Holding

Estate duty under s.5(1) is payable on the death of the real owner; benami shares are deemed to belong to the deceased and are includable in his estate.

Summary

M. Mitra transferred his publishing and printing businesses to two newly formed companies in 1953. He instructed that the shares be allotted to his wife, three sons, brother‑in‑law and an ex‑employee, but the consideration for the shares was paid entirely by Mitra. After Mitra's death in 1957, the estate duty return filed by his son Aloke included only the shares held in Mitra's own name, while the Assistant Controller of Estate Duty treated the shares held benami as belonging to the deceased and included their value in the estate. The principal issue was whether benami shares pass on the death of the real owner and are chargeable under section 5(1) of the Estate Duty Act, 1953, or are excluded by section 6. The Supreme Court held that the liability to pay estate duty arises on the death of the real owner, not the benamidar, and that the benami shares were held in trust for the deceased and therefore includable in his estate. Consequently, the appeal of the Controller of Estate Duty was allowed, setting aside the High Court judgment.

Issues considered

The shares held benami – whether they are deemed to pass on the death of the real owner and attract estate duty under s.5(1) of the Estate Duty Act, 1953.
The relationship and interplay between s.5(1) and s.6 of the Estate Duty Act, 1953, and whether s.6 excludes the shares from estate duty.
The legal effect of a benami transaction on the determination of the real owner for estate duty purposes.

Legislation cited

Subjects

Estate dutyBenami transactionSection 5(1) Estate Duty ActSection 6 Estate Duty ActReal owner vs benamidarTrust lawHindu Succession ActTax liability

Judgment

943

THE CONTROLLER OF ESTATE DUTY, LUCKNOW A

v.
ALOKE MITRA

October 10, 1980 B

[A. P. SEN AND E. S. VENKATARAMIAH, JJ.]

The Estate Duty Act, 1953-S. 5 sub-s. (!) and s. 6-lnter 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.
c
Words & Phrases--Benami-Benamidar-Meaning of.

One M carried on the business of printer and publisher. In 1953 his
brother-in-law alongwith some other persons floated· two companies a publish-
ing firm and a printing press. Under an agreement dated May 29, 1953 M D
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 com-
panies 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 E
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 F
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 cf 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 G
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 account-
able person to prove the gift. The deceased had clearly mentioned in his
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 the shares, he would have very H
9 44 SUPREME COURT REPORTS [1981] 1 S.C.R.

A 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
B <ED) 1 it observed that since the shares stood in the name of the wife and
sons etc., be11ami 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
c 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 inciden_ce of liability to estate duty. [961B]
D 2. The finding bein_g 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 deceas,ed who was entitled to deal with the same as ifl it
were his own and the bc11amidars 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(]) of the
Act the entire value of the shares was includible in the principal value of the
E estate of the deceased on his death. [96!C-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
dell.th. Estate duty is chargeable at percelltage 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)
F
(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 s'ections 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 th~ donor is competent t? dis-
pose of whether the gift is revoked or not and will be covered by sect10n. 6.
H Similarly, property in respect of which the deceased had the power <>f appoint-
ment will also fall within section 6. [957H; 958A]
O. S. Chawla v. Controrler of Estate Duty (1973) 90 ITR approved.
CONTROLLER ESTATE DUTY v. ALOKE MITRA (Sen, J.) 945

4. In ap~lying the Act to any particular transaction, regard must be had A
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 sec·
,_
tion 5 c,if the Act be cuotailed by the operation of section 6. It is in addition
to or supplemental of the provisions of sub-section (!) of section 5, which is
B
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 pas·
sed on his death and must be brought to charge under su~-section (l) o~
section 5. [958C]
Smt. Denabai Bomab Shah v. Controller of Estate Duty (1967) 66 ITR 385
c
and Smt. Shantabai Jadhav v. Controller of Estate Duty (1964) 51 ITR (ED)
disapproved.
6. (i) The provisions of sections 5 and 6 of the Act are somewhat similar
to these 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 D
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. [9520-E]
E
Earl Cowley v. Inland Reve1Jue Commissioners, L. R. [1899] A. C. 198,
Attorney Gene~al v. Milne, L.R. [1914] A.C. 76~, Nevill v. Inland Revenue
·Commissioners, L.R. [1924] A.C. 385 referred to.
(iii) In Public Trustee v. Inland· Revenue Commissioners (Re Arnbody) LR
'[1960] AC 398 the House of Lords struck the discordant note, holding that sec·
·tion 1 imposed the charge in general terms and section 2 by exclusion and in· F
clusion, defined area of that charge. In Wei~'s Settlemellt Trusts, Re Mc Pher-
son. 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
G
by a father in the name of his son, it must be presumed that they are bena-
midars, and if they claim it as their own by 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 Lak· H
-shmiah Chetty v. Kothandarama Pillai L.R. [1924-25] 52 IA 286, Shree Meena·
kshi Mills Ltd. v. C.I.T. (1957) 31 ITR 28 referred to.
946 SUPREME COURT REPORTS [1981] 1 S.C.R.

A 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]
B Mayne Hindu Law I nh Edn. p. 953 referred to.

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1712 of
1973.
From the Judgment and Order dated 20-5-1971 of the Allaha- ·~
bad High Court in Estate Duty Reference No. 95/66 connected with·
C 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.
D 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
E the que~tions 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 : 'fl
"Assuming th at the shares in dispute really belonged to
F Sri K. M. Mitra deceased, whether those shares in the circum-
stances 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.
G 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
R~. 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
H 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,
CONTROLLER ESTATE DUTY v. ALOKE MITRA (Sen, !.) 94_ 7

and his three sons, Aloke Mi:tra, Ashoke Mitra and Deepak Mitra, A
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 &'. 64(1) of the
Act the Appellate Tribunal referred the questi:on whether the shares B
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 c
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. D
The material facts of the case may now be stated. The deceased
carried on the business of printer and publi:sher under the name and
style of Maya Press. In 1953, his brother-in-law, B. N. Ghosh
alongwith some other persons floated two companies, Mitra Praka·
shan Pvt. Ltd. and Maya Press Pvt. Ltd. Under an agreement dated E
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 Praka-
shan 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 F
Rs. 100/- each to the deceased or his nominees. The other com·
pany, 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 thi:s agreement,
. the business of Maya Press was transferred by the deceased on G
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 an
ex-employee, R. N. Misra. The companies allotted the shares
accordingly. They in addition allotted two more shares to the H
deceased. Thus, 502 &·hares were held by the deceased in his own
name in Mitra Prakashan Pvt. Ltd. and 225 shares in Maya Press
948 SUPREME COURT REPORTS [1981) 1 S.C.R.

A 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 busi-
B ness 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 considera-
tion for the purchase of these 2002 and 1602 shares and that his
wrre, sons, brother-in-law or the ex-employee did not make any
contribution for their acquisition.
J
_
·C
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
D
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 cx-
employee held the shares benami for the benefit of the deceased.
E They were, therefore, the benamidars of 1the 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
F 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 presump-
tion 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. 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
H 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
CONTROLLER ESTATE DUTY v. ALOKE MITRA (Sen, !.) 949

personal accounts of the deceased, Aloke Mitra and the deceased's A
wife the account of the deceased's wrfe was alf!o credited with divi-
dends 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
1

supposed to belong. Whatever was done after the death of the
deceased may, by agreement between the heir~, have been adjusted B.
in the allocation of other assets, and obviously could not be of any
le-gal effect m determining the question whether the shares belonged
to the deq:ased.
As already stated, the only question of law in the opinron of
the Appellate Tribunal which could be referred undet s. 64(1) of the c
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, holdmg 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 ques- E
tions 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 mrxed law and fact and, therefore, following the deci-
sion of this Court in Shree Meenakshi Mills Ltd. v. C./.T.( 1 ) held
that the finding was not open to review under s. 64(1) of the Act.
F
In answering the reference in the negative and against the Con-
troller 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 decision~ of the Andh'ra Pradesh High Court m
Smt. Shantabai .Tadhav v. Controller of Esiate Duty( 2 ) and Smt. Dena-
bai Bomab Shah v. Controller of Estate Duty( 3 ) taking a view to G
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. Follow-
ing the view in Smi. Shantabai ladhav's case and Smt. Denabai
Bomab Shah's cas~ the High Court observed that since the shares·
(!) [1957] 31 ITR 28. H
(2) [1964] 51 ITR (ED) L
(3} [1967] 66 ITR 385.
SUPREME COURT REPORTS . [1981] 1 S.C.R.

A 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 mcompetent to transfer the shares till his death,
and so, the property in them would not be deemed to pass upon his
B death by reason of s. 6 and, therefore, they were not includiole in
the estate of the deceased under s. 5 ( 1) of the Act.
In Controller of Estate Duty, U.P. v. T. N. Kochhar( 1 ) the Higb
Court following the judgment under appeal, observed :
"It is well-settled that !he property which stands benami
in the name of another is one in respect of which the benefici:al
o-WUer 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 inter-
relation 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 deatl) 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 hot competent
to dispose of the shares and they could not be 'deemed to pass' under
s. 6 of the Act.

The mai:n question involved in the appeal is whether in the case
of 3! benami transaction, the value of the property held by a benami-
.F
aar 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
·G 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
H
rates rising with the value of the estate on all property passing on
(l) [1973] 89 lTR 216.
CONTROLLER ESTATE DUTY v. ALOKE MITRA (Sen, !.) 951

death, including property of which the deceased was compet~nt to A
·dispose and gifts made within limited period before death. Prllllary
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
B
·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 pro-
'-- vided 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 refer- c
~nces to property deemed to pass on the death of such person. The
.,.. ·expression 'property passing on death' is defined ins. 2(16) to include
property passing immediately on death. In general, the word
"passes' may be taken as• meaning 'changing hands on death' regard-
less of its destination.
Section 6 of the Act, upon which the controversy" films, D
-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."
E
"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-s. (1) of. s. 5, which is the
-charging section.

As a matter of construction, two views are possible. One view
F
'is that the two sections are mutually exclusive and they have indepen-
dent 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 relation-
'Ship, if any, that may have subsisted between the deceased and the
-person or persons succeeding. Section 5(1) gives• effect to that G
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 H
exclusive, the application of s. 5 accordingly precludes recourse to
'.!>. 6. The other and the better view appears to be that s. 5 ( 1) aloJ:!e
952 SUPREME COURT REPORTS [1981] 1 S.C.R.

A is capable of imposing a chatge of duty and where both s. 5{1) and'
s. 6 apply, the property would still be dutiable under both concur-
rently. 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
B 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

J
death' or concurrently with s. 5, its function is at an end.
In England, the Finance Act, 1894 (57 & 58 Viet. c. 30)
imposed by s. 1 <:state duty 'upon the principal value ascertained as
c hereafter provided of all property, real or personal, settled or not
settled which passed on the death' of a person dying after the com-
mencement of the Act. By s. 2, sub-s. (1) 'property P,assing on the
death of the deceased' shall be deemed to include categories of pro-
perties spedfied therein. The precise relationship between ss. 1 and
2, before the law was amended in 1969, was a question on which
D 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 mrght 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
E a definition section, explanatory of s. 1, but an independent section
operating outside the field of s. 1 : Earl Cowley v. Inland Revenue
Commissioners(1), - Attorney-General v. Milne( 2 ), Nevill .v. Inland
Revenue Commissioners( 3 ). In Earl Cowley's case the House of
'Lords reversing the decision of the Court of Appeal, held that if the
c1se fell within s. 1, it went out of the purview of s. 2. Lord
F 1\ facnaghten after observing that s. 1 contained the pith and sub-
stance of the enactment, stated :
"It is comprehensive, broad and clear. . . The first question
as i:t seems to me the question that lies at the very threshold of
our inquiry is simply this : Under which section of the Finance
G 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 ?"
H (I) L.R. [1899] A.C. 198, per Lord Macnaghten at PP- 212-213.
(2) L.R. [1914] A.C. 765, per Lord Haldane L.C. at p. 769.
(3) L.R. [1924] A.C. 385, pe~ Lord Haldane at p. 389.
' . CONTROLLER ESTATE DUTY v. ALOKE MITRA (Sen, J.)

'After 1differing from the Court of Appeal, he went on to say :
"What the Act has in view for the purpose of taxation is
. 953

A

.:property passing on death, .... Now, if the case falls within
s. 1 it cannot also come . within ·s. 2. The ·t,wo sections are
mutually exclusive.
·' In"my opinion the iwo sections are quite distlnct, and s. 2 B
'lhfows· no ligkr onJ s. 1. ... . But s. 2 does not apply to an'
'iiz(efest 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 wants. 2 for that. You cannot resort to s. 2.
For'that Would be giving the duty twice over. The Crown c
··cannot have it both ways. Double duty is forbidden by the
'A.ct."
(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 D
'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 exptessed in very precise language,
"and with·a· confidence that excluded the possibility of any alternative
E
·view. /
1
In Attorney-General v. Milne (supra) Lord Haldane, after
, 'r~fcrriiig fo' Earl Cowley's case, said :
"Section 2 is thus not a definition section, but an indepen-
dent ·section operatrng outside the field of section 1." F
Lord Atkinson, however, adopted Lord Haldane's earlier view,
'·treating section 2 as. merely supplementary to section 1, and as
1
' designed to make liable to estate duty certain dispositions of property
'·'which were outside the scope and beyond the reach of section .1.
· "Thi:s ·section", he said, "is not a definition section". He did not,
::fi'owever,' say (and: that is significant) that the two sections were G
'!Ul'itually exdusive. Lord Dunedin took a different view. Having
:said· that ·.whether Lord ·Macnaghten was strictly correct 01: not in
~·saying that whether the two sections were mutually exclusive or not
'seemed to: him to matter Httle, he added :
"It seems to me that that is as much as to say that the H
words, 'property passing on the death', in· the· first section, are
to be read as if the words, 'including the property following,
19---645 S. C. India/80
I
954 SUPREME COURT REPORTS [1981] 1 S.C.R.

A 'that is to say'-=--(and then all the sub-sect.ions) had been there
inserted.''
In Nevill v. Inland Revenue Commissioners (supra) Lord Haldane
said:
" 'Passes' may be taken as meaning 'changes hands'. The
B principle is contained in section 1. Section 2 combines definitions
of such property with the extension of the applrcation 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( 1 ) (Re.
c Arnholz) •the House of Lords after a lapse of over 60 years, however,
struck a discordant note. The theory of 'mutual exclusiveness' ot
ss. 1 and 2 enunciated by Lord M,acnaghten was not accepted. Jt
was held s.l imposed the charge in general terms and s.2, by exclu-
sion and inclusion, defined area of that charge.
D
No clear expooition 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 un-
certainty as to the precise relationship between the two sections,
although subsequent to Arnholz's case section 1 alone was held to
E be still capable of impooing 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
F 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
} G
(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 ir. s. 2, that was
the end of the mailer, the phrase in s. 1 'property-which passes on
the death' having no content independent of s. 2.
H
(I) L.R. [1960] A.C. 398.
(2) L.R, [1971] Ch.D. 145,
CONTROLLER ESTATE DUTY v,. ALOKE MITRA (Sen, !.) 955

Russell L.J., in delivering the judgment of the Court of Appeal, A
resolved the doubts as to the relationship of ss.1 and 2 of the Act,
and rejected the contention of the tax-payer, observing :
"~t was certainly not decided by the majority in Arnholz's
case that, as a matter of construction, the entire content of
B
'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 ls s. 1 that imposes the charge of estate duty on c
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 D
a death. We see no reason to hold that s. 2(1) was intended
exhaustively to define and lhnit 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 E
(!) the property would be manifestly 'property..... which passes
on the death' does not mean· that they embrace all such occa-
sions."
The question is a difficult one on which there may well be
divergence of opinion, as reflected in these English decisions which F
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 Coun in SmJ. Shantabai ladhav's H
case (sllpra) held ·that notwithstanding •the faot that the property
was purchased in the name of the wife, and had been included by
956 SUPREME COURT REPORTS [1981] 1 S.C.R.

A 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 purehase was
B found by her husband, it does not mean that he had beneficial
interest in the property. Normally, a husband takes' a sale m
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
c 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 com-
petent 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
D 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 ti~le to such purchaser, having regard to the fact that it was
E open to the husband to impeach the sale sometime later, on the
ground that the beneficial interest always vested in him, considera-
tion 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
F name of his wife, he could not dispose of the property, It is
itrue ,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
G 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. Shant'abai Jadhav's case while dealing with a similar
H benami transaction, the High Court held that the value of property
held by a benamidar could not be included in the value of the pro-
perty left by the deceased.
CONTROLLER ESTATE DUTY v. ALOKE MITRA (Sen, J.) 957

In Controller of Estate Duty v. M. L. Manchanda( 1 ), the Pun.- A
jab 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 B
of the property, there was nothing to prevent the wife a minute
before her death to transfer the property. Tiie 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 C
duty under section 5 of the Act."
In delivering the judgment of the Full Bench in· 0. S. Chawla
v. Controller of Estate Duty( 2 ), Dwivedi J. observes:
"The scheme of the Act is two-fold. Firstly, there are
properties which pass ofl the death of a person. Section 5(1) D
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 E
mentioned in those secti:ons 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 jn
section 2 ( 16) and section 3 ( 3). Section 2 (16) defines the phrase
'property passing on .death'. Section 3(3) declares that refer- F
ences in the Act to 'property passing on the death' of a person
shall be construed as• including references to 'property deemed
tC" pass on the death' of such person. The statement of objects
anl reasons of the Bill which ripened into the A~t also
emphasises the two-fold scheme. It states that the 'object Qf
the Bill is to impose an estate duty on property · passing or G
deemed to pass on the death of a person'.
The object of seciion 6 is to catch properties in the wet of
section 5(1) which do not really pass on the death of a person.
For instance, property compri:sed in a revocable gift is property
which the donor is competent ito dispose of whether .the gift is H
(1) [1974] 93 ITR 173.
(2) [1973] 90 ITR 68.
I
958 SUPREME COURT REPORTS [19811 1 S.C.R.

A revoked or not and will be covered by s·ection 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. S 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. S.
All that haf> 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
fl. 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 Gopeekri!'}t Gosain v. Gungapersaud
Gosain( 1 ) to Sura Lakshmiah Chetty v. Kothandarama Pillai( 2 } and
of this Court in Shree Meenakshi Mills Ltd. v. C.l.T.(3 ). As observed
by Knight Bruce L.J. in Gopeekrist Gosain's case, the doctrine of
advancement is not applicable io. India, so as to raise the question
of a resulting trust. 'fhen 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 er;tablish
such a gift. In Sura Lakshmiah Chett-y's cme, the law was 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 i:s inc
the wife."
(1) [1854] 6 MIA 53.
(2) L.R. [1924-25] 52 IA 286.
(3) [1957] 31 ITR 28.
'

CONTROLLER ESTATE DUTY. v. ALOKE MITRA (Sen, !.) 959

It is but axiomatic that a benami transaction does not vest any A
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
-0r an ali.1s for the real owner. In Petheperumal Chetty v. Muniandy
Servai( 1 ), the Judicial Committee quoted with approval the following
passage fro!ll Mayne's Hindu Law 7th ed., para 446: B
"Where a transaction is once made out to be a mere
benamr, 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 c
and a .benamidar lies in the fact that a trustee is the legal owner of
the p;·opcrty 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 refer.ence to the latter. In Gur Narayan D
v. Shea Lal Singh (2), the Judicial Committee referred to the judg-
ment of Sir George Farwell in Mst. Bi/as Kunwar v. Dasraj Ranjit
Singh( 2 ), 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 : E

" .. the benamidar. has no beneficial interest in the property
or business that stands in his name; he represents, in fact, the

, Teal owner, and so far as therr relative legal position is con-
cerned he is a mere trustee for him."
.In Guran Ditta v. Ram Ditta( 4 ) the Judicial Committee reiterated
the principle laid down in Gope,ekrist Gosain's case and observed
that .in case of a be,nami transaction, there is a resulting trust in
favour of the person providing the purchase money.
F

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 G
subject to certain exc;:eptrons. ·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
(t) [1907-08] 35 I.A. 98,
(2) [1918-19] 46 IA 1. H
(3) L.R. [1915] 42 IA 202.
(4) L.R. [1927] 55 IA 235.
9,60 SUPREME COURT REPORTS [1981] 1 S.C.R.

A enumerated therein is that where a benamidar sells, mortagages
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 con-
structive that the transferor was merely a benamidar. The. principle
is embodied in s. 41 of the Transfer of Property Act. The section
B makes an exception to the rule that a person cannot confer a better
title than he has. The section is based on the well-lCnown passage
from the judgment of the Judicial Committee in Ramcoomar

c
Koondoo v. Macqueen( 1 ) :
"It is a principle of natural equity, which must be unrver-
. sally applicable, that where one man allows another to hold
himself out as the owner of an estate, and a third person pur-
J
chases 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 otherthrow that of the purchaser by showing,
D erther· 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 b'enamidar, the real owner cannot recover unless he shows that the
E
purchaser had actual or constructi:ve 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 sw;cinctly 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 hi
the name of another or gratuitously transfers his property to
another, without indicating an intentfon to benefit tlie other.
The benamidar, therefore, has no beneficial interest in the pro-
perty or business· that stands in his name; he represents in fact
the real owner and so far as their relative legal position is
G
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 circilmstances
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
H
subject."
(I) [1872] I.A. Sup. 40, 43.
CONTROLLER ESTATE DUTY v. ALOKE MITRA (Sen, ],) 961

(See also: Shree Meenakshi Mills Ltd. v. C.l.T. (1957) 31 ITR A
n. per Venkatarama Ayyar J., and Thakur Bhim Singh
v. Thakur Kan Singh [1980] 3 SCC 72, per Venkata-
mmiah 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 B
owner and not of the benamidar, who is merely an 05tensible owner.
The test Jies 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. · c
In view of the finding thrt the shares were purchasea by the
defeased 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 D
deceased. The be,namidars, 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 va.Jue of the estate
of the deceased on his death. E
For these reasons, the judgment of the High Court is set aside
and th,e question is answered in the affirmative and in favour of the
Controller of Estate Duty. There s·hall be no order as to costs.

N.V.K. Appeal .allowed.