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Case Number

Estate Duty Reference No. 1 of 1970.

Attorney(S)

D. D. Verma and R. N. Narula, Advocate,
D. N. Awasthy, Advocate with B. S. Gupta, Advocate, for the applicant

Judges

D. K. Mahajan
Prem Chand Jain, JJ.

Acts

Duty Act, 1953 (Act No. 34 of 1953) (hereinafter

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Smart Summary

Summary of Opinion — Reference under the Estate Duty Act, 1953

Factual and Procedural Background

This reference arose under the Estate Duty Act, 1953. The Income-tax Appellate Tribunal, Delhi Bench 'C', referred a question of law under Section 64(1) of the Act concerning whether the Tribunal was correct in excluding the value of certain property from estate duty assessment on the ground that the deceased was not competent to dispose of it and that it did not pass on her death.

The facts, as found and not disputed for present purposes, are:

Savitri Devi (the deceased) died on 17 November 1963. Two properties stood in her name on the date of death, valued by the Assistant Controller of Estate Duty at Rs. 1,63,200.
The accountable person is her husband, Shri M. L. Manchanda. The properties comprised two plots (Nos. 5-C/1 and 5-C/2) initially allotted to the husband; the Faridabad Development Board approved transfer subject to payment of Rs. 1,408-3-0, which was paid.
The husband requested transfer of the plots to his wife; the transfer was effected. The husband later paid to convert leasehold to freehold and expended his own funds to construct a house (initially ground floor, later upper storey) on the plot. The ground floor was let out, rent was received and taxed in the husband’s hands for assessment years 1961–62 onwards.
There was a declaration dated 1 November 1963 by the accountable person stating that he was the owner of the plots and house, although they stood in his wife's name; the declaration was signed by the wife and son and was used to obtain bank advances.

Procedural history:

The Assistant Controller of Estate Duty assessed the properties (value noted above).
An appeal by the accountable person to the Zonal Appellate Controller failed.
A further appeal to the Income-tax Appellate Tribunal under Section 63 of the Act succeeded: the Tribunal held the case did not fall under Section 6 of the Act and excluded the property from the deceased’s estate.
The department applied for a statement of the case to the High Court under Section 64(1); the Tribunal's question (quoted in the referral) was accordingly posed to the Court.

Legal Issues Presented

Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in excluding the value of the property in question from the assessment holding that the deceased was not competent to dispose of the same and that it did not pass on her death?

Arguments of the Parties

Department's Arguments

The Tribunal erred in holding that the property was not to be deemed to be the property of the deceased under Section 6 of the Act because the deceased was not the real owner; the real owner was the husband.
The learned counsel for the department did not challenge the Tribunal’s factual finding that the husband had purchased the plots with his own money in the benami name of his wife and had thereafter constructed the building with his own money.

Accountable Person's Arguments

The accountable person's learned counsel sought to contend that there was some controversy as to facts (though the Court noted no dispute as to the facts relied upon).
Before the High Court, the accountable person's counsel contended that the wife was not a benamidar at all and that no title at any point passed to the wife (this specific contention was noted as not having been advanced earlier before the Assistant Controller, Zonal Appellate Controller, or the Tribunal).
Recorded in the Tribunal's reasoning (as argued by the accountable person's advocate) was the submission that it was impossible to contend the deceased had power to dispose of the property simply because the allotments were made in her name or the property stood in her name; when the deceased did not hold any right, title or interest she could not have passed title to a purchaser, and therefore she had no power to dispose of the property during her lifetime.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Smt. Shantabai Jadhav v. Controller of Estate Duty, [1964] 51 I.T.R. (E.D.) 1 (A.P.)	In benami acquisitions, the property in the hands of the benamidar was treated as his estate on death, particularly in view of the language of Section 6 of the Act.	Referred to as a direct decision where benami property was nevertheless treated as part of benamidar's estate; used to show prior treatment under Section 6.
Smt. Denabai Boman Shah v. Controller of Estate Duty, [1967] 66 I.T.R. 385 (A.P.)	Benami-acquired property treated as part of the benamidar's estate on death.	One of the direct decisions cited to demonstrate that benami property has been treated as the benamidar's estate under Section 6.
Aloke Mitra v. Controller of Estate Duty, [1971] 82 I.T.R. 430 (All.)	Benami acquisitions treated as part of the benamidar's estate at death under Section 6.	Another direct decision relied upon to illustrate consistent application of Section 6 to benami situations.
Sree Meenakshi Mills Ltd. v. Commissioner of Income-tax, [1957] 31 I.T.R. 28, 52; [1956] S.C.R. 69 (S.C.)	Distinction between benami transactions (operative transfer vesting title in transferee) and sham transactions (no operative transfer; transferor retains title).	The Court quoted this passage to underline that a benamidar is, for most purposes, the owner (subject to the overriding title of the true owner), and therefore may pass title to third parties; this undermined the Tribunal's reasoning that lack of beneficial title prevented disposition.

Court's Reasoning and Analysis

The Court proceeded from the undisputed factual finding (adopted from the Tribunal) that the husband had purchased the two plots with his own money in the benami name of his wife and had constructed the building thereon with his own money; therefore the accountable person was the real owner and the wife was a benamidar.

The Court examined the Tribunal's reasoning which relied on the proposition that because the deceased lacked beneficial title she could not have disposed of the property during her lifetime and hence the property did not pass on her death. The Tribunal's statement of that reasoning was quoted at length in the opinion.

The Court then analysed the language of Section 6 of the Estate Duty Act. It noted the statutory provision that "the property which the deceased at the time of his death was competent to dispose of shall be deemed to pass on his death." The Court emphasized that once the legal title (as between the world and the benamidar) vests in the benamidar, she has the legal capacity immediately before death to transfer that title except as against the true owner.

Relying on prior decisions (including the Supreme Court's distinction between benami and sham transactions in Sree Meenakshi Mills Ltd.), the Court explained that a benamidar is, for all intents and purposes, the owner of the property subject to the overriding equitable or true-owner title. Because the legal title against the rest of the world (other than the true owner) was vested in the wife, she was competent to dispose of the property immediately before death.

Consequently, in the Court's view, the Tribunal's conclusion that the deceased could not have passed title and therefore the property did not "pass on her death" under Section 6 was legally unsound. The proper construction of Section 6 leads to the conclusion that the property, though benami in origin, was deemed to pass on the deceased's death for the purposes of estate duty.

Holding and Implications

Holding: The Court answered the referred question in the negative — that is, it held that the Tribunal was not right in excluding the value of the property from the estate duty assessment on the ground that the deceased was not competent to dispose of it and that it did not pass on her death. The decision was explicitly stated as being "in favour of the department and against the assessee."

Implications and immediate effects:

As held by the Court, because the deceased (the benamidar) had legal title vis-à-vis the world (other than the true owner) and thus the competence to dispose of the property immediately before death, the property "shall be deemed to pass on her death" under Section 6.
Accordingly, the property would be liable to the levy of estate duty under Section 5 of the Act, as expressly noted by the Court in the opinion.
The Court made no order as to costs.

End of summary based exclusively on the provided opinion.

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Controller Of Estate Duty, Punjab, Haryana, J&K, Himachal Pradesh And Chandigarh, Patiala v. M. L. Manchanda

1. This reference has arisen under the Estate Duty Act, 1953 (Act No. 34 of 1953) (hereinafter to be refered to as "the Act"). The Income-tax Appellate Tribunal, Delhi Bench 'C', has referred the following question of law for opinion:

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in excluding the value of the property in question from the assessment holding that the deceased was not competent to dispose of the same and that it did not pass on her death ?"

2. So fat as the facts are concerned there is no dispute, though the learned counsel for the accountable person sought to contend that there was some controversy as to facts. The dispute relates to the estate of Savitri Devi. She died on the 17th of November, 1963. On the date of her death, there were two properties which stood in her name. These properties were evaluated at Rs. 1,63,200 by the Assistant Controller of Estate Duty.

3. The accountable person is the husband of the deceased, Shri M. L. Manchanda. The property is situate at Faridabad. Initially, it consisted of two plots, Nos. 5-C/1 and 5-C/2, measuring 800 square yards. These plots were allotted to the husband subject to the approval of the development board. The allotment was approved by the board.

4. Later on, the accountable person requested the Faridabad Development Board to transfer the said plots to his wife. This request was accepted subject to the condition that the sum of Rs. 1,408-3-0 be first deposited. This amount was so deposited and by his letter dated 30th April, 1956, the accountable person requested that the said plots be transferred in the name of his wife. Later on, the Assistant Settlement Officer addressed a communication to the lady if she wanted the leasehold rights to be converted into freehold rights. This communication was accepted and the amount demanded was paid by the accountable person, who, later on, with his own money constructed a house of which only the ground floor portion was initially put up. This building was then let out to the Oriental Bank of Commerce Ltd. at a rent of Rs. 600 per month by the accountable person and, with the amounts so recovered, it is stated that the accountable person constructed the upper storey as well. The income of rent was also taxed in the hands of the accountable person for the assessment years 1961-62 and onwards. There is also a declaration by the accountable person dated 1st of November, 1963, to the effect that he is the owner of the plots as well as the house, though they stood in the name of his wife. This declaration is signed by the wife and also the son. On the basis of this declaration some moneys were advanced by the bank.

6. An appeal by the accountable person to the Zonal Appellate Controller of Estate Duty met with no success. A further appeal was filed to the Income-tax Appellate Tribunal under Section 63 of the Act. The Tribunal allowed the appeal and held that the case did not fall under Section 6 of the Act. An application was made to the Tribunal for a statement of the case to this court under Section 64(1) of the Act. This application was granted and the question of law already referred to has been referred.

7. The contention of the learned counsel for the department is that the Tribunal has gone wrong in holding that the property in dispute is not to be deemed to be the property of the deceased under Section 6 of the Act inasmuch as the deceased was not the real owner of the property. It was the husband of the deceased who was the owner. The learned counsel for the department does not challenge the finding of fact recorded by the Tribunal, namely, that:

"This evidence, in our opinion, proves to the hilt that the accountable person purchashed the two plots in question with his own money in the benami name of his wife and that he thereafter constructed a building thereon with his own money. We, therefore, hold that the accountable person is the real owner of this property."

8. What emerges from this finding is that the wife is a benamidar inasmuch as the property was acquired in her name and the husband is the real owner, for the entire money for acquiring the property as well as for constructing the building on the plot emanated from his pocket. However, the question has to be settled on the language of Section 6.

9. It will be proper at this stage to refer to the contention of the learned counsel for the accountable person that the wife was not a benamidar at all and at no point of time any title in the property passed to the wife. Curiously enough, this was not a case which was ever set up before the Assistant Controller or the Zonal Appellate Controller or the Tribunal. The case proceeded on the short ground that the property had been acquired in the name of the wife but the consideration for the same had proceeded from the husband and thus the husband was the real owner of the property, and the wife was merely a benamidar. We also proceed on this short basis.

10. To say the least, the matter is not res integra. There are three direct decisions bearing on the point but only one was cited before the Tribunal. The one that was cited before the Tribunal is Smt. Shantabai Jadhav v. Controller of Estate Duty, [1964] 51 I.T.R. (E.D.) 1 (A.P.). The other two are, Smt. Denabai Boman Shah v. Controller of Estate Duty, [1967] 66 I.T.R. 385 (A.P.) and Aloke Mitra v. Controller of Estate Duty, [1971] 82 I.T.R. 430 (All.). In all these cases, the property was acquired benami and yet in the hands of the benamidar it was treated as his estate on death. This was done particularly in view of the clear language of Section 6 of the Act. Reference may also be made to the decision of the Supreme Court in Sree Meenakshi Mills Ltd. v. Commissioner of Income-tax, [1957] 31 I.T.R. 28, 52 ; [1956] S.C.R. 69 (S.C.) wherein their Lordships, while comparing a benami transaction with a sham transaction observed as follows:

"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."

11. This also highlights the fact that a benamidar for all intents and purposes is an owner of property and his ownership is only subject to the overriding title of the true owner. He can pass title to a third person and if that third person has no knowledge of the benami nature of his title, he acquired a good title even against the real owner. Therefore, in the light of the observations above, one has to examine the validity of the reasoning of the Tribunal.

12. The Tribunal, while deciding against the department and reversing the decision of the Assistant Controller as well as of the Zonal Appellate Controller, observed as follows :

The question that now arises for our consideration is whether the value of this property is liable to be included in the estate of the deceased simply because the allotments of the two vacant plots were made in the name of his wife. The question for our ultimate decision is whether the deceased can be said to have the power to dispose of this property during her lifetime simply because the property stood in her name. The learned advocate for the accountable person argued that it was impossible to contend that the deceased had power to dispose of the property simply because the property was allotted or stood in her name. He referred to the time-honoured dictum of law that a person cannot transfer title to a property which he did not possess. When the deceased did not hold any right, title or interest in this property, he argued, how she could have disposed of the said property and even if she executed a sale deed or any other deed in respect thereof how she could have transferred a valid title thereunder. He pointed out that the power of owner of a property to transfer the property does not depend upon the property having been purchased in his name or the property standing in his name but depends upon his ownership of the property. According to him, there is no provision or principle of law which disqualifies the real owner of property from disposing of the property simply because it does not stand in his name or it has not been acquired in his name. Similarly, he argued, that there is no provision or principle of law which authorises a benamidar to pass a valid title with reference to a property simply because the property has been purchased in his name or that the property stands in his name. We are not at all impressed by the contention of the revenue that the deceased had power to dispose of the property because the allotments were made in her favour or that the property stood in her name in Government records. As she did not possess any title to the property, she could not have passed any title to the purchaser. Even if she had executed any sale deed it would not have found the real owner of the property. It is in the circumstances impossible to hold that she had the power to dispose of this property during her lifetime.

13. As already observed, if the legal propositions that have been set out above and which are backed by the opinion of the Supreme Court are kept in view, the falsity of the reasoning of the Tribunal would become apparent.

14. This brings us to the examination of the language of Section 6. All that this section says is that the property which the deceased at the time of his death was competent to dispose of shall be deemed to pass on his death. Irrespective of the fact that the husband was the true owner of the property, there was nothing to prevent the wife a minute before her death to transfer the property. The legal title against the entire world, excepting the true owner, vested in her and she had thus the right to dispose of that right, and once that right is conceded, the property shall be deemed to pass on her death and would, therefore, be liable to the levy of estate duty under Section 5 of the Act. From this conclusion, there is no possible escape.

15. For the reasons recorded above, we answer the question referred to us in the negative, that is, in favour of the department and against the assessee. However, we propose to make no order as to costs.

Controller Of Estate... v. M. L. Manchanda