Full Judgment Text
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PETITIONER:
MOHAN SINGH OBEROI
Vs.
RESPONDENT:
COMMISSIONER OF INCOME-TAX, WEST BENGAL
DATE OF JUDGMENT29/11/1972
BENCH:
KHANNA, HANS RAJ
BENCH:
KHANNA, HANS RAJ
HEGDE, K.S.
REDDY, P. JAGANMOHAN
CITATION:
1973 AIR 651 1973 SCR (1)1057
1973 SCC (3) 491
ACT:
Income-tax-Shares standing in the names of wife and sons of
assessee-Dividend income, from shares-When to be included in
total income of assessee-Burden of proof.
HEADNOTE:
For the assessment years 1953-54 and 1954-55 the appellant
showed the gross dividend derived by him from shares held by
him, as his income. The Income-tax Officer however included
in the assessee’s income the gross dividend of certain
shares held by the assessee’s wife and sons. The Appellate
Assistant Commissioner confirmed the order. The Appellate
Tribunal held in favour of the assessee on the ground that
though the shares might have been acquired out of the
secreted profits of the appellant, in the absence of any
evidence that the shares remained in substance the property
of the assessee, the dividend income could not be included
in his total income, and that it was only the wife and the
sons of the assessee, who were registered holders of the
shares, that could be assessed for the dividend income from
those shares.
The High Court, in reference, held against the assessee.
Dismissing the appeal to this Court,
HELD : (1) The order of the Income-tax Officer showed that
it had been admitted by the assessee in the past, before the
Department, that the shares in question, standing in the
name of the assessee’s wife and sons, belonged to the
assessee and were his own investments., The Tribunal nowhere
observed that the observations of the Income-tax Officer
were factually incorrect or that the said admission had not
been made by the assessee. There was ample material to
justify the inference that the assessee was the real owner
of the shares and that they were held by him benami in the
name of his wife and sons. [1061 E-F, G-H]
(2) If the Tribunal had given a finding that the purchase
was not benami, and if the finding was based on some
evidence, the same would have to be accepted in proceeding
in reference under s. 66(1) of the Indian Income-tax Act,
1922. But the tribunal nowhere dealt with the question as
to whether the purchase of shares was or was not benami in
the name of the wife and sons of the assesses [1O63 B-C]
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(3) Once it was found that the assessee was the real owner
of the shares and that they had been purchased benami in the
names of his wife and sons, it would be presumed that the
ownership of the shares continued to remain vested in the
assessee, unless it was shown by ’him that because of some
subsequent event, he had ceased to be the own" of the
shares. Therefore. even thought the wife and sons were the
registered holders of the shares. the dividend income from
those shares should be assessed as the assessee’s income.
The tribunal excluded the dividend income on a ground which
was not legally tenable. [1062 E-H]
Kishanchand Lunidasing Balaji v. Commissioner of Income Tax,
[1966] 60 I.T.R. 500 followed.
1058
Howrah Trading Co. v. Commissioner of Income tax, [1959] 36
I.T.R. 215 and Meenakshi Mills v. Commissioner of Income
Tax, [1956] S.C.R., 691 referred to.
JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 2492 and
2493 of 1969.
Appeals by special leave from the judgment and order dated
November 25, 1969 of the Calcutta High Court in I. T. Refe-
rence No. 149 of 1963.
S. T. Desai, T. R. Bhasin, R. N. Banerjee and Lalit
Bhasin, Ravinder Narain, J. B. Dadachanji and O. C. Mathur
for the appellants.
B. Sen, P. L. Juneja, S. P. Nayar and R. N. Sachthey, for
the respondent.
KHANNA, J. These two appeals by special leave are directed
against the judgment of Calcutta High Court whereby it
answered the following question referred to it under section
66(1) of the Indian Income Tax Act, 1922 in the negative in
favour of the revenue
"Whether on the facts and in the circumstances
of the case, the Tribunal was justified in
excluding from the assessable income of the
assessee for the assessment years 1953-54 and
1954-55 the sums of Rs. 56,586 and Rs. 39,542
which were the amounts of dividend received by
the assessee’s wife and two sons from shares
acquired out of the profits of the assessee ?"
The matter relates to assessment years 1953-54 and 1954-55,
the corresponding previous years for which ended on March
31, 1953 and March 31, 1954 respectively. The appellant-
assessee is the Managing Director of Messrs Hotels (1938)
Ltd. and other associated companies controlling a number of
hotels in India. For the assessment years 1953-54 and 1954-
55, the appellant showed incomes of Rs. 66,694 and Rs.
87,570 as the gross dividend derived by him from the
following shares held by him
(i) Associated Hotels of
India Ltd. 109, 606 shares
(ii) Northern India Caterers Ltd. 20 shares
(iii) Oberoi Hotels 1) Ltd. 10 shares
The Income Tax Officer found that besides the above
mentioned shares, the appellant’s wife and two sons held
shares of Associated Hotels of India Ltd. and Northern India
Caterers Ltd. and included the gross dividend of those
shares in the total income of the
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assessee. In the order relating to assessment year 1953-
54,the Income Tax Officer in this context observed as under
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:
"Besides the income shown from the above men-
tioned shares of the above named concerns,
other income from dividends which are held by
Benamidars of the assessee have also to be
assessed in the hands of the assessee. It is
seen from the past records that the following
shares standing in the names of the assessee
wife Sm. 1. D. Oberoi and the assessee’s two
sons, namely, Mr. P.R.S. Oberoi and Mr. T.R.
Oberoi do in fact belong to the assessee and
are his own investments. The facts have also
been admitted by the assessee before the
department in the past years. The income from
these shares is therefore to be rightly in-
cluded in the hands of the assessee and
assessed accordingly.
-------------------------------------------------------------
Name of shareholder Gross
dividend
Rs.
-------------------------------------------------------------
1. Sm. 1. D. Oberoi, wife of the assesseed.
(a) 15,886 shares of Associated Hotels (1) Ltd.)
3,971
(b) 30 shares of Northern India Caterers Ltd.
15,273
2. Mr. T.R. Oberoi, son of the assessee.
(a) 50 Shares of Northern
India Caters Ltd. 25,454
(b) 6, 823 shares of Associated Hotels (1) Ltd. 1,706
3. Mr. P.R.S. Oberoi son, of the assessee.
(a) Northern India Caterers Ltd (20 shares).10,182 56,586
------------------------------------------------------------------
Similarly, for assessment year 1954-55 the Income Tax
Officer included the following dividends in the total income
of the assessee:
------------------------------------------------------------------
-
Name of the shareholders Net
Dividend
------------------------------------------------------------------
-
Smt. I.D. Oberoi
15,886 shares of Associated Hotels of India Ltd. 3,177
30 shares of Northern India Caterers Ltd. 10,500
Shri T.R. Oberoi
50 shares of Northern India Caterers Ltd. 17,500
6,823 shares of Associated Hotels of India Ltd. 1,365
Shri P.R.S. Oberoi:
20 shares of Northern India Caterers Ltd.. 7,000
39,542
When the assessee went up in appeal, the Appellate
Assistant Commissioner observed that the stand of the
assessee that the dividend in respect of the shares held by
his wife and two sons should not be included in his income
had already been negatived by the Appellate Assistant
Commissioner as per order dated Nov-
16-521 Sup CI/73
1060
ember 24, 1959 for the assessment year 1952-53. The
Appellate Assistant Commissioner accordingly repelled the
contention on behalf of the assessee that the amounts of Rs.
56,586 and Rs. 39,542 should not be included in his income.
In the order dated November 24, 1959 for the assessment year
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1952-53, the Appellate Assistant Commissioner had referred
to the following observations of the Income Tax
Investigation Commission :
"It was found that Sri M. S. Oberoi owned
78,650 ordinary shares in his own name, 15,885
shares in the name of his wife Sm. Iswarani
Debi, 6823 shares in the name of Sri T. R.
Oberoi and 5,000 shares in the name of his
daughter Sm. Rajarani Kapoor out of a total
of 2000,000 ordinary shares issued and paid up
as on 31-2-47".
Reliance was also placed upon the following
extract from a letter addressed by the
assessee to the Commission
"In preparing the statement of wealth, I have
taken into account all the assets of which I
and other members of my family are possessed.
According to the statement of wealth furnished
the evaded income comes to Rs. 20 lakhs. All
the money that was evaded is invested mainly
in the shares of Associated Hotels of India
Ltd. There has been great fall in the price
of these shares. In fixing up my liability
and the payment thereof due account will have
to be taken of the fall in prices of these
shares and my capacity to pay."
It was also found that the Income Tax Investigation
Commission had held that the shares had been acquired by the
assessee out of the suppressed income which was determined
to be Rs. 16,62,21 1.
In second appeal before the Income Tax Appellate Tribunal,
the assessee contended that the Income Tax Investigation
Commission had considered only the shares of the Associated
Hotels of India, but the bulk of dividend included in the
assessee’s income in the two assessment years in question
was the dividend declared by Northern India Catereres Ltd.
Contention was further advanced that assuming that the
shares in question were acquired out of the assessee’s
secreted profits in 1943, the wife and the two sons of the
assessee could only be assessed in respect of the dividend
income as they were the registered holders of those shares.
These contentions found favour with the Tribunal. The
Tribunal accordingly directed that the income assessed for
the assessee should be reduced by the amounts of Rs. 56,586
and Rs. 39,452 in the assessment years 1953-54 and 1954-55
respectively. On application filed by the Commissioner, the
question reproduced above was thereafter referred to the
High Court.
1061
The High Court ,in answering the question in the negative,
observed that the shares in question had been purchased by
the assessee in the name of his wife and two sons and, in
the circumstances, the natural inference was that the
purchases were benami transactions. It was, in the opinion
of the High Court, for the assessee to discharge the burden
which lay upon him to show that the shares had not been
purchased by him benami in the name of his wife and sons but
he had failed to discharge that burden. The High Court also
held that the real owner could be assessed on the dividend
income even though his wife and sons were the registered
holders of the shares. In the result, the question
referred, as already mentioned earlier, was answered in the
negative.
In appeal before us, Mr. Desai on behalf of the assessee-
appellant has contended that the High Court was in error in
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interfering with the finding of the Tribunal that the wife
and the two sons of the assessee, who were the registered
holders of the shares in question, could only be assessed
for the dividend income from those shares. In this respect
we find that the question referred to the court assumes that
the shares on account of which the wife and the two sons of
the assessee received the dividend amounts of Rs. 56,586 and
Rs. 39,542 had been acquired out of the profits of the
assessee. In addition., to that, we find that the order of
the Income Tax Officer for the assessment year 1953-54 shows
that it had been admitted by the assessee in the past before
the department that the shares in question standing in the
name of the wife and two sons of the assessee belonged to
him and were his own investments. Although it is normally
for the department to show that the apparent is not the
real, in the present case we find that there was ample
material to justify the inference that the assessee was the
real owner of the shares and they were held by him benami in
the name of his wife and two sons.
It was urged before us during the course of arguments that
no such admission had been made, but nothing was brought to
our notice to show that the above observation made by the
Income Tax Officer had been challenged in appeal., No copy
of the memorandum of appeal filed against the order of the
Income Tax Officer has been produced. We also find that the
above observation containing the admission has been
incorporated in the statement of the case and is an integral
part of it. The Tribunal nowhere observed that the above
observation was factually incorrect and that the said
admission had not been made by the assessee. It was not
even mentioned that the above admission was erroneous. On
the contrary, the Tribunal took the view that as the wife
and two sons of the assessee were the registered holders of
the shares in question, dividend income from those shares
should have been assessed as their income and not that of
the assessee. The Tribu-
1062
nal in this context relied upon the decision of this Court
in Howrah Trading Co. v. Commissioner of Income Tax(1).
What was held in that case was that a person who purchases
shares in a company under blank transfer and in whose name
the shares have not been registered in the books of the
company is not a "shareholder" in respect of such shares
within the meaning of section 18(5) of the Indian Income Tax
Act, 1922 notwithstanding his equitable right to the
dividend on such shares. It was further held that such a
person was not entitled to have his dividend income grossed
up under section 16(2) of the Act by the addition of the
income tax paid by the company in respect of those shares.
The decision in Howrah Trading Co. (supra) was considered by
a larger bench of this Court in Kishanchand Lunidasing Bajaj
v. Commissioner of Income Tax(2). It was held in that
case that a company for its purpose does not recognise any
trust or equitable ownership in shares. It merely
recognizes the registered shareholder as the owner and pays
dividend to that shareholder. But the shares may because of
a trust or other fiduciary relationship, belong to a person
other than the registered shareholder, and the dividend
distributed by the company would for the purpose of tax be
deemed to accrue or arise to the real owner of the shares.
The scheme of "grossing up", it was observed, is not
susceptible to the interpretation that the income from
dividend is to be regarded as the income only of the
registered shareholder and not of the real owner of the
shares. In the aforesaid case, shares were acquired with
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the funds of a Hindu undivided family in the name of the
karta. It was held that the Hindu undivided family could be
assessed to tax on the dividend from those shares.
We thus find that the Tribunal excluded the dividend income
on a ground which was not legally tenable.
The Tribunal also observed that though the shares might have
been acquired out of the secreted profits of the appellant,
in the absence of any evidence that the shares remained in
substance the property of the assessee, the dividend income
could not be included in his total income. The approach of
the Tribunal in this respect too was erroneous. Once it was
found that the assessee was the real owner of the shares and
they had been purchased benami in the name’ of his wife and
two sons, it would be presumed that the ownership of the
shares continued to remain vested in the assessee,’unless it
was shown that because of some subsequent event, he had
ceased to be the owner of the shares. No such attempt was
made by the assessee.
In view of the admissions referred to in the order of the
Income Tax Officer, nothing hinges, in our opinion, upon the
fact
(1) [1966] 60 I.T.R. 5000.
1063
that the shares referred to in the letter of the assessee to
the Income Tax Investigation Commission were mainly of the
Associated Hotels of India and not of Northern India
Caterers Ltd.
We may also observe that if the Income Tax Appellate Tribu-
nal records a finding on the point as, to whether a purchase
was made benami or not, such a finding as observed in
Meenakshi Mills v. Commissioner of Income Tax(1) would be
considered to be one of fact. If such finding is based upon
some evidence, the same would have to be accepted in
proceedings in a reference under section 66(1) of the Indian
Income Tax Act. This aspect, however, does not help the
assessee in the present case because the Tribunal nowhere
dealt with the question as to whether the purchase of shares
was or was not benami in the name of the wife and sons of
the assessee.
Submission was made by Mr. Desai during the course of argu-
ments for adjournment of the appeal to enable the assessee-
appellant to produce the detailed findings of the Income Tax
Investigation Commission. We, however, declined to do so
as, in our opinion, the appeal had to be disposed of on the
basis of the material before us.
As a result of the above, we dismiss the two appeals with
costs. One hearing fee.
V.P.S. Appeals dismissed.
(1) [1956] S.C.R. 691.
1064