1980 (10) TMI 59 - SC - Indian Laws

Whether the shares assuming that the shares in dispute really belonged to Sri K. M. Mitra deceased 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 ? Held that - 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 who was entitle to deal with the same as if it were his own and the benamidars held it in trust under s. 82 of the Indian 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 1882 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 principal 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.

Issues Involved:
1. Whether the shares in dispute constituted property which passed on the death of the deceased for the purposes of section 5 of the Estate Duty Act.
2. The applicability of section 14 of the Hindu Succession Act to the shares held by the deceased's wife as a nominee or benamidar.
3. The relationship and interplay between sections 5 and 6 of the Estate Duty Act regarding property passing on death and property deemed to pass on death.
4. The legal implications of benami transactions and the rights of benamidars.

Issue-wise Detailed Analysis:

1. Whether the shares in dispute constituted property which passed on the death of the deceased for the purposes of section 5 of the Estate Duty Act:
The Supreme Court examined whether the shares held benami by the deceased in the names of his wife, sons, brother-in-law, and an ex-employee constituted property that passed on his death. The Court held that since the deceased was the real owner of the shares, the ownership passed on his death and must be brought to charge under section 5(1) of the Estate Duty Act. The Court emphasized that the shares were held benami for the benefit of the deceased, and thus, the value of these shares was includible in the principal value of the estate of the deceased.

2. The applicability of section 14 of the Hindu Succession Act to the shares held by the deceased's wife as a nominee or benamidar:
The High Court had found that the deceased's wife, as a benamidar, had no interest or title to the shares, and therefore, section 14 of the Hindu Succession Act, which grants full ownership to a Hindu female over property possessed by her, was not applicable. The Supreme Court agreed with this view, stating that since the wife was merely a benamidar, she did not possess any right or title to the shares.

3. The relationship and interplay between sections 5 and 6 of the Estate Duty Act regarding property passing on death and property deemed to pass on death:
The Supreme Court clarified that section 5(1) of the Estate Duty Act is the charging section, imposing duty on the capital value of all property passing on death. Section 6 supplements section 5 by deeming property which the deceased was competent to dispose of to pass on death. The Court held that the operation of section 5(1) is not curtailed by section 6, and both sections can apply concurrently. The Court rejected the High Court's view that the deceased's incompetence to transfer the shares due to their benami nature excluded them from being deemed to pass under section 6.

4. The legal implications of benami transactions and the rights of benamidars:
The Supreme Court discussed the nature of benami transactions, stating that a benamidar holds no beneficial interest in the property and is merely a trustee for the real owner. The Court cited several precedents, including Gopeekrist Gosain v. Gungapersaud Gosain and Sree Meenakshi Mills Ltd. v. CIT, to emphasize that the real owner retains the legal title and can deal with the property without reference to the benamidar. The Court concluded that upon the death of the real owner, the property held benami passes to his estate and is subject to estate duty under section 5(1) of the Act.

Conclusion:
The Supreme Court set aside the High Court's judgment and answered the question in the affirmative, in favor of the Controller of Estate Duty. The Court held that the shares in dispute, held benami by the deceased, constituted property that passed on his death and were includible in the principal value of his estate under section 5(1) of the Estate Duty Act. The Court also clarified the legal principles regarding benami transactions and the interplay between sections 5 and 6 of the Act.

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