1972 (11) TMI 80 - SC - Income Tax

Whether Tribunal was justified in excluding from the assessable income of the assessee the sums which were the amounts of dividend received by the assessee s wife and two sons from shares acquired out of the profits of the assessee - dividends from those shares were to be included in assessee s income

Summary

Issues Involved:
1. Inclusion of dividend income from shares held by the assessee's wife and sons in the assessee's total income.
2. Determination of the real ownership of the shares.
3. Legal tenability of the Tribunal's exclusion of dividend income.
4. Burden of proof regarding benami transactions.

Detailed Analysis:

1. Inclusion of Dividend Income:
The primary issue was whether the Tribunal was justified in excluding from the assessable income of the assessee the sums of Rs. 56,586 and Rs. 39,542, which were the amounts of dividend received by the assessee's wife and two sons from shares acquired out of the profits of the assessee for the assessment years 1953-54 and 1954-55. The Income-tax Officer included these dividends in the total income of the assessee, asserting that the shares, although held in the names of his wife and sons, were actually owned by the assessee.

2. Determination of Real Ownership:
The High Court concluded that the shares were purchased by the assessee in the names of his wife and sons, inferring that these were benami transactions. The court held that the burden of proof was on the assessee to show that the shares were not purchased benami, which he failed to discharge. The court also held that the real owner could be assessed on the dividend income even if the shares were registered in the names of his wife and sons.

3. Legal Tenability of Tribunal's Exclusion:
The Tribunal had directed that the income assessed for the assessee should be reduced by the amounts of Rs. 56,586 and Rs. 39,542 for the respective assessment years, based on the contention that the registered holders of the shares (the wife and sons) should be assessed for the dividend income. However, this exclusion was found to be legally untenable. The Supreme Court noted that the shares were admitted by the assessee to belong to him and were his own investments. The Tribunal's reliance on the decision in Howrah Trading Co. v. Commissioner of Income-tax was misplaced, as it did not address the issue of real ownership versus registered ownership.

4. Burden of Proof Regarding Benami Transactions:
The High Court and the Supreme Court emphasized that the assessee had admitted in the past that the shares in question belonged to him. The Tribunal did not deal with the question of whether the purchase of shares was benami. The Supreme Court found ample material to justify the inference that the assessee was the real owner of the shares and they were held benami in the names of his wife and sons. The court stated that once it was found that the assessee was the real owner, it would be presumed that the ownership continued to remain vested in him unless shown otherwise by subsequent events, which was not demonstrated by the assessee.

Conclusion:
The Supreme Court dismissed the appeals, upholding the High Court's decision that the dividend income from the shares held by the assessee's wife and sons should be included in the assessee's total income. The court found that the Tribunal's exclusion of this income was not legally tenable, and the assessee had failed to discharge the burden of proving that the shares were not purchased benami. The appeals were dismissed with costs.