http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 6  

PETITIONER: MOHAN SINGH OBEROI

       Vs.

RESPONDENT: COMMISSIONER OF INCOME-TAX, WEST BENGAL

DATE OF JUDGMENT29/11/1972

BENCH: KHANNA, HANS RAJ BENCH: KHANNA, HANS RAJ HEGDE, K.S. REDDY, P. JAGANMOHAN

CITATION:  1973 AIR  651            1973 SCR  (1)1057  1973 SCC  (3) 491

ACT: Income-tax-Shares standing in the names of wife and sons  of assessee-Dividend income, from shares-When to be included in total income of assessee-Burden of proof.

HEADNOTE: For  the assessment years 1953-54 and 1954-55 the  appellant showed the gross dividend derived by him from shares held by him, as his income.  The Income-tax Officer however included in  the  assessee’s  income the gross  dividend  of  certain shares held by the assessee’s wife and sons.  The  Appellate Assistant  Commissioner confirmed the order.  The  Appellate Tribunal  held in favour of the assessee on the ground  that though  the  shares  might have been  acquired  out  of  the secreted  profits  of the appellant, in the absence  of  any evidence that the shares remained in substance the  property of  the assessee, the dividend income could not be  included in  his total income, and that it was only the wife and  the sons  of  the assessee, who were registered holders  of  the shares, that could be assessed for the dividend income  from those shares. The High Court, in reference, held against the assessee. Dismissing the appeal to this Court, HELD  : (1) The order of the Income-tax Officer showed  that it had been admitted by the assessee in the past, before the Department,  that  the shares in question, standing  in  the name  of  the  assessee’s wife and  sons,  belonged  to  the assessee and were his own investments., The Tribunal nowhere observed  that  the observations of the  Income-tax  Officer were factually incorrect or that the said admission had  not been  made  by the assessee.  There was  ample  material  to justify  the inference that the assessee was the real  owner of  the shares and that they were held by him benami in  the name of his wife and sons. [1061 E-F, G-H] (2)  If  the Tribunal had given a finding that the  purchase was not benami,     and  if  the finding was based  on  some evidence, the same would have to   be accepted in proceeding in  reference under s. 66(1) of the Indian  Income-tax  Act, 1922.   But the tribunal nowhere dealt with the question  as to  whether the purchase of shares was or was not benami  in the name of the wife and sons of the assesses [1O63 B-C]

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 6  

(3)  Once it was found that the assessee was the real  owner of the shares and that they had been purchased benami in the names  of his wife and sons, it would be presumed  that  the ownership  of the shares continued to remain vested  in  the assessee,  unless it was shown by ’him that because of  some subsequent  event,  he  had ceased to be  the  own"  of  the shares.  Therefore. even thought the wife and sons were  the registered  holders of the shares. the dividend income  from those  shares should be assessed as the  assessee’s  income. The tribunal excluded the dividend income on a ground  which was not legally tenable. [1062 E-H] Kishanchand Lunidasing Balaji v. Commissioner of Income Tax, [1966] 60 I.T.R. 500 followed. 1058 Howrah Trading Co. v. Commissioner of Income tax, [1959]  36 I.T.R.  215  and Meenakshi Mills v. Commissioner  of  Income Tax, [1956] S.C.R., 691 referred to.

JUDGMENT: CIVIL  APPELLATE JURISDICTION : Civil Appeals Nos. 2492  and 2493 of 1969. Appeals  by special leave from the judgment and order  dated November 25, 1969 of the Calcutta High Court in I. T.  Refe- rence No. 149 of 1963. S.   T.  Desai,  T.  R. Bhasin, R.  N.  Banerjee  and  Lalit Bhasin,  Ravinder Narain, J. B. Dadachanji and O. C.  Mathur for the appellants. B.   Sen, P. L. Juneja, S. P. Nayar and R. N. Sachthey,  for the respondent. KHANNA,  J. These two appeals by special leave are  directed against  the  judgment  of Calcutta High  Court  whereby  it answered the following question referred to it under section 66(1) of the Indian Income Tax Act, 1922 in the negative  in favour of the revenue               "Whether on the facts and in the circumstances               of  the  case, the Tribunal was  justified  in               excluding  from the assessable income  of  the               assessee for the assessment years 1953-54  and               1954-55 the sums of Rs. 56,586 and Rs.  39,542               which were the amounts of dividend received by               the  assessee’s wife and two sons from  shares               acquired out of the profits of the assessee ?" The matter relates to assessment years 1953-54 and  1954-55, the  corresponding previous years for which ended  on  March 31,  1953 and March 31, 1954 respectively.   The  appellant- assessee  is the Managing Director of Messrs  Hotels  (1938) Ltd. and other associated companies controlling a number  of hotels in India.  For the assessment years 1953-54 and 1954- 55,  the  appellant  showed incomes of Rs.  66,694  and  Rs. 87,570  as  the  gross  dividend derived  by  him  from  the following shares held by him (i)  Associated Hotels of India Ltd.                        109, 606 shares (ii) Northern India Caterers Ltd.  20 shares (iii) Oberoi Hotels 1) Ltd.        10 shares The  Income  Tax  Officer  found  that  besides  the   above mentioned  shares,  the appellant’s wife and two  sons  held shares of Associated Hotels of India Ltd. and Northern India Caterers  Ltd.  and  included the gross  dividend  of  those shares in the total income of the 1059 assessee.   In the order relating to assessment  year  1953- 54,the Income Tax Officer in this context observed as  under

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 6  

:               "Besides the income shown from the above  men-               tioned  shares  of the above  named  concerns,               other income from dividends which are held  by               Benamidars  of  the assessee have also  to  be               assessed in the hands of the assessee.  It  is               seen from the past records that the  following               shares  standing in the names of the  assessee               wife  Sm. 1. D. Oberoi and the assessee’s  two               sons,  namely, Mr. P.R.S. Oberoi and Mr.  T.R.               Oberoi  do in fact belong to the assessee  and               are his own investments.  The facts have  also               been  admitted  by  the  assessee  before  the               department in the past years.  The income from               these  shares is therefore to be  rightly  in-               cluded  in  the  hands  of  the  assessee  and               assessed        accordingly. ------------------------------------------------------------- Name of shareholder                           Gross                                             dividend                                                Rs. ------------------------------------------------------------- 1.   Sm. 1. D. Oberoi, wife of the assesseed.  (a)     15,886  shares  of  Associated  Hotels  (1)   Ltd.) 3,971      (b)   30 shares of Northern India Caterers Ltd. 15,273 2.   Mr. T.R. Oberoi, son of the assessee.       (a) 50 Shares of Northern       India Caters Ltd.  25,454       (b) 6, 823 shares of Associated Hotels (1) Ltd.  1,706 3.     Mr. P.R.S. Oberoi son, of the assessee.        (a) Northern India Caterers Ltd (20 shares).10,182  56,586 ------------------------------------------------------------------ Similarly,  for  assessment  year  1954-55  the  Income  Tax Officer included the following dividends in the total income of the assessee: ------------------------------------------------------------------ -      Name of the shareholders Net           Dividend ------------------------------------------------------------------ -      Smt. I.D. Oberoi      15,886 shares of Associated Hotels of India Ltd.  3,177      30 shares of Northern India Caterers Ltd.    10,500      Shri T.R. Oberoi      50 shares of Northern India Caterers Ltd.    17,500      6,823 shares of Associated Hotels of India Ltd.   1,365      Shri P.R.S. Oberoi:      20 shares of Northern India Caterers Ltd..   7,000                                                    39,542 When   the  assessee  went  up  in  appeal,  the   Appellate Assistant  Commissioner  observed  that  the  stand  of  the assessee that the dividend in respect of the shares held  by his  wife and two sons should not be included in his  income had  already  been  negatived  by  the  Appellate  Assistant Commissioner as per order dated Nov- 16-521 Sup CI/73 1060 ember  24,  1959  for  the  assessment  year  1952-53.   The Appellate  Assistant Commissioner accordingly  repelled  the contention on behalf of the assessee that the amounts of Rs. 56,586 and Rs. 39,542 should not be included in his  income. In the order dated November 24, 1959 for the assessment year

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 6  

1952-53,  the Appellate Assistant Commissioner had  referred to   the   following   observations  of   the   Income   Tax Investigation Commission :               "It  was  found that Sri M.  S.  Oberoi  owned               78,650 ordinary shares in his own name, 15,885               shares  in the name of his wife Sm.   Iswarani               Debi,  6823  shares in the name of Sri  T.  R.               Oberoi  and  5,000 shares in the name  of  his               daughter  Sm.  Rajarani Kapoor out of a  total               of 2000,000 ordinary shares issued and paid up               as on 31-2-47".               Reliance  was also placed upon  the  following               extract   from  a  letter  addressed  by   the               assessee to the Commission               "In preparing the statement of wealth, I  have               taken  into account all the assets of which  I               and other members of my family are  possessed.               According to the statement of wealth furnished               the evaded income comes to Rs. 20 lakhs.   All               the  money that was evaded is invested  mainly               in  the shares of Associated Hotels  of  India               Ltd.   There has been great fall in the  price               of  these shares.  In fixing up  my  liability               and the payment thereof due account will  have               to  be  taken of the fall in prices  of  these               shares and my capacity to pay." It  was  also  found  that  the  Income  Tax   Investigation Commission had held that the shares had been acquired by the assessee  out of the suppressed income which was  determined to be Rs. 16,62,21 1. In  second appeal before the Income Tax Appellate  Tribunal, the  assessee  contended that the Income  Tax  Investigation Commission had considered only the shares of the  Associated Hotels  of India, but the bulk of dividend included  in  the assessee’s  income in the two assessment years  in  question was  the dividend declared by Northern India Catereres  Ltd. Contention  was  further  advanced that  assuming  that  the shares  in  question  were acquired out  of  the  assessee’s secreted  profits in 1943, the wife and the two sons of  the assessee  could only be assessed in respect of the  dividend income as they were the registered holders of those  shares. These  contentions  found  favour with  the  Tribunal.   The Tribunal  accordingly directed that the income assessed  for the assessee should be reduced by the amounts of Rs.  56,586 and  Rs. 39,452 in the assessment years 1953-54 and  1954-55 respectively.  On application filed by the Commissioner, the question  reproduced  above was thereafter referred  to  the High Court. 1061 The  High Court ,in answering the question in the  negative, observed  that the shares in question had been purchased  by the  assessee in the name of his wife and two sons  and,  in the  circumstances,  the  natural  inference  was  that  the purchases were benami transactions.  It was, in the  opinion of the High Court, for the assessee to discharge the  burden which  lay  upon him to show that the shares  had  not  been purchased by him benami in the name of his wife and sons but he had failed to discharge that burden.  The High Court also held  that the real owner could be assessed on the  dividend income  even  though his wife and sons were  the  registered holders  of  the  shares.   In  the  result,  the   question referred, as already mentioned earlier, was answered in  the negative. In  appeal before us, Mr. Desai on behalf of  the  assessee- appellant has contended that the High Court was in error  in

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 6  

interfering  with the finding of the Tribunal that the  wife and  the two sons of the assessee, who were  the  registered holders  of the shares in question, could only  be  assessed for the dividend income from those shares.  In this  respect we find that the question referred to the court assumes that the shares on account of which the wife and the two sons  of the assessee received the dividend amounts of Rs. 56,586 and Rs.  39,542  had  been acquired out of the  profits  of  the assessee.  In addition., to that, we find that the order  of the Income Tax Officer for the assessment year 1953-54 shows that it had been admitted by the assessee in the past before the  department that the shares in question standing in  the name  of the wife and two sons of the assessee  belonged  to him  and were his own investments.  Although it is  normally for  the  department to show that the apparent  is  not  the real,  in  the  present case we find that  there  was  ample material to justify the inference that the assessee was  the real owner of the shares and they were held by him benami in the name of his wife and two sons. It  was urged before us during the course of arguments  that no such admission had been made, but nothing was brought  to our  notice to show that the above observation made  by  the Income  Tax Officer had been challenged in appeal., No  copy of  the memorandum of appeal filed against the order of  the Income Tax Officer has been produced.  We also find that the above   observation  containing  the  admission   has   been incorporated in the statement of the case and is an integral part  of it.  The Tribunal nowhere observed that  the  above observation  was  factually  incorrect  and  that  the  said admission  had  not been made by the assessee.  It  was  not even  mentioned that the above admission was erroneous.   On the  contrary, the Tribunal took the view that as  the  wife and two sons of the assessee were the registered holders  of the  shares in question, dividend income from  those  shares should  have been assessed as their income and not  that  of the assessee.  The Tribu- 1062 nal  in this context relied upon the decision of this  Court in  Howrah  Trading Co. v. Commissioner  of  Income  Tax(1). What  was held in that case was that a person who  purchases shares  in a company under blank transfer and in whose  name the  shares  have not been registered in the  books  of  the company  is  not a "shareholder" in respect of  such  shares within the meaning of section 18(5) of the Indian Income Tax Act,  1922  notwithstanding  his  equitable  right  to   the dividend  on such shares.  It was further held that  such  a person was not entitled to have his dividend income  grossed up  under  section 16(2) of the Act by the addition  of  the income tax paid by the company in respect of those shares. The decision in Howrah Trading Co. (supra) was considered by a larger bench of this Court in Kishanchand Lunidasing Bajaj v.   Commissioner  of  Income Tax(2).  It was held  in  that case  that a company for its purpose does not recognise  any trust   or  equitable  ownership  in  shares.    It   merely recognizes the registered shareholder as the owner and  pays dividend to that shareholder.  But the shares may because of a trust or other fiduciary relationship, belong to a  person other  than  the registered shareholder,  and  the  dividend distributed  by the company would for the purpose of tax  be deemed  to accrue or arise to the real owner of the  shares. The  scheme  of  "grossing  up", it  was  observed,  is  not susceptible  to  the  interpretation that  the  income  from dividend  is  to  be  regarded as the  income  only  of  the registered  shareholder  and not of the real  owner  of  the shares.   In the aforesaid case, shares were  acquired  with

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 6  

the  funds  of a Hindu undivided family in the name  of  the karta.  It was held that the Hindu undivided family could be assessed to tax on the dividend from those shares. We thus find that the Tribunal excluded the dividend income on a ground which was not legally tenable. The Tribunal also observed that though the shares might have been acquired out of the secreted profits of the  appellant, in  the absence of any evidence that the shares remained  in substance the property of the assessee, the dividend  income could not be included in his total income.  The approach  of the Tribunal in this respect too was erroneous.  Once it was found that the assessee was the real owner of the shares and they had been purchased benami in the name’ of his wife  and two  sons,  it would be presumed that the ownership  of  the shares continued to remain vested in the assessee,’unless it was  shown  that because of some subsequent  event,  he  had ceased  to be the owner of the shares.  No such attempt  was made by the assessee. In  view of the admissions referred to in the order of  the Income Tax Officer, nothing hinges, in our opinion, upon the fact (1)  [1966] 60 I.T.R. 5000. 1063 that the shares referred to in the letter of the assessee to the  Income Tax Investigation Commission were mainly of  the Associated  Hotels  of  India  and  not  of  Northern  India Caterers Ltd. We may also observe that if the Income Tax Appellate  Tribu- nal records a finding on the point as, to whether a purchase was  made  benami  or not, such a  finding  as  observed  in Meenakshi  Mills v. Commissioner of Income Tax(1)  would  be considered to be one of fact.  If such finding is based upon some  evidence,  the  same  would have  to  be  accepted  in proceedings in a reference under section 66(1) of the Indian Income  Tax  Act.  This aspect, however, does not  help  the assessee  in the present case because the  Tribunal  nowhere dealt with the question as to whether the purchase of shares was  or was not benami in the name of the wife and  sons  of the assessee. Submission was made by Mr. Desai during the course of  argu- ments for adjournment of the appeal to enable the  assessee- appellant to produce the detailed findings of the Income Tax Investigation  Commission.  We, however, declined to  do  so as, in our opinion, the appeal had to be disposed of on  the basis of the material before us. As  a result of the above, we dismiss the two  appeals  with costs.  One hearing fee. V.P.S.                   Appeals dismissed. (1) [1956] S.C.R. 691. 1064