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1968 (11) TMI 41 - HC - Income TaxIncome-tax Officer found that besides these shares, the assessee s wife and two sons held certain shares of the Associated Hotels of India Ltd and the Northern India Caterers Ltd. and he included the gross dividends thereof for the year 1953-54 and the net dividends thereof for the year 1934-55 in the total income of the assessee - since assessee has admitted that he is the real owner of these shares, the dividends had to be assessed in his hands
Issues Involved:
1. Inclusion of dividends received by the assessee's wife and sons in the assessee's total income. 2. Determination of benami transactions. 3. Application of legal principles from the Supreme Court's decisions. Detailed Analysis: 1. Inclusion of Dividends Received by the Assessee's Wife and Sons in the Assessee's Total Income: The primary issue was whether the dividends received by the assessee's wife and two sons from shares acquired out of the assessee's profits should be included in the assessee's total income for the assessment years 1953-54 and 1954-55. The Income-tax Officer included these dividends in the assessee's total income, asserting that the shares held by the wife and sons were actually the assessee's own investments, making them benamidars. The Tribunal, however, excluded these dividends from the assessee's income, stating that the shares might have been acquired from the assessee's secreted profits, but there was no evidence that the shares remained the assessee's property. The Tribunal also emphasized that the companies could only pay dividends to registered shareholders, who were the wife and sons in this case. 2. Determination of Benami Transactions: The Tribunal's decision was based on the principle that the dividends should be taxed in the hands of the registered holders of the shares. However, the High Court found this approach erroneous. The Court referred to the Judicial Committee's decisions, which established that where a purchase is made in the name of the wife, the natural inference is that the purchase is a benami transaction unless proven otherwise. The burden of proof lies on the party in whose name the property is purchased to show that it was not a benami transaction. The High Court noted that the Tribunal did not adhere to this principle and failed to consider the presumption that the shares were benami transactions. The assessee had admitted before the Income-tax Investigation Commission and the department in past years that he was the owner of all the shares in question. This admission was not adequately addressed by the Tribunal. 3. Application of Legal Principles from the Supreme Court's Decisions: The Tribunal relied on the Supreme Court's decision in Howrah Trading Co. Ltd. v. Commissioner of Income-tax, which held that a person who has purchased shares under a blank transfer and whose name is not registered in the company's books is not a "shareholder" within the meaning of section 18(5) of the Indian Income-tax Act, 1922. However, the High Court clarified that this decision did not imply that the real owner of shares could never be taxed. Instead, it meant that the real owner is not entitled to grossing up under section 16(2) and claiming the tax deducted at source under section 18(5). The High Court also referred to the Supreme Court's decision in Kishanchand Lunidasing Bajaj v. Commissioner of Income-tax, which clarified that the income from dividends could be regarded as the income of the real owner, not just the registered holder. Conclusion: The High Court concluded that the Tribunal's approach was legally incorrect. The natural inference was that the shares were benami transactions, and the burden of proof was on the assessee and his family to prove otherwise. The Tribunal failed to consider the correct legal principles and the assessee's admissions. Thus, the High Court answered the referred question in the negative, indicating that the Tribunal was not justified in excluding the dividends from the assessee's income. The net dividend received during the financial year should be included in the assessee's income, and the assessee was ordered to pay costs to the Commissioner. Separate Judgment: P. Chatterjee J. concurred with the judgment.
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