Mohan Singh Oberoi versus Commissioner of Income-Tax, West Bengal

Income-tax-Shares standing in tire names of wife and son:r of assuste-Dividend incorru from sl1t1res-When to be includtd 111 total income of asse111e--Burdtn of proof.

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For the uaeument yem 1953·54 and 1954·55 the appellant showed tbe aross dividend derived by him from shares held by hlm, u hla in· ·come. The Income-tax Officer however included in the asmsee's Income c the aross dividend of certain shares held by the asmsee's wi'le and 1001. The Appellate Assistant Commi11ioner confirmed the order. The Appel· late Tribunal held In favour of the asse11ee on the ground that thouah the shares might have been acquired out ol the secreted profits ol the appellant, In the absence of any evidence that the sham 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 D . be assessed for the dividend income from those shares.

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The High Court, in reference, held against the assessee.

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Dismissing the appeal to this Court,

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HELD : (I) The order of the Income-tax Officer showed th1>t it had been admitted by the assessee in the past, before the Department, that E 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 o'l the Income-tax Officer were factually incorrect or that the said admission had not been made by the assessee. There was ample material to justily 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-HJ

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(2) If the Tribunal had given " finding that the purchase wu not benami, and if the finding was based on some evidenoe, 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 we~ not benami in the name of the wife and sons of the assesse. rtQ63 B-CJ

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G (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 wl'fe and sons, it would be presumed that the ownership of the share• 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 owner 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. 111e tribunal excluded the dividend II income on a ground whld! was not legally tenable. [1062 E·ID Kishanchand Lunidarin11 Bajaj v. Commi.rrioner of Income Tax, [1966] 60 I.T.R. 500 followed.

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[1973] 2 S.C.R.

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SUPREME COURT REPORTS

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1058

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Howrah Trading Co. v. Commissioner of /ncoftti! tax, [19591 36 l.T.R. 215 and Meenakshi Mills v. Commwioner of Income Tax, [1956] S.C.R.· 691 referred to.

¶21

CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 2~·~2 and 2493 of 1969.

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Appeals by special leave from the judgment and order dated November 25, 1969 of the Calcutta High Court in I. T. Reference No. 149 of 1963.

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S. T. Desai, T. R. Bhasin, R. N. Banerjee and La/it Bhan~, Ravinder Narain, J. B. Dadachanji and 0. C.· Mathur for thi appellants.

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B. Sen, P. L. Juneja, S. P. Nayar and R. N. Sachthey, for the respondent.

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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 :

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"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 ?"

¶30

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) Lt& '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 (I) Ltd. . . . . 10 shares

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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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M. s. OBEROI v. C.I.T. (Khanna, J.)

¶39

105 !)

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A 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 mentioned 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 B the assessee. It is seen from the past records that the following shares standing in the names of the assessee's wife Sm.· J. 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 c assessee before the department in the past years. The income from these shares is therefore to be rightly included in the hands of the assessee and assessed accordingly.

¶44

		Nameofshareholder	Gross divid:nd Rs.
.l.	Sm. (a)	I.D.Oberoi,wifeoftheasscsseed. 15,886sharesofAssociated Hotels(I)Ltd.)	3,971
	(b)	30sharesofNorthern India Caterers Ltd.	15,273
2.	Mr. (a) (b)	T.R. Obcroi, sonofthe asscssee. 50SharesofNorthern India CatersLtd. 6,823sharesofAssociated Hotels(1)ltd.	25,454 1,706
3.	Mr. (a)	P.R.S. Obcroi son,ofthe assessee. Northern India Caterers Ltd(20shares)	10,182
			56,586

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Similarly, for assessment year 1954-55 ~e Income Tax Officer included the following dividends in the total income of the assessee:

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NameoftheShareholders	Net Dividend
Smt.l.D.Oberoi
15,886sharesofAssociatedHotelsofIndiaLtd. . . 30sharesofNorthernIndiaCaterersLtd. . ShnT.R. Obcroi	3,177 10,500
50sharesofNorthernIndiaCaterersLtd. . 6,823sharesofAssociatedHotelsofIndiaLtd Shri P.R.S. Oberoi: ..	17,500 l,36S
.!OsharesofNorthernIndiaCaterersLtd..	7,000
	39,542

¶51

e the assessee went up in 'appeal, the Appellate Assistant H C:o!Iln11ss1?ner observed that the stand of the assessee that the d1V1dend m rpect of te h held by his wife and two rnns should not bn mcluded m his mcome ,had already been negatived b J the Appellate Assistant Commissioner a~ per order dated NovH - ~;J Sup CI/73

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[1973) 2 S.C.R.

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1060

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SUPREME COURT REPORTS

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._

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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. 39,547 should not be included in his income. In the order dated November 24, 1959 for the assessment year 1952-53, the Appellate Assistaut Commissioner had referred to the following observations of the Income Tax. Investigation Commission :

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"It was found that Sri M. S. Obercii 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". .

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Reliance was also placed upon the following ex.tract 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 o:her 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 fix. ing up my liability and the payment thereof due account will have to be taken of the fall in prices of these shares ar.d my capacity to pay."

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Jt 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 detennined to be R~. 16,62,211.

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fo second appeal before the Income Tax Appellate Tribunal, the assessee contended that the Income Tax Investigation Commission had considered oniy the shares of the Associated Hotels of Indi.1, but the bulk of dividend included in the assessee's income in the two assessment years in questio11 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 ;irofits 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 ;ontentions found favour with the Tribunal. The Tribooal 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 tlje Commissioner. the question reproduced above was thereafter referred to the High Court.

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M. s. OBEROI v. C.I.T. (Khanna, J.)

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1061

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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 lligh Court, for the assessee to discharge the burden which lay upon hinl to show that B the shares had not been purchased by hinl 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.

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In appeal before us, Mr. Desai on behalf of the assessee-appellant has contended that the High Court was in error in 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 Ji)at the question referred to the cp11rt 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 qqestion standing in the name of the wife and two sons of the assessee belonged to hinl 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.

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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 obervation made by the Income Tax Officer hacl 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 assssee were the registered holders of the shares in CjUestion. dividend income from those shares should have been assessed as their income and not that of the assessee. The Tribu-

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[1973] 2 S.C,ll,

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106:.!

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SUPREME COURT REPORTS

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nal in this context relied upon the decision of this Court . in Howrah Trading Co. v. CQmmissioner of Income Tax('). What was held in that case was that a person who purchases shaIP.s in a company under blank transfer and in whose name the shares have not been registered in the books of th!l company is not a "shareholder"' h respect of such shares within the meaning of section 18(5J of the Indian Income Tax Act, 1922 notwi~tanding 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 n;spec{ of those shares.

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Th~ decision in Howrah Trading Co. (supra) was considered by a larger bench of this Court in Kishanchand Lunidasing Bajaj v. Commissioner of Income Tax(l); It was held in that case d1at a company for its purpose does not recogni~e 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 sha1eholder, 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 the funds of a Hindu undivided family in the name of the karta. It was held that the. Hindu undivided fainily could be assessed to tax on the dividend from those shares.

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We thus firtd that the Tribunal excluded the dividend income on a ground which was not legally tenable.

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The Tribunal also observeg that though the shares might have been acquired out of the secrete4 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 wift and two sons, it would be presUllled that t_he f>wnership of the shares continued to remain vested in the assessee, unless it was shown that because of some subsequeat event, he had ceased to be the owner of the shares.. No such attempt was made by the assessee.

¶92

In view of the admissions referred to in the order of the Income Tax Officer, nothing hinges, in our opinion, upon the fact (I) [1959J 36 I.T.R,. 215. (2) (1966J 6<>I,T.R. 500.

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I 063

M. s. OBEROI v. c.r:r. (Khanna, J.)

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that the shares referred to in the letter of the assessee to the Income Tax Investigation Commission were mainly of the Associatd Hotels of India and not of Northern India Caterers Ltd.

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We may also observe that if the Income Tax Appellate Tribunal records a finding on the point as to whether a .Purchase was made benami or not, such a finding as observed m 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 as:pect. 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.

¶102

· Submission was made by Mr. Desai during the course of arguments for adjournmen.t of the appeal to enable the assessee-appellant to produce the detailed findings of the Income Tax InvestigaD tion 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.

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As a result of the above, we dismiss the two appeals with costs. One hearing fee.

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Appeals dismissed.

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V.P.S.

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(I) (1956] S.C.R. 691.

Mohan Singh Oberoi v. Commissioner of Income-Tax, West Bengal

Case brief

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Mohan Singh Oberoi v. Commissioner of Income-Tax, West Bengal

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