Case: Controller of Estate Duty, Lucknow Vs. Aloke Mitra

interested."37. 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 v. Sheo Lal Singh, the Judicial Committee referred to the judgment of Sir George Farwell in Mst. Bilas Kunwar v. 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."38. In Guran Ditta v. Ram Ditta the Judicial Committee reiterated the principle laid down in Gopeekrist Gosains 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 Mullas 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 enumerated therein is that w here 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 s. 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 v. 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 sec ret 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."39. 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."(See also: Shree Meenakshi Mills Ltd. v. C.I.T. (1957) 31 ITR 28 per Venkatarama Ayyar J., and Thakur Bhim Singh v. Thakur Kan Singh [1980] 3 SCC 72. Per Venkataramiah J.]40. In the light of these settled principles the liability to pay estate duty under s. 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 th e deceased would escape the duty altogether. We do not see how s. 6 of the Act comes into play at all in this case.41. 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 s. 82 of the Trusts Act, 1882 for the benefit of the deceased. The benamidars, subject to the equities flowing from s. 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 s. 5(1) of the Act the entire value of the shares was includible in the principle value of the estate of the deceased on his death.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]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 section s or their relationship to one another. There followed a period of uncertainty as to the precise relationship between the two sections, although subsequent to Arnholzs 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 oneWeirs Settlement Trusts, Re.Mc Pherson v. Inland RevenueCommissioners, the contention on behalf of the tax- payer was that the decision in PublicTrustee v. Inland RevenueCommissioners (Re. Arnholz) established the complete reverse of the view expressed by Lord Macnaghten in Earl Cowleys 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 s. 1, as being circumstances set out in s. 2, that was the end of the matter, the phrase in s. 1 property-which passes on the death having no content independent of s.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 ss. 1 and 2 of the Finance Act, 1894, the provisions of which are somewhat similar to those of ss. 5 and 6 of the Act. The simultaneous existence of a right to tax under ss. 1 and 2 was inconsistent with the well-known statement of Lord Macnaghten in Earl Cowleys case and could not, therefore, be sustained. Nevertheless, the trend of judicial opinion in England rightly changed, as we think that Lord Macnaghtens opinion ought not to be regarded as subject to suchare in agreement with the observations made by the learned Judge on the relative scope of s. 5 and s. 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-s. (1) of s.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 purelylaw 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 v. Gungapersaud Gosain to Sura Lakshmiah Chetty v. Kothandarama Pillai and of this Court in Shree Meenakshi Mills Ltd. v. C.I.T.. As observed by Knight Bruce L.J. in Gopeekrist Gosains 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 husban d 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, t he onus rests upon them to establish such abenamidar 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 ownerthe light of these settled principles the liability to pay estate duty under s. 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 th e deceased would escape the duty altogether. We do not see how s. 6 of the Act comes into play at all in thisview 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 s. 82 ofthe Trusts Act, 1882 for the benefit of the deceased. The benamidars, subject to the equities flowing from s. 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 s. 5(1) of the Act the entire value of the shares was includible in the principle value of the estate of the deceased on hisdepends upon the precise effect of s. 5(1) and s. 6 and their relation ship to one another namely, whether the chargeability of estate duty under s. 5(1) of the Act, is limited and controlled by s. 6.