Controller of Estate Duty vs Smt. S.M. Muthukaruppi Achi

V. Ramaswami, J.—One S. M. Muthiah Chettiar, who was domiciled in India, passed away on November 15, 1963, His wife filed the

estate duty account as the accountable person. In the return, the accountable person included certain immovable properties, shares in companies

and outstandings, which were in her name, also as the estate passing on the death of her husband. Later on, she claimed that the value of the assets

standing in her name should be excluded on the ground that though the consideration for purchasing those assets proceeded from the deceased, he

intended to give them to her as gift and that, therefore, they were her absolute properties and could not be included in the estate of the deceased.

The Assistant Controller of Estate Duty, after considering a number of circumstances including a will, in which the deceased claimed all these

properties as his and standing benami in the name of his wife, came to the conclusion that these assets were purchased by the deceased benami in

the name of his wife and that they actually belonged to the deceased. Alternatively, the Assistant Controller also held that even if it were to be

assumed that the deceased had gifted them to his wife, the subsequent conduct of the deceased in dealing with these assets in his books of

account, possessing and enjoying the income therefrom, as if they were, his own, clearly attracted the provisions of Section 10 of the Estate Duty

Act. Accordingly, he included these assets in the principal value of the estate of the deceased passing on the death.

The deceased was a partner in a rice-mill for a number of years. On the ground that the running of a rice-mill required various licences and that

the partnership firm was not only hulling paddy for others but also purchasing paddy and converting them into rice and selling the same, the

Assistant Controller found that the rice-mill business had acquired goodwill and he proceeded to estimate the value of the goodwill. Rejecting the

contention of the assessee that the goodwill, if it is to be taken into account, is to be estimated at two years'' profit or three years'' average income,

the Assistant Controller estimated it at three years'' profit and fixed the amount at Rs. 14,115.

On appeal, the Appellate Controller of Estate Duty, while agreeing with the Assistant Controller that the rice-mill business had acquired

goodwill, estimated the value of the goodwill at Rs. 9,410. On the question whether the assets standing in the name of the wife of the deceased

were acquired by him benami in her name; the Appellate Controller, agreeing with the Assistant Controller, also held that they were benami

transactions and that the real owner was the deceased. The Appellate Controller also stated that even if, for the sake of argument, it was to be

considered that those assets were gifts made by the deceased, since the deceased had not been entirely excluded from possession and enjoyment

of the assets, the provisions of Section 10 were attracted. In that view, he confirmed the order of the Assistant Controller in effect and substance.

Before the Tribunal, it does not appear that the finding that the assets were purchased by the deceased benami in the name of his wife had been

questioned. In any case, the Tribunal has not proceeded to consider the benami nature with regard to the assets, but considered the question as to

whether those assets would have to be included in the principal value of the estate passing on the death of the deceased on the basis that the

accountable person was a benamidar in respect of the assets and that the real owner was the deceased. After citing a number of decisions, the

Tribunal ultimately came to the conclusion that in the case of properties standing in the name of a benamidar, the deceased, the real owner, could

not be said to be competent to dispose of those assets. It further held :

Section 5 is the charging section and Sections 6 to 17 are merely various categories of properties which could be said to pass or deemed to pass

on the death. In other words, one has to read together Sections 3(3), 5 and any one or other of Sections 6 to 17. If an item of property would not

''come under any one of Sections 6 to 17 that property cannot be said to pass''.

In the case of a benami transaction, according to the Tribunal, the real owner is not a person who is competent to dispose of the property, but it

is the benamidar who is competent to dispose it of. That means, ""it is the benamidar who will come u/s 6, and not the real owner. In that view, the

Tribunal directed the deletion of the value of these assets from the estate of the deceased.

On the question of goodwill, the Tribunal considered that, having regard to the fact that the rice-mill had no quota right or any peculiar features

of its own, it did not have any goodwill at all and that, therefore, there was no justification for adding the sum of Rs. 9,410 on account of goodwill.

The revenue asked for a reference of three questions: one relating to the goodwill, the other relating to the includibility of the assets held by the

deceased benami in the name of his wife and the third, the applicability of Section 10. But the Tribunal considered that the following question is the

only question that could be referred. That question reads as follows :

Whether the value of the properties admittedly standing in the name of the deceased''s wife could be included in the principal value of the estate

assessable under the provisions of the Estate Duty Act ?

That is the subject-matter of reference in T. C. No. 272 of 1970.

On an application filed by the revenue u/s 64(3) of the Estate Duty. Act, this court directed the Tribunal to refer the following question relating

to the goodwill also.

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in deleting the addition of Rs. 9,410 retained on

account of goodwill relating to M/s. Meenakshi Rice Mills ?

That is the subject-matter of reference in T.C. No. 405 of 1971.

On the first question (question in T.C. No. 272 of 1970), in view of the fact that the Tribunal, in its order, proceeded to consider the

includibility of the assets Standing in the name of the wife, who is the accountable person, on the basis that they were held by her benami and that

the real owner was the deceased, we have to answer the question referred also only on the basis that they were held by her benami for her

husband. Even in the stated case, it is, as a fact, stated that it was the admitted case that these assets were held by her benami for her husband.

The question referred to us in T.C. No. 272 of 1970 could not also include a challenge of the benami nature, as that was a reference asked for by

the revenue. The revenue was not aggrieved by the finding of the Assistant Controller or the Appellate Controller that the transactions were benami

and that the real owner was the deceased. Therefore, if the accountable person wanted to contend that she was the real owner and she was not

holding the properties as benamidar, she should have asked far a reference. In the absence of such reference, we are unable to permit the learned

counsel for the accountable person to question the finding on the benami nature of the transactions.

The Tribunal, relying on the decisions in Smt. Shantabai Jadhav v. Controller of Estate Duty [1964] 51 ITR (ED) 1 , SMT. DENABAI

BOMAN SHAH Vs. CONTROLLER OF ESTATE DUTY, A.P., and B.K. Shantiraj Vs. Controller of Estate Duty, Mysore, and some passage

from text books, held that in the case of benami transactions, the benamidar was competent to dispose of the property, that the real owner had no

right to dispose it of and that, therefore, it could not be included in the principal value of the estate of the deceased. Before dealing with these

decisions, we may refer to two statutory provisions relating to ""benami transactions "".

u/s 82 of the Indian Trusts Act, 1882, the benamidar shall hold the property for the benefit of the person paying the consideration unless the

person paying the consideration intended to pay or provide such consideration for the benefit of the transferee. The finding in this case being one of

benami, we are relieved of the duty to find the intention of the person paying the consideration. The accountable person, therefore, must be

deemed to hold the property for the benefit of her husband. That means that the real ownership to the properties is vested in the deceased.

Section 41 of the Transfer of Property Act deals with transfer by the ostensible owner. In the case of a benami transaction, the ostensible

owner is the benamidar. That section provides that where the ostensible owner transfers the property for consideration, the transfer shall not be

voidable on the ground that the transferor was not authorised to make it; provided that the transferee, after taking reasonable care to ascertain that

the transferor had power to make the transfer, has acted in good faith. Thus, if a person had no actual or constructive notice of the real title and

acted in good faith and purchases the property from a benamidar, the real owner cannot recover the same, though the benamidar could not convey

any title in the property. The normal rule is that no one can confer better title than what he has. Section 41 is in the nature of an exception to this

rule, and creates an estoppel against the real owner, who, by his act, has allowed the ostensible owner to deal with the property as if it was the

property of the ostensible owner. The section also requires that the transfer shall be for consideration; In other words, only a transfer by an

ostensible owner for consideration, if the purchaser proves his bona fides, gets protection under that section. The ostensible owner is not treated as

owner for all purposes. If the transaction is benami, the real owner is entitled to deal with the property as if it is his own and the benamidar, subject

to the exception provided u/s 41, could not deal with the property in any way. The property is not vested in the ostensible owner, and it is only

vested in the real owner.

In one of the earliest cases decided by this court in Yelamanchili Pitchayya Vs. Yelamanchili Rattamma and Another, the relative rights of the

benamidar and the real owner Were considered, though in a case arising under the CPC for adding the real owner as a party to a suit. It was held :

A benamidar is not a trustee in the strict sense of the term. He has the ostensible title to the property standing in his name but the property does

not vest in him but is vested in the real owner...............It is well-settled that the real owner could enforce his remedy in respect of property

standing in the name of a benamidar without reference to the latter. If a mortgage stands in the name of a benamidar, the person for whom the

mortgage was obtained could sue on the mortgage, and the same rule applies to other transactions except those forbidden by law...............

A benamidar has no interest at all in the property or transaction standing in his name.

In support of these propositions, the learned judges have also cited a decision of the Privy Council in Petheperumal Chetty v. Muniandy Servai

ILR [1908] Cal 551 wherein it was held that:

Where a transaction is once made out to be a mere benami, it is evident that the benamidar absolutely disappears from the title. His name is simply

an alias for that of the person beneficially interested.

If that is the position of a real benamidar, certainly the assets now in question belonged to the deceased who died possessed of the same.

Section 5 is, therefore, clearly attracted, and the entire value of these assets is includible in the principal value of the estate of the deceased passing

on the death.

It now only remains to consider the decisions relied on by the Tribunal and some of the other decisions cited at the Bar.

In Smt. Shantabai Jadhav v. Controller of Estate Duty [1964] 51 ITR (ED) 1 , the accountable person who was the wife of the deceased,

claimed certain jewellery left by the deceased as hers, and did not include the same in the account of the estate filed by her. The Assistant

Controller, in the opinion that the accountable person had failed to establish that the consideration for the purchase of the jewellery came out of her

stridhana property and that she had no ostensible resources for purchase of the same, treated the property as that of the deceased. When it came

on a reference, the Andhra Pradesh High Court observed--See [1964] 51 ITR (ED) 1):

Even assuming that the money for the purchase was found by her husband, it does not mean that he had beneficial interest in the property.

Normally, a husband takes a sale in the name of his wife either to make a provision for her or to Screen the property from

creditors.........Whatever might be the motive, so long as the deed stands in the name of another person, it could not be said that it was competent

for the deceased to dispose of the property.

In another place, the learned judge observed that so long as the document stood in the name of the wife, the deceased could not dispose, of

the property unless he obtained a declaration that he , was the real owner and that his wife was the ostensible owner. It is seen from these

passages that the learned judges are of the view, in that case, that the benami nature had not been established and that the real owner was the wife,

and not the deceased. If so, certainly, the revenue could not invoke any provision of the Estate Duty Act in order to include the assets of the wife in

the estate of the deceased.

SMT. DENABAI BOMAN SHAH Vs. CONTROLLER OF ESTATE DUTY, A.P., is also similar to Smt. Shantabai Jadhav v. Controller

of Estate Duty [1964] 51 ITR (ED) 1, which the learned judges followed. In that case also it was not admitted that the property was held benami

by the accountable person. This decision of the Andhra Pradesh High Court also is of no assistance to the accountable person in this case.

The decision of the Mysore High Court in B.K. Shantiraj Vs. Controller of Estate Duty, Mysore, does not relate to a case of benami

transaction at all and, therefore, need not be considered.

It may be mentioned that the above two decisions of the Andhra Pradesh High Court in Smt. Shantabai Jadhav v. Controller of Estate Duty

[1964] 51 ITR (ED) 1 and SMT. DENABAI BOMAN SHAH Vs. CONTROLLER OF ESTATE DUTY, A.P., were considered by a Full

Bench of the Allahabad High Court in O.S. Chawla Vs. Assistant Controller of Estate Duty, and were distinguished. We may add that in that Full

Bench decision the learned judges have considered the nature of a benami transaction and held that the benamidar is only having a nominal title to

the property, but the real title vests in the person who purchased the property in the name of the benamidar and that the benamidar holds the

property for the benefit of the person who had the real title to it. The Full Bench also held that in the case of benami transactions, the value of the

property could be included in the estate of the real owner u/s 5 of the Estate Duty Act.

Learned counsel for the revenue brought to our notice a decision of the Punjab High Court in Controller of Estate Duty Vs. M.L. Manchanda,

in a case relating to a benamidar dying where the question for consideration was whether the assets held by a benamidar could be included in the

estate. A Division Bench of the Punjab High Court relying on the aforementioned two decisions of the Andhra Pradesh High Court and an earlier

decision of the Allahabad High Court which was overruled in O.S. Chawla Vs. Assistant Controller of Estate Duty, held that the property had to

be treated as the estate of the benamidar on death. In support of this view, the learned judges also sought to rely on a passage in the decision of

the Supreme Court in SREE MEENAKSHI MILLS LIMITED Vs. COMMISSIONER OF Income Tax, MADRAS., We are of the view that

the passage quoted from the decision of the Supreme Court was taken out of context and it, therefore, appeared as if the same supported the view

expressed by the learned judges in the decision of the Punjab High Court. In order to understand it, it is necessary for us to quote the complete

passage from the decision of the Supreme Court. That passage reads SREE MEENAKSHI MILLS LIMITED Vs. COMMISSIONER OF

Income Tax, MADRAS., :

In this connection, it is necessary to note that the word ''benami'' is used to denote two classes of transactions which differ from each other in their

legal character and incidents. In one sense, it signifies a transaction which is real, as for example, when A sells properties to B but the sale deed

mentions X as the purchaser. Here the sale itself is genuine, but the real purchaser is B, X being his benamidar. This is the class of transactions

which is usually termed as benami. But the word ""benami"" is also occasionally used, perhaps not quite accurately, to refer to a sham transaction, as

for'' example, when A purports to sell his property to B without intending that his title should cease or pass to B. The fundamental difference

between these two classes of transactions is that whereas in the former there is an operative transfer resulting in the vesting of title in the transferee,

in the latter there is none such, the transferor continuing to retain the title notwithstanding the execution of the transfer deed. It is only in the former

class of cases that it would be necessary, when a dispute arises as to whether the person named in the deed is the real transferee or B, to enquire

into the question as to who paid the consideration for the transfer, X or B. But in the latter class of cases, when the question is whether the transfer

is genuine or sham, the point for decision would be, not who paid the consideration but whether any consideration was paid."" It may be seen from

this passage that what the learned judges of the Supreme Court referred to as a transfer resulting in vesting of title in the transferee is the benami

transaction and the vesting of the title is not on the benamidar but on the real purchaser. We are, therefore, of the view that this passage in the

decision of the Supreme Court in no way supports the conclusion in Controller of Estate Duty Vs. M.L. Manchanda, With great respect to the

learned judges there, having regard to the nature of a benami transaction, we are unable to agree with the view that the assets held by a benamidar

could be included in the estate of the benamidar on death. We are, therefore, of the view that all the assets, now in dispute, would pass on the

death of the deceased, as the deceased was the real owner and the accountable person was only holding them as benamidar for the real owner.

We are, therefore, of the opinion that the assets are to be included u/s 5 of the Estate Duty Act itself.

On the question of including the value of the goodwill, we are of the view that on the question as framed we could not go into the question whether

there was any goodwill at all. As already stated, the Tribunal gave a finding that the rice-mill had no goodwill at all, in view of the fact that there

was no quota right nor was there any peculiar feature attached to the rice-mill. The revenue has not sought a reference specifically on the question

whether there was any goodwill at all and the reference before us in our opinion could not include also a question of the existence of the goodwill.

If there was no goodwill, the addition of Rs. 9,410 could not be justified.

In the result, we answer the question in T.C. No. 272 of 1970 in the affirmative and in favour of the revenue, and the question in T.C. No. 405

of 1971 also in the affirmative but against the revenue. In the circumstances, there will be no order as to costs in either.