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

The facts giving rise to the reference are these: The late Sri K.M. 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. 3, 75, 235. 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. T he 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, and his three sons, Aloke Mitra, Ashoke Mitra and Deepak Mitra, brother-in-law B.N. Ghosh and an ex-employee, R.N. 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 s. 64(1) of the Act the Appellate Tribunal referred the question whether the shares allotted to the wife o f the deceased as his nominee or as benamidar, were, as from the commencement ofthe Hindu Succession Act, 1956 held by her as a full owner thereof by virtue of provisions of s. 14 of thatto 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 s. 14 of the Hindu Succession Act were not attracted as she was not possessed of any right ormaterial 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, B.N. 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. 2, 07, 500 and the printing business to Maya Press Pvt. Ltd. for Rs. 1, 64, 800. It was agreed that the consideration would be paid by Mitra Prakashan Pvt. Ltd. in the form of cash to the extent of Rs. 7, 500/- 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. 4, 800/- in cash and the balance of Rs. 1, 60, 000 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 B.N. Ghosh and and-employee, R.N. 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. an d 225 shares in Maya Press 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 Ma ya 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 n ot make any contribution for theirthese 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 t rue 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 theupholding 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 personal accounts of the deceased, Aloke Mitra and the deceaseds wife the account of the deceaseds 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 thealready stated, the only question of law in the opinion of the Appellate Tribunal which could be referred under s. 64(1) 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 ofthe Hindu Succession Act, 1956 held by her as full owner thereof by virtue of the provisions of s. 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 s. 64(3) 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. v. C.I.T. held that the finding was not open to review under s. 64(1) of theanswering 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 v. Controller of Estate Duty and Smt. Denabai Bomab Shah v. 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 t o s. 5(1) of the Act. Following the view in Smt. Shantabai Jadhavs case and Smt. Denabai Bomab Shahs case the High Court 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. On this wrongful assumption, the High Court held that the deceased remained incompetent to transfer the shares till his death, and so, t he property in them would not be deemed to pass upon his death by reason of s. 6 and, therefore, they were not includible in the estate of the deceased under s. 5(1) of theController of Estate Duty, U.P. v. T.N. Kochhar the High Court following the judgment under appeal,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 hisHigh Court seems to assume that there is some interrelation between ss. 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 s. 5(1) 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 s. 6 of the Act.

Reasoning:
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.