1971 (5) TMI 2 - HC - Income Tax

Estate Duty Act, 1953 - Benami transaction - includibility of shares in estate of deceased which deceased had bought in the names of his sons and wife

Issues Involved:
1. Whether the shares allotted to the wife of the deceased as his nominee and/or 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 section 14 of that Act.
2. Whether, in the circumstances of the case, the shares which stood in the names of the wife and the sons of the deceased were held by them as benami and they really belonged to the deceased.
3. Assuming that the shares in dispute really belonged to the deceased, whether those shares constituted property which passed on the death of the deceased for the purposes of section 5 of the Estate Duty Act.

Detailed Analysis:

Issue 1: Ownership of Shares under Hindu Succession Act, 1956
The court examined whether the shares allotted to the deceased's wife as his nominee or benamidar were held by her as full owner under section 14 of the Hindu Succession Act, 1956. The Assistant Controller and the Central Board of Direct Taxes found that the shares were held benami by the deceased in the name of his wife and sons, and thus, the wife did not become an absolute owner upon the commencement of the Hindu Succession Act. The court agreed with this finding, stating, "Since she had no interest at all, section 14 of the Hindu Succession Act will not apply, because that provision applies to a Hindu female having a limited ownership in a property. Here, the wife had no ownership whatever in the shares." Therefore, the court answered this question in the negative.

Issue 2: Benami Nature of Shares
The court addressed whether the shares standing in the names of the deceased's wife and sons were held benami and actually belonged to the deceased. The Assistant Controller and the Board had found that the deceased financed the purchase of all the shares and that there was no evidence showing that the wife or sons exercised shareholder rights independently or enjoyed the dividends. The court noted, "The law seems to be well-settled that if the source of purchase money is proved, the fact that the transaction stands in the name of another person will raise a presumption that the transaction was benami." The court concluded that the finding regarding benami was a finding of fact and not a question of law, thus it should not have been referred to the court. Therefore, the court answered that the question is one of fact and does not raise any point of law.

Issue 3: Competency to Dispose of Shares under Section 5 of the Estate Duty Act
The court examined whether the shares, assuming they belonged to the deceased, constituted property that passed on his death under section 5 of the Estate Duty Act. The applicant argued that the deceased was not competent to dispose of the shares as they were legally in the names of his wife and sons. The court referred to the Andhra Pradesh High Court's rulings in similar cases and agreed that "on the finding that the shares stood in the name of the wife and the sons, etc., benami for the deceased, it must be held that the deceased had no power to transfer them." Therefore, the shares could not be included in the estate of the deceased. The court answered this question in the negative.

Conclusion:
The court concluded:
1. The shares were not held by the wife as full owner under section 14 of the Hindu Succession Act.
2. The question of whether the shares were held benami is a question of fact and does not raise any point of law.
3. The shares did not constitute property that passed on the death of the deceased under section 5 of the Estate Duty Act.

The answers were returned to the Board with a copy of the judgment.

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