TaxTMI 
TaxTMI 
1980 (10) TMI 59
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....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 and extensive estate. On his death, his son, Aloke Mitra, the accountable person, filed a return of estate duty valuing the estate of the 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. The Asst. Controller did not accept this part of the return and included 2,002 shares in Mitra Prakashan Pvt. Ltd. and 1,602 shares in Maya Press Pvt. Ltd. standing in the names of Smt. N. Mitra, wife of the deceased, and of 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 of the deceased as his nominee or as bena....
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.... 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 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 2,002 and 1,602 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 Asst. Controller as well as the Appellate Tribunal held that the share scrips standing in the names of the wife of the deceased and of 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 names 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 benam....
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.... 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. CIT [1957] 31 ITR 28 (SC) held that the finding was not open to review under s. 64(1) of the Act. In answering the reference in the negative and against the Controller 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. CED [1964] 51 1TR (ED) 1 and Smt. Denabai Boman Shah v. CED [1967] 66 ITR 385 taking a view to the contrary. Ther....
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....r 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 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 of and gifts made within a limited period before death. Primary liability falls on the deceased's estate. The charging section is sub-s. (1) of s. 5 which provides that in the 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 s. 35. That is followed by a group of sections, ss. 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-s. (3) of s. 3 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 de....
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....ined 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 s. 2, sub-s. (1); " property passing on the death of the deceased " shall be deemed to include categories of properties specified therein. The precise relationship between ss. 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 ss. 1 and 2 might apply, s. 1 took priority and excluded s. 2 liability. It was laid down by the House of Lords, in a series of cases, that s. 2(1) was not a definition section, explanatory of s. 1, but an independent section operating outside the field of s. 1 : Earl Cowley v. IRC [1899] AC 198, Per Lord Macnaghten at pp. 211, 212, 213; 1 EDC 193, 206, 207 (HL), Attorney-General v. Milne [1914] AC 765, Per Lord Haldane L.C. at p. 769; 2 EDC 8,13 (HL) and Nevill v. IRC [1924] AC 385, Per Lord Haldane at p. 389 ; 2 EDC 219, 223, 224 (HL). In Earl....
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....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. 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 ([1914] AC 765, 775 ; 2 EDC 8, 18) : " 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, that is to say ' (and then all the sub-sections)-had been there inserted." In Nevill v. IRC [1924] AC 385, 389; 2 EDC 219, 224 (HL), 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 v. IRC: Re Arnholz [1960] AC 398; [1961] 43 ITR (ED) 19 (HL), the House of Lords after a lapse of over 6....
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.... " 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 2(1) does not describe a different category of property, being property deemed to pass on a death. Section 2(1) states certain situations in relation to property which involve that property in section.1 as property which passes on death. We see no reason to hold that section 2(1) 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 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 t....
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....and 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 person as his, own. This proposition was not contested on behalf of the Central Board of Revenue " In Smt. Denabai Boman Shah's case [1967] 66 ITR 385 (AP), following its earlier decision in Smt. Shantabai Jadhav's case [1964] 51 ITR (ED) 1, 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. In CED v. M. L. Manchanda [1974] 93 ITR 173, 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 s. 5(1) of the Act, observing (p. 177) : " 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 righ....
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....wnership 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 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 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 v. Gungapersaud Gosain [1854] 6 MIA 53 (PC) to Sura Lakshmiah Chetty v. Kothandarama Pillai [1925] LR 52 IA 286; AIR 1925 PC 181, and of this court in Sree Meenakshi Mills Ltd. v. CIT [1957] 31 ITR 28. As observed by Knight Bruce L.J. 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 prop....
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....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 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 enumerated therein is that where 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....