
This included 502 shares of Rs 100 each in Mitra Prakashan Pvt Ltd and 225 shares of Rs 100 in Maya Press Pvt
Ltd held by the deceased
The Assistant Controller of Estate Duty did not accept this part of the return and included 2002 shares in Mitra Prakashan Pvt Ltd and 1602 shares in Maya Press Pvt
Ltd standing in the name of Smt
N Mitra wife of the deceased 947 and his three sons Aloke Mitra Ashoke Mitra and Deepak Mitra brother in law BN Ghosh and an ex employee RN Misra since they were holding these shares benami
He accordingly included the value of these shares in the principal value of the estate of the deceased
His order was affirmed in appeal by the Central Board of Direct Taxes that is the Appellate Tribunal
Under section 641 of the Act the Appellate Tribunal referred the question whether the shares allotted to the wife of the deceased as his nominee or as benamidar were as from the commencement of the held by her as a full owner thereof by virtue of provisions of section 14 of that Act
According to the High Court the said question did not at all arise
On the finding that the transaction was benami and that the deceased was the real owner of the shares the wife must be held to have no interest or title to the shares
She was merely a benamidar or name lender
Since she had no interest at all the provisions of section 14 of the were not attracted as she was not possessed of any right or title
The material facts of the case may now be stated
The deceased carried on the business of printer and publisher under the name and style of Maya Press
In 1953 his brother in law BN Ghosh alongwith some other persons floated two companies Mitra Prakashan Pvt Ltd and Maya Press Pvt Ltd
Under an agreement dated May 29 1953 the deceased agreed to transfer his publishing business to Mitra Prakashan Pvt Ltd for a consideration of Rs 207500 and the printing business to Maya Press Pvt Ltd for Rs 164800
It was agreed that the consideration would be paid by Mitra Prakashan Pvt Ltd in the form of cash to the extent of Rs 7500 and the balance by allotting 2000 fully paid up shares of the value of Rs 100 each to the deceased or his nominees
The other company namely Maya Press Pvt
Ltd agreed to pay Rs 4800 in cash and the balance of Rs 160000 in the form of 1600 fully paid up shares of the value of Rs 100 each to be allotted in the name of the deceased or his nominees
In pursuance of this agreement the business of Maya Press was transferred by the deceased on July 1 1953 to the two companies
On January 24 1954 the deceased wrote to the two companies letters intimating that the shares be allotted to his wife Smt
N Mitra three sons Aloke Mitra Ashoke Mitra Deepak Mitra brother in law BN Ghosh and and employee RN Misra
The companies allotted the shares accordingly
They in addition allotted two more shares to the deceased
Thus 502 shares were held by the deceased in his own name in Mitra Prakashan Pvt Ltd and 225 shares in Maya Press 948 Pvt
Ltd The rest were held by his wife sons brother in law and an ex employee
It has been found that the total number of shares issued by the two companies was 2006 by the Mitra Prakashan Pvt Ltd and 1605 by Maya Press Pvt
Ltd Out of these 2002 and 1602 shares respectively were held by the deceased and his nominees
The deceased by transferring his personal printing and publishing business to the two new companies had thus become through himself or his nominees practically the exclusive owner of these two companies
It is an admitted fact that the deceased supplied the entire consideration for the purchase of these 2002 and 1602 shares and that his wife sons brother in law or the ex employee did not make any contribution for their acquisition
On these facts both the Assistant Controller of Estate Duty as well as the Appellate Tribunal held that the share scrips standing in the name of the wife of the deceased and his sons brother in law and the ex employee really belonged to the deceased as they were mere benamidars and therefore included the value of the shares held by the deceased in the name of his wife and sons etc
in the principal value of the estate passing on his death
The true legal effect of the finding of the Appellate Tribunal is this Smt
N Mitra wife of the deceased his three sons brother in law and the ex employee held the shares benami for the benefit of the deceased
They were therefore the benamidars of the deceased
While upholding the order of the Assistant Controller the Central Board of Direct Taxes observed that the mere fact that the subject matter was the shares in the two companies would not throw any more onus of proof on the Assistant Controller than would be thrown if the subject matter was some other property
When money was paid by the deceased it was for the accountable person to prove the gift
The deceased had clearly mentioned in the letters dated January 24 1954 to the two companies that the shares should be issued and allotted in the names of the persons nominated by him
If the deceased intended to make an outright gift of these shares he would have very well said so in the letters
There being no presumption of advancement the mere fact that the shares were got issued in their names without making any indication of gift would not make the nominees recipients of any gift
Using of names of benamidars for holding of shares in companies was as common as for any other type of property
As regards the enjoyment of the income of these shares it observed that there was no clear evidence to show that the money was actually used by the nominees
It appeared that the dividends were only credited by book entry to the 949 personal accounts of the deceased Aloke Mitra and the deceased s wife the account of the deceased s wife was also credited with dividends in the names of others than Aloke Mitra
There was nothing to show that before the death of the deceased these amounts were actually withdrawn and utilised by the persons to whom they were supposed to belong
Whatever was done after the death of the deceased may by agreement between the heirs have been adjusted in the allocation of other assets and obviously could not be of any legal effect in determining the question whether the shares belonged to the deceased
As already stated the only question of law in the opinion of the Appellate Tribunal which could be referred under section 641 of the Act was whether the shares allotted to the wife of the deceased as his nominee or as benamidar were as from the commencement of the held by her as full owner thereof by virtue of the provisions of section 14 of that Act
But it declined to make a reference on the other questions holding that the finding that the shares were held by the deceased in the name of his wife and sons etc
benami was a finding of fact and it did not give rise to any question of law
The accountable person being dissatisfied moved the High Court under section 643 and it directed the Tribunal to draw up a supplementary statement of the case and refer two other questions of law said to arise from its order
When the reference came up before the High Court it declined to answer questions other than those which were questions of law
It refused to be drawn into the question of benami which was purely one of fact and not one of mixed law and fact and therefore following the decision of this Court in Shree Meenakshi Mills Ltd vs CIT held that the finding was not open to review under section 641 of the Act
In answering the reference in the negative and against the Controller of Estate Duty and in favour of the accountable person the High Court merely observed As at present advised  and preferred to follow the two decisions of the Andhra Pradesh High Court in Smt
Shantabai Jadhav vs Controller of Estate Duty and Smt
Denabai Bomab Shah vs Controller of Estate Duty taking a view to the contrary
There is no discussion in the judgment at all and it seems that its attention was not drawn to section 51 of the Act
Following the view in Smt
Shantabai Jadhav s case and Smt
Denabai Bomab Shah s case the High Court observed that since the shares 950 stood in the name of the wife and sons etc
benami for the deceased the deceased had no power to transfer since he had not obtained a release from the benamidars or a declaration from an appropriate court
On this wrongful assumption the High Court held that the deceased remained incompetent to transfer the shares till his death and so the property in them would not be deemed to pass upon his death by reason of section 6 and therefore they were not includible in the estate of the deceased under section 51 of the Act
In Controller of Estate Duty UP vs TN Kochhar the High Court following the judgment under appeal observed It is well settled that the property which stands benami in the name of another is one in respect of which the beneficial owner has no competency to dispose of
Before he can dispose of such a property he has to acquire a declaration from the appropriate court of law releasing the property in his favour
 The High Court seems to assume that there is some interrelation between sections 5 and 6
It has held that though the shares in question really belonged to the deceased they would not on the facts and in the circumstances of the case constitute property which passed  on the death of the deceased for the purpose of section 51 of the Act since the shares stood in the name of wife and sons etc
benami for the deceased but he had only beneficial interest therein inasmuch as the deceased was at the time of his death not competent to dispose of the shares and they could not be deemed to pass  under section 6 of the Act
The main question involved in the appeal is whether in the case of a benami transaction the value of the property held by a benamidar passes upon the death of the real owner and is includible in the estate of the deceased under section 5 of the Act or being so held by the benamidar it cannot be deemed to pass on his death because of section 6 of the Act and therefore the value of such property cannot be included in the principal value of the estate of the deceased
That depends upon the precise effect of section 51 and section 6 and their relation ship to one another namely whether the chargeability of estate duty under section 51 of the Act is limited and controlled by section 6
The imposes a tax upon the principal value of all properties settled or not settled passing on death or deemed to pass on death
Estate duty is chargeable at percentage rates rising with the value of the estate on all property passing on 951 death including property of which the deceased was competent to dispose and gifts made within limited period before death
Primary liability falls on the deceased s estate
The charging section is sub section
1 of section 5 which provides that in case of a person dying after the commencement of the Act estate duty is leviable on the capital value of all property settled or not settled which passes  on death at the rates fixed in accordance with section 35
That is followed by a group of sections sections 6 to 15 which relate to the levy of estate duty on properties which by the Act are deemed to pass  on death
For the avoidance of doubt it is provided by sub section
3 of section 3 that references in the Act to property passing on death of a person shall be construed as including references to property deemed to pass on the death of such person
The expression property passing on death  is defined in section 216 to include property passing immediately on death
In general the word passes  may be taken as meaning changing hands on death  regardless of its destination
Section 6 of the Act upon which the controversy turns provides 6
Property which the deceased was at the time of his death competent to dispose of shall be deemed to pass on his death
 By no rule of construction can the operation of sub section 1 of section 5 of the Act be curtailed by the operation of section 6
It is in addition to or supplemental of the provisions of sub section 1 of section 5 which is the charging section
As a matter of construction two views are possible
One view is that the two sections are mutually exclusive and they have independent fields of operation
Whenever property changes hands on death the State is entitled to step in and take a toll of the property as it passed without regard to its destination or to the degree of relationship if any that may have subsisted between the deceased and the person or persons succeeding
Section 51 gives effect to that principle and it imposes a duty called estate duty upon the principal value of all property settled or not settled which passes on death
Section 6 does not apply to property of which the deceased was competent to dispose of and which passes on his death it applies only to property which does not pass on his death but of which he was competent to dispose
Sections 51 and 6 being mutually exclusive the application of section 5 accordingly precludes recourse to section 6
The other and the better view appears to be that section 51 alone 952 is capable of imposing a charge of duty and where both section 51 and section 6 apply the property would still be dutiable under both concurrently
Section 6 is merely subsidiary and supplementary and it declares that the expression property passing on the death of the deceased  shall be deemed to include property which the deceased was competent to dispose of 
When section 6 has brought property within the charge of duty either alone  as in the case of competency to dispose of under section 6 which could not be supposed to pass on death  or concurrently with section 5 its function is at an end
In England the Finance Act 1894 57  58 Vict c 30 imposed by section 1 estate duty upon the principal value ascertained as hereafter provided of all property real or personal settled or not settled which passed on the death  of a person dying after the commencement of the Act
By section 2 sub section
1 property passing on the death of the deceased  shall be deemed to include categories of properties specified therein
The precise relationship between sections 1 and 2 before the law was amended in 1969 was a question on which judicial opinion fluctuated widely
For over 60 years they were regarded as mutually exclusive and having independent fields of operation the view was that property could not be liable to duty concurrently
In a situation where both sections 1 and 2 might apply section 1 took priority and excluded section 2 liability
It was laid down by the House of Lords in a series of cases that section 21 was not a definition section explanatory of section 1 but an independent section operating outside the field of section 1 Earl Cowley vs Inland Revenue Commissioners Attorney General vs Milne Nevill vs Inland Revenue Commissioners
In Earl Cowley s case the House of Lords reversing the decision of the Court of Appeal held that if the case fell within section 1 it went out of the purview of section 2
Lord Macnaghten after observing that section 1 contained the pith and substance of the enactment stated It is comprehensive broad and clear 
The first question as it seems to me the question that lies at the very threshold of our inquiry is simply this Under which section of the Finance Act 1894 does the present case fall Is it the ordinary and normal case of property passing on death or is it one of those exceptional cases in which property is deemed to pass though there is no passing of property in fact Does it come under section 1 or under section 2 953 After differing from the Court of Appeal he went on to say What the Act has in view for the purpose of taxation is property passing on death
Now if the case falls within section 1 it cannot also come within section 2
The two sections are mutually exclusive
In my opinion the two sections are quite distinct and section 2 throws no light on section 1
But section 2 does not apply to an interest in property which passes on the death of the deceased
That is already dealt with in the earlier section 
That is section 1
You do not want section 2 for that
You cannot resort to section 2
For that would be giving the duty twice over
The Crown cannot have it both ways
Double duty is forbidden by the Act Emphasis supplied The ratio decidendi in Earl Cowley s case was that if a case fell within section 1 without the aid of section 21 one is not concerned with section 21
Lord Macnaghten s exposition of the inter relation of sections 1 and 2 in Earl Cowley s case contained the essential characteristics of a statement of legal principle it was expressed in very precise language and with a confidence that excluded the possibility of any alternative view
In Attorney General vs Milne supra Lord Haldane after referring to Earl Cowley s case said Section 2 is thus not a definition section but an independent section operating outside the field of section 1 Lord Atkinson however adopted Lord Haldane s earlier view treating section 2 as merely supplementary to section 1 and as designed to make liable to estate duty certain dispositions of property which were outside the scope and beyond the reach of section 1 This section he said is not a definition section
He did not however say and that is significant that the two sections were mutually exclusive
Lord Dunedin took a different view
Having said that whether Lord Macnaghten was strictly correct or not in saying that whether the two sections were mutually exclusive or not seemed to him to matter little he added It seems to me that that is as much as to say that the words property passing on the death  in the first section are to be read as if the words including the property following 954 that is to say  and then all the sub sections had been there inserted In Nevill vs Inland Revenue Commissioners supra Lord Haldane said  Passes  may be taken as meaning changes hands 
The principle is contained in section 1
Section 2 combines definitions of such property with the extension of the application of the principle laid down in section 1 to certain cases which are not in reality cases of changing hands on death at all
In Public Trustee vs Inland Revenue Commissioners Re
Arnholz the House of Lords after a lapse of over 60 years however struck a discordant note
The theory of mutual exclusiveness  of sections 1 and 2 enunciated by Lord Macnaghten was not accepted
It was held s1 imposed the charge in general terms and s2 by exclusion and inclusion defined area of that charge
No clear exposition was given or required to be given on the facts of the case of what was the precise effect of the two sections or their relationship to one another
There followed a period of uncertainty as to the precise relationship between the two sections although subsequent to Arnholz s case section 1 alone was held to be still capable of imposing a charge of duty and where both sections 1 and 2 applied the property was held to be dutiable under both concurrently
If the property which passed was identical with the property which would otherwise be deemed to pass the question under which head it shall be taxed was purely academic
Estate duty is not leviable more than once on the same death in respect of any property even if it is chargeable under more than one head
In Weir s Settlement Trusts Re
Mc Pherson vs Inland Revenue Commissioners the contention on behalf of the tax payer was that the decision in Public Trustee vs Inland Revenue Commissioners Re
Arnholz established the complete reverse of the view expressed by Lord Macnaghten in Earl Cowley s case that is established that section 2 exhaustively laid down the only circumstances in which estate duty was leviable and that if the circumstance could not be brought within section 1 as being circumstances set out in section 2 that was the end of the matter the phrase in section 1 property which passes on the death  having no content independent of section 2
955 Russell LJ in delivering the judgment of the Court of Appeal resolved the doubts as to the relationship of ss1 and 2 of the Act and rejected the contention of the tax payer observing It was certainly not decided by the majority in Arnholz s case that as a matter of construction the entire content of property which passes on death  in section 1 was to be found in s2
 As regards the relationship of sections 1 and 2 he stated Our view of the relationship of the two sections is as follows
It is section 1 that imposes the charge of estate duty on the value of property described as property which passes on the death 
Section 21 does not describe a different category of property being property deemed to pass on a death
Section 21 states certain situations in relation to property which involve that property in section 1 as property which passes on a death
We see no reason to hold that section 21 was intended exhaustively to define and limit the situations in relation to property which thus involve that property
The language is not apt for that purpose and the fact that the situations envisaged embrace occasions when without guidance from section 2 1 the property would be manifestly property which passes on the death  does not mean that they embrace all such occasions
 The question is a difficult one on which there may well be divergence of opinion as reflected in these English decisions which largely turn on the construction of sections 1 and 2 of the Finance Act 1894 the provisions of which are somewhat similar to those of sections 5 and 6 of the Act
The simultaneous existence of a right to tax under sections 1 and 2 was inconsistent with the well known statement of Lord Macnaghten in Earl Cowley s case and could not therefore be sustained
Nevertheless the trend of judicial opinion in England rightly changed as we think that Lord Macnaghten s opinion ought not to be regarded as subject to such refinement
The Andhra Pradesh High Court in Smt
Shantabai Jadhav s case supra held that notwithstanding the fact that the property was purchased in the name of the wife and had been included by 956 the deceased as his own property in the wealth tax returns filed by him it could not be held to be the property of the deceased for the purpose of its inclusion in the estate of the deceased
It was observed Even assuming that the money for the purchase was found by her husband it does not mean that he had beneficial interest in the property
Normally a husband takes a sale in the name of his wife either to make a provision for her or to screen the property from creditors ie to keep it beyond the reach of the creditors
Whatever may be the motive so long as the deed stands in the name of another person it could not be said that it was competent for the deceased to dispose of the property
Section 6 of the enacts that property which the deceased was at the time of his death competent to dispose of shall be deemed to pass on his death
It is thus manifest from the section that Estate duty could be levied in respect of the properties which could be disposed of by the deceased at the time of his death
 Repelling the contention that the wife could not have alienated the properties by herself and that any disposition by her would not pass the title to such purchaser having regard to the fact that it was open to the husband to impeach the sale sometime later on the ground that the beneficial interest always vested in him consideration having been paid by him the Court relied upon the provisions of section 41 of the Transfer of Property Act and further observed Be that as it may so long as the documents stand in the name of his wife he could not dispose of the property
It is true that it was open to him to have obtained the declaration that he was the beneficial owner thereof notwithstanding the fact that his wife was the ostensible owner
But so long as the husband does not have any recourse to these proceedings for obtaining such a relief he could not have been in a position to dispose of the property standing in the name of the third person as his own
This proposition was not contested on behalf of the Central Board of Revenue
 In Smt
Denaabi Boman Shah s case supra following its earlier decision in Smt
Shantabai Jadhav s case while dealing with a similar benami transaction the High Court held that the value of property held by a benamidar could not be included in the value of the property left by the deceased 957 In Controller of Estate Duty vs M L Manchanda the Punjab and Haryana High Court following these decisions had held that property which stood in the name of wife and of which the husband was the real owner was upon the wife s death chargeable to estate duty under section 51 of the Act observing Irrespective of the fact that the husband was the true owner of the property there was nothing to prevent the wife a minute before her death to transfer the property
The legal title against the entire world excepting the true owner vested in her and she had thus the right to dispose of that right and once that right is conceded the property shall be deemed to pass on her death and would therefore be liable to the levy of estate duty under section 5 of the Act
 In delivering the judgment of the Full Bench in O section Chawla vs Controller of Estate Duty Dwivedi J observes The scheme of the Act is two fold
Firstly there are properties which pass on the death of a person
Section 51 imposes duty on their value
Secondly there are properties in which the deceased had an interest or power of appointment and which really do not pass on his death
The scheme of the Act is to impose duty on the value of such properties also
In the second class will fall provisions like sections 6 7 8 9 and 10
The Act creates a fiction of law to declare that the properties mentioned in those sections will be deemed to pass on the death of a person though they do not pass  in fact
 This two fold scheme is made plain by the definition in section 216 and section 33
Section 216 defines the phrase property passing on death 
Section 33 declares that references in the Act to property passing on the death  of a person shall be construed as including references to property deemed to pass on the death  of such person
The statement of objects and reasons of the Bill which ripened into the Act also emphasises the two fold scheme
It states that the object of the Bill is to impose an estate duty on property passing or deemed to pass on the death of a person 
The object of section 6 is to catch properties in the set of section 51 which do not really pass on the death of a person
For instance property comprised in a revocable gift is property which the donor is competent to dispose of whether the gift is 958 revoked or not and will be covered by section 6
Similarly property in respect of which the deceased had the power of appointment will also fall within section 6
 We are in agreement with the observations made by the learned Judge on the relative scope of section 5 and section 6 of the Act which bring out the true legislative intent
In applying the Act to any particular transaction regard must be had to its substance that is its true legal effect rather to the form in which it is carried out
On the facts found it has been established beyond doubt that the deceased was the real owner of the shares
The ownership which the deceased had in the shares passed on his death and must be brought to charge under sub section
1 of section 5
All that has been said above is sufficient to dispose of the appeal
It however becomes necessary to deal with the law relating to benami transactions as there is some misconception as to the nature of the rights of a benamidar
What follows is purely elementary
The law in this matter is not in doubt and is authoritatively stated by a long line of decisions of the Privy Council starting from the well known case of Gopeekrist Gosain vs Gungapersaud Gosain to Sura Lakshmiah Chetty vs Kothandarama Pillai and of this Court in Shree Meenakshi Mills Ltd vs CIT As observed by Knight Bruce LJ in Gopeekrist Gosain s case the doctrine of advancement is not applicable in India so as to raise the question of a resulting trust
When a property is purchased by a husband in the name of his wife or by a father in the name of his son it must be presumed that they are benamidars and if they claim it as their own by alleging that the husband or the father intended to make a gift of the property to them the onus rests upon them to establish such a gift
In Sura Lakshmiah Chetty s case the law was stated with clarity by Sir John Edge in these words There can be no doubt now that a purchase in India by a native of India of property in India in the name of his wife unexplained by other proved or admitted facts is to be regarded as a benami transaction by which the beneficial interest in the property is in the husband although the ostensible title is in the wife
 959 It is but axiomatic that a benami transaction does not vest any title in the benamidar but vests it in the real owner
When the benamidar is in possession of the property standing in his name he is in a sense the trustee for the real owner he is only a name lender or an alias for the real owner
In Petheperumal Chetty vs Muniandy Servai the Judicial Committee quoted with approval the following passage from Mayne s Hindu Law 7th ed para 446 Where a transaction is once made out to be a mere benami it is evident that the benamidar absolutely disappears from the title
His name is simply an alias for that of the person beneficially interested
 The cardinal distinction between a trustee known to English law and a benamidar lies in the fact that a trustee is the legal owner of the property standing in his name and cestui que trust is only a beneficial owner whereas in the case of a benami transaction the real owner has got the legal title though the property is in the name of the benamidar
It is well settled that the real owner can deal with the property without reference to the latter
In Gur Narayan vs Sheo Lal Singh the Judicial Committee referred to the judgment of Sir George Farwell in Mst
Bilas Kunwar vs Dasraj Ranjit Singh where it was observed that a benami transaction had a curious resemblance to the doctrine of English law that the trust of the legal estate results to the man who pays the purchase money and went on to say  the benamidar has no beneficial interest in the property or business that stands in his name he represents in fact the real owner and so far as their relative legal position is concerned he is a mere trustee for him
 In Guran Ditta vs Ram Ditta the Judicial Committee reiterated the principle laid down in Gopeekrist Gosain s case and observed that in case of a benami transaction there is a resulting trust in favour of the person providing the purchase money
A benamidar has no interest at all in the property standing in his name
Where the transaction is once made out to be benami the Court must give effect to the real and not to the nominal title subject to certain exceptions
In Mulla s Hindu Law 14th edn
 p 638 four exceptions to the normal rule are brought out
But these exceptions are not material in this case
One of the exceptions 960 enumerated therein is that where a benamidar sells mortgages or otherwise transfers for value property held by him without the knowledge of the real owner the real owner is not entitled to have the transfer set aside unless the transferee had notice actual or constructive that the transferor was merely a benamidar
The principle is embodied in section 41 of the Transfer of Property Act
The section makes an exception to the rule that a person cannot confer a better title than he has
The section is based on the well known passage from the judgment of the Judicial Committee in Ramcoomar Koondoo vs Macqueen It is a principle of natural equity which must be universally applicable that where one man allows another to hold himself out as the owner of an estate and a third person purchases it for value from the apparent owner in the belief that he is the real owner the man who so allows the other to hold himself out shall not be permitted to recover upon his secret title unless he can other throw that of the purchaser by showing either that he had direct notice or something which amounts to constructive notice of the real title or that there existed circumstances which ought to have put him upon an inquiry that if prosecuted would have led to a discovery of it A benamidar is an ostensible owner and if a person purchases from a benamidar the real owner cannot recover unless he shows that the purchaser had actual or constructive notice of the real title
But from this it does not follow that the benamidar has real title to the property he is merely an ostensible owner thereof
The law is succinctly stated by Mayne in his Treatise on Hindu Law 11th edn at p 953 in the following terms A benami transaction is one where one buys property in the name of another or gratuitously transfers his property to another without indicating an intention to benefit the other
The benamidar therefore has no beneficial interest in the property or business that stands in his name he represents in fact the real owner and so far as their relative legal position is concerned he is a mere trustee for him
In other words a benami purchase or conveyance leads to a resulting trust in India just as a purchase or transfer under similar circumstances leads to a resulting trust in England
The general rule and principle of the Indian law as to resulting trusts differs but little if at all from the general rule of English law upon the same subject
 961 See also  Shree Meenakshi Mills Ltd vs CIT per Venkatarama Ayyar J and Thakur Bhim Singh vs Thakur Kan Singh  Per Venkataramiah J In the light of these settled principles the liability to pay estate duty under section 5 1 of the Act arises upon the death of the real owner and not of the benamidar who is merely an ostensible owner
The test lies in whether upon the death of the benamidar there would be incidence of liability to estate duty
If the view of the High Court were to be accepted the estate left by the deceased would escape the duty altogether
We do not see how section 6 of the Act comes into play at all in this case
In view of the finding that the shares were purchased by the deceased benami in the name of his wife and sons etc
 the real ownership of the property was vested in the deceased was entitled to deal with the same as if it were his own and the benamidars held it in trust under section 82 of the Trusts Act 1882 for the benefit of the deceased
The benamidars subject to the equities flowing from section 41 of the Transfer of Property Act could not deal with the shares in any way
Accordingly the estate belonged to the deceased who died possessed of the same and under section 51 of the Act the entire value of the shares was includible in the principle value of the estate of the deceased on his death
For these reasons the judgment of the High Court is set aside and the question is answered in the affirmative and in favour of the Controller of Estate Duty
There shall be no order as to costs
NVK Appeal allowed


Summary:
One M carried on the business of printer and publisher
In 1953 his brother in law alongwith some other persons floated two companies a publishing firm and a printing press
Under an agreement dated May 29 1953 M agreed to transfer his business to the newly floated companies and on January 24 1954 he wrote letters intimating that the shares in the companies be allotted to his wife his 3 sons his brother in law and an ex employee
The companies allotted the shares accordingly
502 shares were allotted to M in his own name in the publishing firm and 225 shares in the printing press
Of the remaining 2002 shares in the publishing firm and 1602 shares in the printing press were allotted to M and his nominees
M died on February 11 1957
On his death the respondent the accountable person filed a return of estate duty in which he included the value of the 502 shares in the publishing firm and 225 shares in the printing press
The Assistant Controller of Estate Duty did not accept this part of the return and included the 2002 shares in the publishing firm and 1602 shares in the printing press standing in the name of the wife of the deceased his 3 sons brother in law and the ex employee since they were holding these shares benami and included the value of these shares in the principal value of the estate of the deceased
In appeal the Central Board of Direct Taxes the Appellate Tribunal affirmed this order
It observed that the mere fact that the subject matter was the shares in the two companies would not throw any more onus of proof on the Assistant Controller than would be thrown if the subject matter was some other property
When money was paid by the deceased it was for the accountable person to prove the gift
The deceased had clearly mentioned in his letters dated January 24 1954 to the two companies that the shares should be issued and allotted in the names of the persons nominated by him
If the deceased intended to make an outright gift of the shares he would have very 944 well said so in the letters
There being no presumption of advancement the mere fact that the shares were got issued in their names without making any indication of gift would not make the nominees recipients of any gift
The High Court answered the reference against the appellant and in favour of the accountable person
Following the decisions of the Andhra Pradesh High Court in Shantabai Jadhav vs Controller of Estate Duty and Smt
Denabai Bomab Shah vs Controller of Estate Duty 1964 51 ITR ED 1 it observed that since the shares stood in the name of the wife and sons etc benami for the deceased the deceased had no power to transfer since he had not obtained a release from the benamidars or a declaration from an appropriate court
As the deceased remained incompetent to transfer the shares till his death the property in them would not be deemed to pass upon his death by reason of section 6 and therefore they would not be included in the estate of the deceased under section 51 of the Act
Allowing the appeal to this Court  HELD 1
The liability to pay estate duty under section 51 of the Act arises upon the death of the real owner and not of the benamidar who is merely an ostensible owner
The test lies in whether upon the death of the benamidar there would be incidence of liability to estate duty
961B 2
The finding being that the shares were purchased by the deceased benami in the name of his wife and sons the real ownership of the property was vested in the deceased who was entitled to deal with the same as if it were his own and the benamidars held it in trust under section 82 of the Trust Act 1882 for the benefit of the deceased
The estate therefore belonged to the deceased who died possessed of the same and under section 51 of the Act the entire value of the shares was includible in the principal value of the estate of the deceased on his death
961C E 3
i The imposes a tax upon the principal value of all properties settled or not settled passing on death or deemed to pass on death
Estate duty is chargeable at percentage rates rising with the value of the estate on all property passing on death including property of which the deceased was competent to dispose and gifts made within limited period before death
Primary liability falls on the deceased s estate
950H 951A ii The scheme of the Act is two fold
Firstly there are properties which pass on the death of a person
Section 51 imposes duty on their value
Secondly there are properties in which the deceased had an interest or power of appointment and which really do not pass on his death
The scheme of the Act is to impose duty on the value of such properties also
In the second class will fall provisions like sections 6 7 8 9 and 10
The Act creates a fiction of law to declare that the properties mentioned in those sections will be deemed to pass on the death of a person though they do not pass  in fact
957D E iii The object of section 6 is to catch properties in the net of section 51 which do not really pass on the death of a person
For instance property comprised in a revocable gifts is property which the donor is competent to dispose of whether the gifts is revoked or not and will be covered by section 6
Similarly property in respect of which the deceased had the power of appointment will also fall within section 6
957H 958A OS Chawla vs Controller of Estate Duty 1973 90 ITR approved
945 4
In applying the Act to any particular transaction regard must be had to its substance that is its true legal effect rather to the form in which it is carried out
958B 5
By no rule of construction can the operation of sub section 1 of section 5 of the Act be curtailed by the operation of section 6
It is in addition to or supplemental of the provisions of sub section 1 of section 5 which is the charging section
951E In the instant case it has been established that the deceased was the real owner of the shares
The ownership which the deceased had in the shares passed on his death and must be brought to charge under sub section 1 of section 5
958C Smt
Denabai Bomab Shah vs Controller of Estate Duty and Smt
Shantabai Jadhav vs Controller of Estate Duty 1964 51 ITR ED 1 disapproved
i The provisions of sections 5 and 6 of the Act are somewhat similar to those of sections 1 and 2 of the Finance Act 1894 in England
955F ii The precise relationship between sections 1 and 2 before the law was amended in 1969 was a question on which judicial opinion fluctuated widely
For over sixty years they were regarded as mutually exclusive and having in dependent fields of operation the view was that property could not be liable to duty concurrently
In a situation where both sections 1 and 2 might apply section 1 took priority and excluded liability
952D E Earl Cowley vs Inland Revenue Commissioners LR  Attorney General vs Milne LR 1914 AC 765 Nevill vs Inland Revenue Commissioners LR 1924 AC 385 referred to
iii In Public Trustee vs Inland Revenue Commissioners Re Ambody LR the House of Lords struck the discordant note holding that section 1 imposed the charge in general terms and section 2 by exclusion and inclusion defined area of that charge
In Weir s Settlement Trusts Re Mc Pherson vs Inland Revenue Commissioners LR 1971 ChD 145 the Court of Appeal resolved the doubts as to the relationship of these two sections
954C G 955A 7
When a property is purchased by a husband in the name of his wife or by a father in the name of his son it must be presumed that they are benamidars and if they claim it as their own by alleging that the husband or the father intended to make a gift of the property to them the onus rests upon them to establish such a gift
When the benamidar is in possession of the property standing in his name he is in a sense the trustee for the real owner he is only a name lender or an alias for the real owner
1958F 959A Gopeekrist Gosain vs Gungapersaud Gosain 1854 6 MIA 53 Sura Lakshmiah Chetty vs Kothandarama Pillai LR 1924 25 52 IA 286 Shree Meenakshi Mills Ltd CIT referred to
946 8
A benamidar has no interest at all in the property standing in his name A benamidar is an ostensible owner and if a person purchases from a benamidar the real owner cannot recover unless he shows that the purchaser had actual or constructive notice of the real title
But from this it does not follow that the benamidar has real title to the property he is merely an ostensible owner thereof
960E Mayne Hindu Law 11th Edn
p 953 referred to