RAMACHANDRA IYER, J. - The following question has been referred to us under section 66(2) of the Indian Income-tax Act :
'Whether the Tribunal was right in law in holding 5/6ths of dividend income from the shares held by the assessees wife in Messrs. Taylor and Co. (Madras) Ltd. should be included in the total income of the assessee under the provisions of section 16(3)(a)(iii) of the Income-tax Ac ?'
The assessee, Mr. R. K. Murthi, was a director of Messrs. Taylor and Co. (Madras) Ltd., since 1945. During the assessment years from 1948-49 to 1951-52, he was deriving an income from the salary and dividends etc. from the company. In his own name he held 967 shares in the company. the other directors of the company were Messrs. Thompson and Jackson. On 21st March, 1947, Mr. Jackson sold 2,098 shares out of 5,000 shares held by him to Mrs. R. K. Murthi. The consideration for the sale was a sum of Rs. 24,000. Rs. 4,000 was paid immediately in cash by the lady, that amount having been obtained by her by selling her gold ornament (kasumalai), and for the balance of Rs. 20,000 she executed a promissory note in favour of Mr. Jackson, whereby she undertook to repay the balance of the sale price of Rs. 20,000 without interest before the end of 1949. There is no material on record to show whether the lady had on the date of purchase the wherewithal to pay the sum of Rs. 20,000. It was evidently anticipated that she would be able to get that money from out of the income from the dividends on the shares purchased. The stipulation in the promissory note that the balance of purchase money as to be paid by the end of 1949, would indicate that the parties to the transaction contemplated that the purchaser should pay the money from out of the dividends. Mr. Jackson had to leave India sometime between April and June, 1949. He evidently wanted to realise the money before leaving India, and Mr. Murthi paid him the entire amount of Rs. 20,000 in liquidation of the amount due on the following dates in the manner indicated.
Paid on 26th September, 1947 .
Paid on 18th December, 1947 .
Paid on 7th April, 1949 .
In due course, Mrs. Murthi obtained the expected dividends from the company in respect of 2,098 shares which stood in her name. The dividends were received on the dates mentioned below by cheques issued by Messrs. Taylor and Co. Ltd.
Received on 25th September, 1947 .
Received on 25th June, 1948 .
Received on 15th June, 1949 .
Received on 17th May, 1950 .
Those cheques were endorsed by Mrs. Murthi in favour of her husband, and he realised the same through his own bank and set off the amounts thus realised against the payments which he made to Mr. Jackson on the various dates mentioned. Mr. Jackson, however, acknowledged the receipt of the sum of Rs. 20,000 in respect of the promissory note by issuing receipts in the manner set out below :
26th September, 1947 .
26th June, 1948 .
20th June, 1949 .
It may be noticed that the dates correspond to the dates on which the dividends nearly equal to the amount covered by the receipts were received by Mrs. Murthi. Factually, however, there was no payment in the manner set out in the receipts, Mr. Jackson having been paid by Mr. Murthi on the three dates mentioned above.
Whether the receipts given by Mr. Jackson were intended to conform to the agreement which the parties presumably had entered into, namely, that the unpaid balance of purchase money should be paid within the period the two years as and when dividends were received, or whether they were false receipts to support the case that Mrs. Murthi did, in fact, pay the consideration for the sale, is a matter in controversy. But a comparison of the dates of receipt of the dividends with those on which Mr. Jackson was paid would show, (1) that a substantial portion of the first installment of payment must have been of the dividend income and (2) that, although Mr. Murthi paid the second and third instalments, he recouped himself shortly thereafter.
The Income-tax Officer held that the dividend income received by Mrs. Murthi has to be included in the assessees total income under section 16(3), as the shares should be held to have been purchased by Mr. Murthi, the assessee, in his wifes name, the considerations for the purchase having been paid by him. On appeal, the Appellate Assistant Commissioner was the opinion that the purchase was made in pursuance of an ingenious plan to keep the transactions outside the mischief of section 16(3), and that the entire amount of dividends received would be assessable to tax. On a further appeal, the Appellate Tribunal held that, out of the total consideration for purchase, at least Rs. 20,000 should be held to have come out of the funds of the assessee in the first instance, and that, therefore, the assessee and his wife should be entitled to the dividends in proportion to the monies respectively advanced by them, namely, Rs. 20,000 and Rs. 4,000. In the result, the Tribunal allowed the assessees appeal in part and gave direction that only 5/6th of the dividend income should be included in the assessees total income and the 1/6th should be excluded as relating to an investment made by the wife out of her funds, not transferred to her without adequate consideration.
The order of the officers of the Income-tax Department as well as that of the Tribunal reveal that there has been a mixing up of two distinct legal conceptions. The order of the Appellate Tribunal suffers from an additional infirmity in that it made a new case holding that Mr. and Mrs. Murthi were co-owners in the shares purchased. The Income-tax Officer and the Appellate Assistant Commissioner made no distinction between a case under section 16(3) and a case where the assessee was the real owner of the shares, the wife being merely a name-lender. Section 16(3) directs that, in computing the total income of any individual for the purpose of assessment, so much of the income of his wife as arises directly or indirectly from assets transferred directly or indirectly to her by the husband otherwise than for adequate consideration or in connection with an agreement to live apart, shall be included and assessed. This presupposes that there was a valid but gratuitous transfer of the assets by the husband to the wife. A case of benami stands on an entirely different basis; the transfer is only ostensible, there being no intention on the part of the transferor to part with the beneficial interest in the property. The benamidar is only an alias for the real owner. The income from the property will be the income of the real owner and would be liable to assessment as such. Section 16(3) is intended to tax the assets which an individual might have transferred to his wife without consideration presumably with a view to avoid tax. In such transfers, there is an effective divestment of interest from the husband to the wife, and the transaction is good and binding one; but the husband who made the gratuitous transfer is assessed to tax on the income received from the property by the wife. The Tribunal has stated in its order thus :
'It may well be that the assessee wanted to make a gift of these shares to his wife out of love and affection, but that will not take him out of the mischief of section 16(3)(iii) of the Act, nor from the clutches of the general law of benami. The transaction, it will be observed, has the air of unreality and artificially about it and the endorsements on the pronote only strengthen this view. Monies admittedly had already been received by Mr. Jackson but some endorsements were inserted on the pronote on dates divorced from realities, so as to give the impression that the payments were made as and when the lady happened to receive dividends from the company and thus to get over biggest hurdle that the admittedly had not the wherewithal to pay out Rs. 24,000. The assessee is a director and normally one would expect him to purchase the shares of his company. The consideration to the extent of Rs. 20,000 in the first instance certainly flowed from him. Furthermore, when Mr. Jackson was so meticulous and exacting as to take a pronote from his colleagues wife, there was no good and sufficient reason why, if the assessee was making large payments to Mr. Jackson, he should not also in his turn have taken a pronote or at least a receipt It is also not without some significance that the assessee, before his wife purchased the shares of Mr. Jackson, was entitled to commission on gross earning from particular branches only but thereafter his commission was increased and he also became entitled to commission on entire turnover like Mr. Jackson.
Having given the matter our anxious consideration, we cannot persuade ourselves to accede to the assessees claim. All the circumstances seem to lead to the irresistible conclusion that at least to the extend seem to lead to the irresistible conclusion that at least to the extend of Rs. 20,000, transaction was benami as the funds to this extent for the impugned purchase had flowed from the assessee in the first instance.'
It is difficult to see what exactly the Tribunal had in mind making the observation extracted above. Were they of opinion that the transaction was a sham or unreal one in which case neither the husband not the wife would have any interest Was it a case of gift by the husband to the wife, or a benami purchase by the husband in the name of his wife, or, as they ultimately observed, was it a case of co-owner-ship, the wife being the benamidar for the husbands share We fail to appreciate the significance of the statement that the husband paid the consideration to the extent of Rs. 20,000 in the first instance. But it is implicit in that finding that later on the husband was paid off. How can any question of the application of section 16(3) or the principles of benami arise by the mere fact that the assessee advanced or lent a portion of the purchase money, not even at the time of the purchase, but a few months later There is no evidence to show that Mr. Murthi was himself the purchaser, or even that the stood as surety or otherwise guaranteed the payment of the balance of purchase money to Mr. Jackson. The finding of the Appellate Assistant Commissioner was that an ingenious plan was laid to keep the transaction outside the mischief of section 16(3), and to make it appear that the purchase money was paid by the lady, and that this plan might have become successful but for the fact that Mr. Jackson left for England soon after the transfer and he did not wait until the expire of the full time for payment. That would itself show that on the date of the transfer of the shares, Mr. Murthi had no intention of even paying in the way he did not and that the parties contemplated payment after the receipt of the dividends.
The learned counsel for the Department sought to support the propriety of the assessment on either of the grounds, namely, (1) on the foot that section 16(3) would apply to the case, and (2) that the transaction was a benami one.
Section 16(3), so far as it is relevant for the present purpose, states :
'In computing the total income of any individual for the purpose of assessment, there shall be included - (a) so much of the income of a wife....... of such individual as arises directly or indirectly...... (iii) from assets transferred directly or indirectly to the wife by the husband otherwise than for adequate consideration or in connection with an agreement to live apart.'
In the present case, there has been no transfer of the shares as such by Mr. Murthi to his wife. But it is not necessary that there should be a direct transfer of the shares by the husband. If the purchase money for the shares was paid by the husband, with a view to benefit the wife, to enable her to purchase the shares, the provisions of the section would be satisfied, as it could be held to be a case of a transfer of the husbands assets. But the essential ingredient is the transfer of the husbands assets to enable the acquisition by the wife. A mere payment of money by the husband unaccompanied by an intention to transfer it to the wife will not be sufficient though to the extent of that payment the wifes contractual obligation to Mr. Jackson was discharged. The crucial date on which the intention of the parties is to be ascertained is the date of the purchase. If on that date, the husband furnished or at least intended to furnish the entire consideration for the purchase, and subsequently so furnished it, it can be said that there was a transfer of the assets by the husband to the wife. But in the present case there was no such intention on the part of the husband on that date, but on the contrary the wife furnished a portion of the purchase money herself, and intended to pay the balance out of her own income. No question of a transfer of the husbands assets, direct or indirect, could arise. Title to the share vested on the date of transfer; there being no intention by the husband to provide the purchase money on that date, no question of transfer of any of his assets can arise. If subsequently the husband advanced monies for discharging the obligation undertaken by the wife, such conduct could at best amount to an intention to lend that sum of money for her use on that date, but that cannot make the shares which had already vested in the purchaser, assets indirectly transferred by the husband. It is now found that the payments made by the husband to Mr. Jackson had ultimately been recouped out of the dividends obtained by the wife from Messrs. Taylor and Co. For the purpose of the application of section 16(3), it must be assumed that the title to the transferred shares vested in the wife and the dividends belonged to her. When, therefore, those monies are taken by the husband to recoup what he had paid to Mr. Jackson, it follows that what Mr. Murthi did was only to give a loan or temporarily to accommodate his wife to meet the demands of the assignor. Being only a loan the payments cannot amount to a transfer of assets. There is no prohibition against a husband advancing monies to his wife for the acquisition of property by her. Whether in such cases there was a loan by the husband to the wife or whether it was merely a camouflage to cover a case of transfer of assets is a question of fact. That question does not, however, arise in the present case, as the amounts advanced were repaid out of the dividends, and what was advanced could only be a loan. Even assuming that there was no material to show that Mr. Murthi did grant a loan to his wife, and that the payment of the wifes obligations to the vendor amounted to a transfer of assets to enable her to obtain the shares, such transfer should be held to be one for consideration as the monies were ultimately repaid presumably in pursuance of the original understanding between the parties. The provision of section 16(3) would not, therefore, apply to the case.
The mere fact that a property stands in the name of the wife cannot in the absence of evidence and proof show that she holds it benami for her husband. The question whether a purchase in the name of the wife by the husband out of the money provided by him is benami for his own benefit would depend on the intention of the parties at the time of purchase. For example, a husband may out of affection intend that the real title should be with the wife. Source of purchase money is not always decisive of the real ownership of the property, though it may prima facie show that he who provides the money does not intend to part with the beneficial interest in the property. The law as enacted in section 82 of the Trust Act applies to benami transactions as well. Section 82 enacts :
'Where property is transferred to one person for a consideration paid or provided by another and it appears that such other person did not intend to pay or provide such consideration for the benefit of the transfer the transfer must hold the property for the benefit of the person paying or providing the consideration.....' (The rest of the section is omitted as unnecessary').
Payment of consideration for the purchase of property by one person would therefore invest him with the beneficial interest only if there is no proof of an intention on his part to pay it for the benefit of the person in whose name the property was purchased. If a husband purchases property in England in the name of his wife or child from out of his own monies, there is a presumption of advancement. It has been held that there is no such presumption in India, although the Indians are more attached to their families than those in the West. That the rule, that there is no presumption of advancement in India, was established at a time when conditions in this country where different was adverted to in Sundaram Ammal v. Krishnaswamy. But the present case does not rest on any presumption. The assessee was in fairly affluent circumstances and there was no need for him to screen the properties from any person. The Appellate Assistant Commissioner found that the object of Mr. Murthi was to avoid the tax and purchase the shares in the name of the wife. That object could be achieved only if there was an intention to vest the title in her. There being thus an intention to vest the property in the shares in the wife, the assessee would have no beneficial interest even if one were to assume that the husband provided the consideration for the purchase.
Assuming that the assessee had no such intention to benefit the wife, the beneficial interest in the share could be held to vest in the husband only if it is proved that he provided the purchase money. The onus of showing that it was so done is on the Department. It is not disputed that the sum of Rs. 4,000 paid on the date of the transfer of the share belonged to the wife. It is not the case of the Department that on the very day Mr. Murthi paid the balance or even had any intention to do so. All the persons concerned expected that the balance could be paid within two years by which time they hoped to obtain the dividends. The seller Mr. Jackson was content to rely on the personal security of the purchaser. There is no evidence that the assessee either agreed to pay the balance or even guaranteed payment by his wife. On the date of transfer of the shares, therefore, there was only the promise of Mrs. Murthi to pay the balance of sale price. There being no payment of any portion of the consideration on the date of sale by the assessee, the title to the shares would only vest in the ostensible purchaser. If on the date of purchase the assessee did not pay, no presumption can be raised in his favour and no kind of beneficial interest in the property will vest in him. It is found that subsequently a large portion of the consideration was paid by him. The case for the assessee is that all those monies were loans and that they have been repaid. Rejecting that case for a moment, how does the fact of subsequent payment alter the situation The title that vested in the purchaser will stand, it cannot be divested merely for the reason that the balance of purchases money was subsequently paid by the assessee.
Mr. Rama Rao Sahib contended that the following circumstances taken cumulatively would show that the transaction was benami : (1) that the transaction was brought about by the husband, (2) the payment towards the pronote was made by him. (3) A false case was put forward to connect the receipts issued by Mr. Jackson to Mr. Murthi as evidencing the actual payments towards the pronote, and that the amounts paid to Mr. Jackson by the assessee was only a temporary accommodation. (4) There was no proof of adjustment of rights between the husband and wife. In our opinion none of these circumstances, whether taken alone or along with others would prove the case of benami. The first circumstance relied on would not be evidence of benami unless there is proof that the husband provided the purchase money also. As regards circumstances Nos. 2 and 4, we have shown that such payment were made long after the date of purchase and the husband recouped himself out of dividends received. It is not denied that the dividend monies were given to him. It is unnatural to expect that as between a husband and wife there should be adjustment of accounts or striking of balance etc. It is no doubt true that the assessees case in regard to the receipts issued by Mr. Jackson cannot be accepted; it is not unusual to find false evidence being given to support a true case; but that circumstance may raise at best a suspicion such suspicion being insufficient to displace or even shift the onus of proof which lies on the Department. On the materials available it cannot be held that the shares are held by the assessees wife for his benefit. Nor is there any material to support the finding that the assessee was entitled to 5/6th share in the property.
We answer the question referred to us in the negative and in favour of the assessee. The assessees legal representative will be entitled to his costs. Advocates fee Rs. 250.
Question answered in the negative.