TMI Blog1980 (10) TMI 59X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. - - - - - Dated:- 10-10-1980 - Judge(s) : A. P. SEN., E. S. VENKATARAMAIAH JUDGMENT The judgment of the court was delivered by SEN J.-This appeal on certificate under s. 65(1) of the Estate Duty Act, 1953 (hereinafter referred to as " the Act "), arises from a judgment of the Allahabad High Court delivered on a case stated under s. 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 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 K. M. Mitra, deceased, whether those shares, in the circumstances of the case, constituted property which passed on the death of Sri K. M. Mitra for the purposes of section 5 of the Estate Duty Act ? " The facts giving rise to the reference are these , The late Sri K. M. Mitra died on February 11, 1957, leaving a large ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed 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 1,600 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 share be allotted to his wife, Smt. N. Mitra, three sons, Aloke Mitra, Ashoke Mitra and Deepak Mitra, brother-in-law, B. N. Ghosh and an ex-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. and 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 2,006 by Mitra Prakashan Pvt. Ltd. and 1,605 by Maya Press Pvt. Ltd. Out of these, 2,002 and 1,602 shares respectively were held by the deceased and his nominees. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 of the Hindu Succession Act, 1956, held by her as fall 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 q ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 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 names of the 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. The main question involved in the appeal is whether in the case of 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 s. 5 of the Act, or being so held by the benamidar, it cannot be deemed to pass on his death because of s. 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 s. 5(1) and s. 6 and their relationship to one another, namely, whether the chargeability of estate duty under s. 5(1) of the Act, is limited and controlled by s. 6. The Estate Duty Act, 1953, imposes a tax upon the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompetent 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 5(1) and 6 being mutually exclusive, the application of s. 5 accordingly precludes recourse to s. 6. The other and the better view appears to be that s. 5(1) alone is capable of imposing a charge of duty and where both s. 5(1) and s. 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 s. 6 has brought property within the charge of duty " either alone " as in the case of competency to dispose of under s. 6, which could not be supposed to " pass on death " or concurrently with s. 5, its function is at an end. In England, the Finance Act, 1894 (57 58 Vict. c. 30) imposed by s. 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 s. 1 without the aid of s. 2(1), one is not concerned with s. 2(1). Lord Macnaghten's exposition of the inter-relation of ss. 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 confidence that excluded the possibility of any alternative view. In Attorney-General v. Milne [1914] AC 765, 769; 2 EDC 8, 13 (HL), Lord Haldane, after referring to Earl Cowley's case [1899] AC 198; 1 EDC 193 (HL), said : Section 2 is thus not a definition section, but an independent section operating outside the field of section I." Lord Atkinson, however, adopted Lord Haldane's earlier view, treating s. 2 as merely supplementary to s. 1, and as designed to make liable to estate duty certain dispositions of property which were outside the scope and beyond the reach of s. 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iew expressed by Lord Macnaghten in Earl Cowly's case [1899] AC 198; 1 EDC 193 (HL), that is, established that s. 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. 2. Russell L.J., in delivering the judgment of the Court of Appeal, resolved the doubts as to the relationship of ss. 1 and 2 of the Act, and rejected the contention of the taxpayer observing ([1971] Ch 145, 165 [1970] 76 ITR 53, 58): "It was certainly not decided by the majority [in Arnholz's case [1960] AC 398; [1961] 43 ITR (ED) 19 (HL)] that, as a matter of construction, the entire content of 'property which passes on a death' in section 1 was to be found in section 2 ...... .." As regards the relationship of ss. 1 and 2, he stated ([1971] Ch at p. 164; [1970] 76 ITR at p. 57): " 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 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h 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 some time 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 s. 41 of the Transfer of Property Act and further observed (p. 4) : " 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 a declaration that he was the beneficial owner thereof notwithstanding the fact that his wife was the ostensible owner. Bat, so long as the husband does not have any recourse to those proceedings for obtaining such a relief, he could not have been in a position to dispose of the property standing in the name of a third p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o-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 person '. The object of section 6 is to catch properties in the net of section 5(1) 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 revoked or not and will be covered by section 6. Similarly, property in respect of which the deceased had a 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 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. 5. All that has been said above is sufficient to dispose of the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... standing in his name and the 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 [1919] LR 46 IA 1 ; [1919] 49 IC 1, the judicial Committee referred to the judgment of Sir George Farwell in Mst. Bilas Kunwar v, Dasraj Ranjit Singh [1915] LR 42 IA 202; 30 IC 299 (PC) where it was observed that a benami transaction had 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 (49 IC at p. 5, col. 1) : "...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 v. Ram Ditta [1927] LR 55 IA 235; AIR 1928 PC 172, the judicial Committee reiterated the principle laid down in Gopeekrist Gosain's case [1854] 6 MIA 53 (PC), and observed that in the case of ben ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. CIT [1957] 31 ITR 28 (SC), Per Venkatarama Ayyar J. and Thakur Bhim Singh v. Thakur Kan Singh [1980] 3 SCC 72, Per Venkataramiah J.) In the light of these settled principles the Iiability 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 the deceased would escape the duty altoge ..... X X X X Extracts X X X X X X X X Extracts X X X X
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