Benami share ownership: dividends from shares bought with family funds were taxable in the real owner's hands.

Dividends from shares bought with a husband's or father's funds but registered in the names of his wife or sons are presumptively benami, so beneficial ownership remains with the person who provided the funds unless a contrary intention to confer benefit on the nominal holders is proved. The Tribunal's view that the shares had to remain substantively the assessee's property before the dividends could be taxed was held incorrect. On that principle, the dividend income was assessable in the assessee's hands, subject to the net dividend actually received in the relevant year.

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Issues: Whether dividends arising from shares purchased out of the assessee's funds but standing in the names of his wife and sons could be excluded from the assessee's income for the assessment years 1953-54 and 1954-55.

Analysis: The reference was to be answered on the footing that a question of law raised before the Tribunal may be examined from all legally relevant aspects. The Tribunal's approach, that the dividends could not be included unless it was shown that the shares remained in substance the assessee's property, was held to be legally erroneous. Where property is acquired with the funds of a husband or father and placed in the names of wife or children, the natural inference is that the acquisition is benami unless the contrary intention is proved. The burden lies on the party asserting that the transaction was intended to confer a beneficial interest on the nominal holders. The distinction drawn by the Tribunal between shares with blank transfer deeds and shares without such deeds did not resolve the issue, and the reliance placed on the earlier decision dealing with registered shareholders did not answer the present question.

Conclusion: The exclusion of the dividend amounts from the assessee's income was not justified, and the question was answered in the negative.

Final Conclusion: The dividend income from the shares held in the names of the wife and sons was held assessable in the assessee's hands, subject to the net dividend actually received during the relevant financial year.

Ratio Decidendi: Where shares are purchased with a husband's or father's funds and registered in the names of wife or children, the acquisition is presumed benami and the beneficial ownership remains with the payer unless a contrary intention to benefit the nominal holders is proved; such dividend income is taxable in the hands of the real owner.

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