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PETITIONER: THE CONTROLLER OF ESTATE DUTY, LUCKNOW

       Vs.

RESPONDENT: ALOKE MITRA

DATE OF JUDGMENT10/10/1980

BENCH: SEN, A.P. (J) BENCH: SEN, A.P. (J) VENKATARAMIAH, E.S. (J)

CITATION:  1981 AIR  102            1981 SCR  (1) 943  1981 SCC  (2) 121

ACT:      The Estate  Duty Act,  1953-S. 5  sub-s. (1)  and s. 6- Inter relation  of-Whether  property  held  by  a  benamidar passes upon  the death  of the  real  owner  and  should  be brought to  charge under sub-s. (1) of s. 6 of the Act or is deemed to pass under s. 6.      Words & Phrases-Benami-Benamidar-Meaning of.

HEADNOTE:      One M carried on the business of printer and publisher. In 1953  his brother-in-law  alongwith  some  other  persons floated two  companies a  publishing  firm  and  a  printing press. Under  an agreement  dated May  29, 1953  M agreed to transfer his business to the newly floated companies, and on January 24, 1954 he wrote letters intimating that the shares in the  companies be  allotted to  his wife, his 3 sons, his brother-in-law and  an ex-employee.  The companies  allotted the shares accordingly. 502 shares were allotted to M in his own name  in the  publishing firm  and  225  shares  in  the printing  press.  Of  the  remaining,  2002  shares  in  the publishing firm  and 1602  shares in the printing press were allotted to M and his nominees. M died on February 11, 1957. On his  death the respondent, the accountable person filed a return of  estate duty in which he included the value of the 502 shares  in the  publishing firm  and 225  shares in  the printing press.      The Assistant  Controller of Estate Duty did not accept this part  of the return and included the 2002 shares in the publishing firm  and  1602  shares  in  the  printing  press standing in  the name  of the  wife of  the deceased,  his 3 sons, brother-in-law  and the  ex-employee, since  they were holding these shares benami, and included the value of these shares in the principal value of the estate of the deceased.      In appeal,  the Central  Board  of  Direct  Taxes,  the Appellate Tribunal affirmed this order. It 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  his  letters dated January  24, 1954 to the two companies that the shares

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should be  issued and  allotted in  the names of the persons nominated by  him. If  the  deceased  intended  to  make  an outright gift of the shares, he would have very 944 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.      The High  Court  answered  the  reference  against  the appellant and in favour of the accountable person. Following the decisions  of the Andhra Pradesh High Court in Shantabai Jadhav v.  Controller of  Estate Duty  (1957) 31  ITR 28 and Smt. Denabai  Bomab Shah v. Controller of Estate Duty (1964) 51 ITR (ED) 1 it 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.  As the deceased, remained incompetent to transfer the  shares till  his death,  the property  in them would not  be deemed  to pass  upon his  death by  reason of section 6  and therefore,  they would not be included in the estate of the deceased under section 5(1) of the Act.      Allowing the appeal, to this Court ^      HELD: 1. The liability to pay estate duty under section 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. [961B]      2. The  finding being that the shares were purchased by the deceased  benami in  the name  of his wife and sons, the real ownership  of the  property was  vested in the deceased who was entitled to deal with the same as if it were his own and the  benamidars held it in trust under section 82 of the Trust Act, 1882 for the benefit of the deceased. The estate, therefore, belonged  to the  deceased who  died possessed of the same  and under section 5(1) of the Act the entire value of the  shares was  includible in the principal value of the estate of the deceased on his death. [961C-E]      3. (i) 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  and gifts made within  limited period  before death. Primary liability falls on the deceased’s estate. [950H; 951A]      (ii) The  scheme of  the Act is two fold. Firstly there are properties  which pass on the death of a person. Section 5(1) imposes  duty  on  their  value.  Secondly,  there  are properties in which the deceased had an interest or power of appointment and  which really  do not pass on his death. The scheme of  the Act  is to  impose duty  on the value of such properties also.  In the  second class  will fall provisions like sections  6, 7,  8, 9 and 10. The Act creates a fiction of law  to declare  that the  properties mentioned  in those sections will  be deemed  to pass  on the death of a person, though they do not ’pass’ in fact. [957D-E]      (iii) 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 gifts  is property which the donor is competent to dispose of  whether the  gifts is revoked or not and will be covered by section 6. Similarly property in respect of which the deceased  had the  power of  appointment will  also fall

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within section 6. [957H; 958A]      O.S. Chawla  v. Controller of Estate Duty (1973) 90 ITR approved. 945      4. 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. [958B]      5. By no rule of construction can the operation of sub- section (1)  of section  5 of  the Act  be curtailed  by the operation of section 6. It is in addition to or supplemental of the  provisions of sub-section (1) of section 5, which is the charging section. [951E]      In the  instant case,  it has been established 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-section (1) of section 5. [958C]      Smt. Denabai  Bomab Shah  v. Controller  of Estate Duty (1967) 66 ITR 385 and Smt. Shantabai Jadhav v. Controller of Estate Duty (1964) 51 ITR (ED) 1 disapproved.      6. (i)  The provisions  of sections  5 and 6 of the Act are somewhat  similar to  those of  sections 1  and 2 of the Finance Act, 1894 in England. [955F]      (ii) The precise relationship between sections 1 and 2, before the  law was amended in 1969, was a question on which judicial opinion  fluctuated widely.  For over  sixty  years they were  regarded as  mutually  exclusive  and  having  in dependent fields  of operation,  the view  was that property could not  be liable  to duty  concurrently. In  a situation where both  sections 1  and 2  might apply,  section 1  took priority and excluded liability. [952D-E]      Earl  Cowley  v.  Inland  Revenue  Commissioners,  L.R. [1899] A.C. 198, Attorney General v. Milne, L.R. [1914] A.C. 765, Nevill  v. Inland Revenue Commissioners, LR [1924] A.C. 385 referred to.      (iii) In Public Trustee v. Inland Revenue Commissioners (Re Ambody)  LR [1960]  AC 398 the House of Lords struck the discordant note,  holding that  section 1 imposed the charge in general  terms and  section 2 by exclusion and inclusion, defined area of that charge. In Weir’s Settlement Trusts, Re Mc Pherson  v. Inland  Revenue Commissioners LR [1971] Ch.D. 145 the  Court of  Appeal resolved  the  doubts  as  to  the relationship of these two sections. [954C; G, 955A]      7. 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 property to them, the onus rests upon them to establish such a gift. When the benamidar is in  possession of  the property, standing in his name, he is in  a sense  the trustee for the real owner; he is only a name-lender or an alias for the real owner. [1958F; 959A]      Gopeekrist Gosain  v. Gungapersaud  Gosain (1854) 6 MIA 53, Sura Lakshmiah Chetty v. Kothandarama Pillai L.R. [1924- 25] 52  IA 286,  Shree Meenakshi Mills Ltd. C.I.T. (1957) 31 ITR 28 referred to. 946      8. A  benamidar has  no interest at all in the property standing in  his name A benamidar 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 owner thereof. [960E]

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    Mayne Hindu Law 11th Edn. p. 953 referred to.

JUDGMENT:      CIVIL APPELLATE  JURISDICTION: Civil Appeal No. 1712 of 1973.      From the  Judgment and  Order dated  20-5-1971  of  the Allahabad High  Court in  Estate Duty  Reference  No.  95/66 connected with Estate Duty Reference No. 78/69.      S.C. Manchanda, K.C. Dua and Miss A. Subhashini for the Appellant.      P.K. Mukherjee and Pramod Swarup for the Respondent.      The Judgement 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 of Estate Duty 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 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.  The  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, 947 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 of the deceased as his nominee or as benamidar, were, as from the commencement of the Hindu Succession Act,  1956 held by her as a full owner thereof by virtue of provisions of s. 14 of that Act.      According to  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 or title.      The material  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

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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. and 225 shares in Maya Press 948 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 Maya 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 not make any contribution for their acquisition.      On these 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  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  benami for  the benefit of the deceased.  They  were,  therefore,  the  benamidars  of  the deceased.      While upholding  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

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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 949 personal accounts  of 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 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 the Act.      In answering  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  to s.  5(1) of  the Act. Following the  view in Smt. Shantabai Jadhav’s case and Smt. Denabai Bomab Shah’s case the High Court observed that since the shares 950 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, the 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 the Act.

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    In Controller  of Estate Duty, U.P. v. T.N. Kochhar the High Court following the judgment under appeal, observed:           "It 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 his favour."      The High  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.      The main  question involved in the appeal is whether in the case  of a 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 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.      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 951 death,  including   property  of   which  the  deceased  was competent to  dispose and  gifts made  within 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  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  death of  a person  shall   be  construed  as  including  references  to property deemed  to pass  on the  death of  such person. The expression ’property  passing on  death’ is  defined  in  s. 2(16) to  include property  passing immediately on death. In general, the word ’passes’ may be taken as meaning ’changing hands on death’ regardless of its destination.      Section 6 of the Act, upon which the controversy turns, provides:           "6. Property which the deceased was at the time of      his death  competent to  dispose of  shall be deemed to      pass on his death." By no  rule of  construction can the operation of sub-s. (1) of s. 5 of the Act be curtailed by the operation of s. 6. It is in addition to or supplemental of, the provisions of sub-

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s. (1) of s. 5, which is the charging section.      As a  matter of  construction, two  views are possible. One view is that the two sections are mutually exclusive and they have independent fields of operation. Whenever property changes hands on death, the State is entitled to step in and take a  toll of  the property as it passed without regard to its destination  or to  the degree  of relationship, if any, that may  have subsisted between the deceased and the person or persons  succeeding. Section  5(1) gives  effect to  that principle and  it imposes a duty called estate duty upon the principal value  of all  property, settled  or not  settled, which passes  on death. Section 6 does not apply to property of which  the deceased was competent 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 952 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 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, section 1 took priority and  excluded s.  2 liability.  It was laid down by the House  of Lords, in a series of cases, that section 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.  Inland  Revenue  Commissioners,  Attorney- General v. Milne, Nevill v. Inland Revenue Commissioners. In Earl Cowley’s case the House of Lords reversing the decision of the Court of Appeal, held that if the case fell within s. 1, it went out of the purview of s. 2. Lord Macnaghten after observing that  s. 1 contained the pith and substance of the enactment, stated:           "It is  comprehensive, broad  and  clear.....  The      first question as it seems to me the question that lies      at the  very threshold  of our  inquiry is simply this:      Under which  section of  the Finance  Act 1894 does the      present case  fall? Is  it the ordinary and normal case      of property  passing on  death, or  is it  one of those      exceptional cases  in which property is deemed to pass,      though there is no passing of property in fact? Does it      come under s. 1 or under s. 2?" 953

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After differing from the Court of Appeal, he went on to say:           "What the  Act has  in view  for  the  purpose  of      taxation is  property passing  on death,... Now, if the      case falls within s. 1 it cannot also come within s. 2.      The two sections are mutually exclusive.           In my opinion the two sections are quite distinct,      and s.  2 throws no light on s. 1.... But s. 2 does not      apply to  an interest  in property  which passes on the      death of  the deceased.  That is  already dealt with in      the earlier  section .... That is s. 1. You do not want      s. 2  for that.  You cannot  resort to  s. 2.  For that      would be  giving the  duty twice over. 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 a confidence that excluded the possibility of any alternative view.      In Attorney-General  v.  Milne  (supra)  Lord  Haldane, after referring to Earl Cowley’s case, said:           "Section 2  is thus  not a definition section, but      an independent  section operating  outside the field of      section 1." Lord Atkinson, however, adopted Lord Haldane’s earlier view, treating section 2 as merely supplementary to section 1, and as  designed   to  make   liable  to   estate  duty  certain dispositions of  property which  were outside  the scope and beyond the  reach of section 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:           "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, 954 ’that is  to say’-  (and then all the sub-sections) had been there inserted." In Nevill  v.  Inland  Revenue  Commissioners  (supra)  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. Inland Revenue Commissioners (Re. Arnholz) the  House of Lords after a lapse of over 60 years, however, struck  a discordant  note. The  theory of  ’mutual exclusiveness’ of  ss. 1 and 2 enunciated by Lord Macnaghten was not  accepted. It  was held  s.1 imposed  the charge  in general terms  and s.2,  by exclusion and inclusion, defined area of that charge.      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 sections or their relationship to one another. There followed  a   period  of   uncertainty  as  to  the  precise

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relationship between  the two  sections, although subsequent to Arnholz’s  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 one head.      In Weir’s  Settlement Trusts,  Re. Mc Pherson v. Inland Revenue Commissioners,  the contention on behalf of the tax- payer was  that the  decision in  Public Trustee  v.  Inland Revenue Commissioners (Re. Arnholz) established the complete reverse of  the view  expressed by  Lord Macnaghten  in Earl Cowley’s  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. 2. 955      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 tax-payer, observing:           "It was  certainly not  decided by the majority in      Arnholz’s case  that, as  a matter of construction, the      entire content  of ’property....which  passes on death’      in s. 1 was to be found in s.2." As regards the relationship of sections 1 and 2, he stated:           "Our view  of the relationship of the two sections      is as  follows. It  is s.  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 s. 1 as property which passes      on a  death. We  see no reason to hold that s. 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 s. 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 to tax under ss. 1 and 2 was inconsistent  with  the  well-known  statement  of  Lord Macnaghten in  Earl Cowley’s  case and could not, therefore, be sustained. Nevertheless, the trend of judicial opinion in England rightly  changed, as we think that Lord Macnaghten’s opinion  ought  not  to  be  regarded  as  subject  to  such refinement.      The  Andhra   Pradesh  High  Court  in  Smt.  Shantabai Jadhav’s case  (supra) held  that notwithstanding  the  fact that the property was purchased in the name of the wife, and had been included by

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956 the deceased  as his  own property in the wealth tax returns filed by him, it could not be held to be the property of the deceased, for  the purpose of its inclusion in the estate of the deceased. It was observed:           "Even assuming that the money for the purchase was      found by  her husband,  it does  not mean  that he  had      beneficial  interest   in  the  property.  Normally,  a      husband takes  a sale in the name of his wife either to      make a provision for her or to screen the property from      creditors, i.e.,  to keep  it beyond  the reach  of the      creditors. Whatever  may be  the motive, so long as the      deed stands in the name of another person, it could not      be said  that it  was competent  for  the  deceased  to      dispose of  the property.  Section 6 of the Estate Duty      Act enacts  that property which the deceased was at the      time of  his death  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 sometime  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:           "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 the  declaration that  he was  the  beneficial      owner thereof  notwithstanding the  fact that  his wife      was the  ostensible owner.  But, so long as the husband      does not  have any  recourse to  these proceedings  for      obtaining such  a relief,  he could  not have been in a      position to  dispose of  the property  standing in  the      name of  the third  person as his own. This proposition      was not  contested on  behalf of  the Central  Board of      Revenue."      In Smt. Denaabi Boman Shah’s case (supra) following its earlier decision  in  Smt.  Shantabai  Jadhav’s  case  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. 957      In Controller  of Estate  Duty v.  M. L. Manchanda, 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:      "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  right to dispose of that right, and once that      right is conceded, the property shall be deemed to pass      on her  death and  would, therefore,  be liable  to the      levy of estate duty under section 5 of the Act."      In delivering  the judgment  of the Full Bench in O. S.

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Chawla v. Controller of Estate Duty, Dwivedi J. observes:           "The scheme of the Act is two-fold. Firstly, there      are properties  which pass  on the  death of  a person.      Section 5(1)  imposes duty  on their  value.  Secondly,      there are  properties in  which  the  deceased  had  an      interest or  power of  appointment and  which really do      not pass  on his  death. The  scheme of  the Act  is to      impose duty  on the  value of  such properties also. In      the second  class will fall provisions like sections 6,      7, 8,  9 and  10. The  Act creates  a fiction of law to      declare that the properties mentioned in those sections      will be deemed to pass on the death of a person, though      they do not ’pass’ in fact."           This  two-fold   scheme  is   made  plain  by  the      definition in  section 2(16)  and section 3(3). Section      2(16) defines  the phrase  ’property passing on death’.      Section 3(3)  declares 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 death’ of such person. The statement of      objects and  reasons of the Bill which ripened into the      Act also emphasises the two-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 a      person’.           The object  of section 6 is to catch properties in      the set 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 958      revoked or  not and  will  be  covered  by  section  6.      Similarly, property  in respect  of which  the deceased      had the  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  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 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 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  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 property  to them, the onus rests upon them to establish such a  gift. In  Sura Lakshmiah  Chetty’s case, the law was

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stated with clarity by Sir John Edge in these words:           "There can  be no  doubt now  that a  purchase  in      India by  a native of India of property in India in the      name  of  his  wife  unexplained  by  other  proved  or      admitted  facts   is  to   be  regarded   as  a  benami      transaction, by  which the  beneficial interest  in the      property is  in the  husband, although  the  ostensible      title is in the wife." 959      It is  but axiomatic that a benami transaction does not vest any  title in  the benamidar  but vests  it in the real owner. When  the benamidar  is in possession of the property standing in  his name,  he is in a sense the trustee for the real owner;  he is  only a  name-lender or  an alias for the real owner.  In Petheperumal  Chetty v. Muniandy Servai, the Judicial  Committee   quoted  with  approval  the  following passage from Mayne’s Hindu Law 7th ed., para 446:           "Where a transaction is once made out to be a mere      benami, it  is evident  that the  benamidar  absolutely      disappears from  the title. His name is simply an alias      for that of the person beneficially interested." The cardinal  distinction between a trustee known to English law and  a benamidar  lies in the fact that a trustee is the legal owner  of the property standing in his name and 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, the  Judicial Committee  referred to  the judgment of Sir George  Farwell in  Mst. Bilas  Kunwar v.  Dasraj Ranjit Singh, where it was observed that a benami transaction had a 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:           "..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  the  Judicial  Committee reiterated the  principle laid  down in  Gopeekrist Gosain’s case and  observed that  in case  of a  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 960 enumerated  therein   is  that   where  a  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 well- known passage from the judgment of the Judicial Committee in Ramcoomar Koondoo v. Macqueen:           "It is  a principle  of natural equity, which must

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    be universally  applicable, that  where one  man allows      another to  hold himself out as the owner of an estate,      and a  third person  purchases it  for value  from  the      apparent owner in the belief that he is the real owner,      the man  who so  allows the  other to  hold himself out      shall not be permitted to recover upon his secret title      unless he  can other  throw that  of the  purchaser  by      showing, either that he had direct notice, or something      which amounts  to  constructive  notice,  of  the  real      title, or  that there existed circumstances which ought      to have  put him  upon an  inquiry that, if prosecuted,      would have led to a discovery of it." A benamidar 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 owner thereof.      The law  is succinctly  stated by Mayne in his Treatise on Hindu Law, 11th edn., at p. 953, in the following terms:           "A  benami  transaction  is  one  where  one  buys      property  in   the  name  of  another  or  gratuitously      transfers his  property to  another, without indicating      an intention  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." 961 (See also  : Shree  Meenakshi Mills Ltd. v. C.I.T. (1957) 31      ITR 28  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 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 the deceased would escape the duty altogether. We do not see how s. 6 of the Act comes into play at all in this case.      In view  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 of the 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 his death.      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 of Estate Duty. There shall be no order as to costs.

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N.V.K.    Appeal allowed. 962