judgement:
Civil Appeal No. 631 of 1973.
Appeal by Special Leave from the Judgment and Order dated 14/16th November, 1970 of the Gujarat High Court in Sales Tax Reference No. 9/69.
R. P. Bhatt and section P. Nayar for the Appellant.
Appeal Set down ex Parte against respondent.
The following Judgments were delivered.
BHAGWATI, J. I have had the advantage of reading the judgment prepared by my learned brother Sen and I entirely agree with the conclusion reached by him, but I would like to state briefly my 873 own reasons for arriving at that conclusion.
The facts giving rise to this appeal have been stated with admirable succinctness by my learned brother Sen and I need not repeat them.
The facts in deed are not material, because only one single question of law arises for determination in this appeal and it does not depend on any particular facts.
The question is a very simple one, namely, whether the expression 'Registered dealer ' in sec.8(ii) of the Bombay Sales Tax Act, 1959 as applicable to the State of Gujarat (hereinafter referred to as the Bombay Act) means only a dealer registered under section 22 of that Act or it also comprises a dealer registered under the (hereinafter referred to as the Central Act).
Since the decision of this question turns on the true interpretation of the expression 'Registered dealer '.
in sec.8(ii) of the Bombay Act, we may reproduce that section as follows: "Sec.8: There shall be levied a sales tax on the turn over of sales of goods specified in Schedule C at the rate set out against each of them in column 3 thereof, but after deducting from such turnover (i) * * * * (ii) resales of goods purchased by him on or after the appointed day from a Registered dealer if the goods at the time of their purchase were goods specified in Schedule C".
This section has obviously been enacted to prevent multiple point taxation on goods specified in Schedule C.
Where goods specified in Schedule 'C ' are sold by a dealer and obviously he must be a dealer registered under section 22 of the Bombay Act, if he is liable to pay tax under that Act the turnover of these sales is liable to be taxed at the rate specified against each category of goods in that Schedule, but if the sales in question are re sales of goods purchased by the dealer on or after the appointed day from a 'Registered dealer ', they would be liable to be excluded from the turnover, because the 'Registered dealer ' from whom they are purchased would have paid tax under the main part of section 8 and the goods having already borne tax in the hands of the selling 'Registered dealer ', the legislative intent is that they should not suffer tax again.
Now the expression 'Registered dealer ' is defined in section 2(15) of the Bombay Act to mean "a dealer registered under section 22" and therefore, ordinarily, the expression 'Registered dealer ' as used in section 8(ii) must carry the same meaning, namely, a dealer registered under section 22 of the Bombay Act.
But, as the opening part of section 2 shows, the definitional meaning is subject to anything repugnant in the subject or 874 context.
The context in which the defined word occurs may clearly indicate that it is used in a sense different from that given in the definition clause.
We must therefore see whether there is anything in section 8(ii) or in the context in which it occurs which should compel us to place on the expression 'Registered dealer ' as used in that section a meaning different from that given to it in section 2(15).
We are afraid we do not find anything in the subject or context of sec.8(ii) which would persuade us to depart from the definitional meaning of the expression 'Registered dealer '.
The subject and context in fact re enforce the view that the expression 'Registered dealer ' in sec.8(ii) is used to mean a dealer registered under sec.22 of the Bombay Act, and does not include a dealer registered only under the Central Act.
If a dealer is registered only under the Central Act and not under the Bombay Act, it would mean that he is not liable to pay tax under the Bombay Act and in that event, even if he has sold goods specified in Schedule 'C ', to a registered dealer under an intra State sale, no tax would be payable by him on such sale and if the purchasing dealer is also to be exempt from tax in respect of re sale effected by him, the result would be that the goods would escape tax altogether and not suffer even single point tax.
That surely could not have been the intendment of the legislature in enacting section 8(ii).
It would indeed frustrate the object of section 8(ii) which is to provide for imposition of single point tax on the goods specified in Schedule 'C '.
The situation would be the same even where the sale effected by the dealer registered under the Central Act is an inter State sale.
That sale would undoubtedly be taxable under the Central Act, but it is difficult to see why the Gujarat State should give exemption to re sale of goods in respect of which, at the time of the first sale, tax has been levied under the Central Act of which the benefit has gone to another State.
Moreover, in such a case, the first sale being an inter State sale, would be taxable at a fixed concessional rate under section 8(1)(a) or at the rate of 7% or at a rate equal to or twice the rate applicable to the sale of such goods in the State of the selling dealer, under clause (a) or (b) of sub section (2) of sec.
8 of the Central Act and if that be so, it is impossible to understand why the Legislature should have insisted, for attracting the applicability of section 8(ii), that the goods resold by the dealer should at the time of their first sale be goods specified in Schedule 'C '.
The requirement that the goods at the time of their first sale by the 'Registered dealer ' should be of one of the categories specified in Schedule 'C ', is a clear pointer that the 'Registered dealer ' contemplated in this provision is a dealer registered under section 22 of the Bombay Act, because it is only with reference to such a dealer liable to pay tax under the Bombay Act that this 875 requirement of the goods sold by him being goods specified in Schedule 'C ' can have any meaning and significance.
We are, therefore, clearly of the view that the expression 'Registered dealer ' is used in section 8(ii) in its definitional sense to mean a dealer registered under section 22 of the Bombay Act and it does not include a dealer registered under the Central Act.
The Revenue, however, relied on section 4 of the Bombay Act and tried to project it in the interpretation of the expression 'Registered dealer ' in section 8(ii).
We fail to see how section 4 can at all help in throwing light on the true interpretation of the expression 'Registered dealer '.
That section provides: "Sec. 4(1): Notwithstanding anything in section 3, a dealer who is registered under the , but who is not liable to pay tax under the said section 3, shall nevertheless be liable to pay tax (a) on Sales of goods is respect of the purchase of which he has furnished a declaration under sub sec.
(4) of section 8 of the , and (b) on sales of goods in the manufacture of which the goods so purchased have been used; and accordingly, the provisions of sections 7 to 12 (both inclusive) shall apply to such sales, as they apply to the sales made by a dealer liable to pay tax under section 3.
(2) Every dealer who is liable to pay tax under sub section (1) shall, for the purposes of sections 32, 33, 35, 36, 37, 38, 46, 47 and 48 be deemed to be a Registered dealer.
" It is obvious that if a dealer is not registered under the Bombay Act, it could only be on the basis that he is not liable to pay tax under the Bombay Act, but even so, section 4, sub section (1) provides that if he is registered under the Central Act, he would be liable to pay tax under the Bombay Act in respect of the transactions of sale set out in that section.
This liability arises despite the fact that the dealer, not being liable to pay tax under section 3 of the Bombay Act, is not registered under that Act.
The question then would be: if the dealer is not registered under the Bombay Act, how to recover the tax from him? The dealer not being registered under the Bombay Act, the machinery of the Bombay Act would not of itself apply for recovery of tax from him.
Section 4, sub section (2) therefore enacts that every dealer who is liable to pay tax under sub section (1) shall, for the purposes of sections 32 to 38 and 46 876 to 48 be deemed to be a Registered dealer.
Sections 32 to 38 and 46 to 48 are machinery sections and it is for the purpose of making the machinery of these sections applicable for recovery of the tax imposed on the dealer under sub section (1) of section 4 that an artificial fiction is created deeming the dealer to be a Registered dealer, that is, a dealer registered under section 22 of the Bombay Act.
This legal fiction is created for a specific purpose and it is limited by the terms of sub section 2 of section 4 and it cannot be projected in section 8(ii).
Section 4 has, in fact, nothing to do with section 8(ii).
They are distinct and independent provisions operating on totally different areas, and it is difficult to see how section 4 can be availed of for the purpose of interpreting the expression "Registered dealer" in section 8(ii).
I would therefore set aside the judgment of the High Court under appeal and answer the question referred by the Tribunal in favour of the Revenue and against the assessee.
There will be no order as to costs of the appeal.
SEN, J.
This appeal, by special leave, is from a judgment of the Gujarat High Court, upon a question of law referred to it under sub s.(1) of s.61 of the Bombay Sales Tax Act, 1959 (hereinafter referred to as 'the Act ').
By that judgment the High Court answered the question referred in the affirmative and in favour of the assessee.
The point involved is of considerable importance.
The facts giving rise to the reference were these: Messrs Union Medical Agency, Ahmedabad was, at all material times, carrying on business in spirit and alcohol, and was a dealer registered under s.22 of the Act (hereinafter referred to as 'the assessee ').
In the assessment year 1964 65, the corresponding accounting year of which was the year ending March 31, 1965, the assessee claimed deduction from its turnover in respect of resales of certain goods purchased from one Motibhai Gopalbhai Patel of Baroda who, at the relevant time, was a dealer registered under s.7 of the (hereinafter referred to as 'the Central Act '), but was not a dealer registered under section 22 of the Act.
The Sales Tax Officer rejected the claim of the assessee for such deduction on the ground that the said Motibhai Gopalbhai Patel from whom the goods were purchased was not a registered dealer within the meaning of cl.(ii) of s.8 of the Act inasmuch as he was not registered as a dealer under s.22 of the Act.
The assessee appealed to the Assistant Commissioner of Sales Tax, the only material ground being that the expression 'registered dealer ' in cl.
(ii) of section 8 of the Act was wide enough to 877 include a registered dealer under the but the Assistant Commissioner affirmed the disallowance of the deduction.
On further appeal, the Gujarat Sales Tax Tribunal agreeing with the Sales Tax Authorities, held that in order to claim deduction from the turnover of sales of goods under cl.
(ii) of section 8 of the Act, what was required to be shown was that the goods were purchased by the dealer on or after the appointed day from a 'registered dealer ' under the Act, and that in view of the definition of the expression 'registered dealer ' in sub s.(25) of s.2 of the Act, such dealer had to be a dealer registered under s.22 of the Act.
The Tribunal accordingly held that since Motibhai Gopalbhai Patel, the Baroda dealer, from whom the assessee had purchased the goods, was not a registered dealer under the Act, therefore the requirements of cl.(ii) of s.8 of the Act were not fulfilled, and the claim for deduction made by the assessee had been rightly disallowed.
On the application of the assessee, the Tribunal referred the following question of law to the High Court under sub section
(1) of section 61 of the Act, for its opinion, namely: "Whether for the purpose of allowing deduction from the turnover of sales under clause (ii) of section 8 of the Bombay Sales Tax Act, 1959, purchases of goods made by a dealer registered under the Bombay Sales Tax Act, 1959 from a dealer registered under the but not registered under the Bombay Sales Tax Act.
1959 can be said to be purchases of goods made from a registered dealer within the meaning of clause (ii) of section 8 of the Bombay Sales Tax Act, 1959.
" It appears that the High Court was not satisfied at this formulation as it felt that the statement of the case as made by the Tribunal did not bring out the real question of law arising out of its order.
At the instance of the assessee, it re framed the question in the following terms: "Whether for the purpose of allowing deduction from the turnover of sales under clause (ii) of section 8 of the Bombay Sales Tax Act, 1959, purchases of goods made by a dealer registered under the Bombay Sales Tax Act, 1959 from a dealer who is registered under the and who is liable to pay tax under section 4 of the Bombay Sales Tax Act, 1959 though not registered under the Bombay Sales Tax Act, 1959 can be said to be purchases of goods made from a registered dealer within the meaning of clause (ii) of section 8 of the Bombay Sales Tax Act, 1959.
" 878 We feel that the High Court was not justified in re framing the question as referred.
It is nobody 's case that Motibhai Gopalbhai Patel, the Baroda dealer from whom the assessee had purchased the goods, had ever paid any tax on the sales effected by him under s.4 of the Act.
Nor is there any material on record to suggest that any proceedings were started against the Baroda dealer for subjecting the transactions to tax.
In answering the reference in the affirmative, in favour of the assessee and against the Commissioner of Sales Tax, the High Court observes: "The result of the foregoing discussion is that having regard to the context, collocation and the object of the expression 'registered dealer ' in clause (ii) of section 8 of the Bombay Act, and having regard to the policy of the Act, the said expression would also include a dealer registered under the Central Act on whom special liability to pay sales tax has been imposed under section 4 of the Act.
A dealer who purchases goods from a dealer registered under the Central Act, who is liable to pay sales tax on the sale of the said goods by virtue of the provisions of section 4 of the Bombay Act, would, therefore, be entitled to deduct from his turnover of sales of goods, resales of goods so purchased by him on or after the appointed day if the goods, at the time of their purchase, were goods specified in Schedule C." This conclusion of the High Court can hardly be supported.
The short question that falls for determination in the appeal is whether the expression 'registered dealer ' in cl.(ii) of s.8 of the Act must bear the meaning that is assigned to it in section 2(25) which is the definition section, or the said expression is capable of bearing an enlarged meaning, in view of the subject and context in which it is used in cl.(ii) of s.8 of the Act.
The decision of the appeal must turn on the construction of cl.(ii) of s.8 of the Act, which provides: "8.
There shall be levied a sales tax on the turnover of sales of goods specified in Schedule C at the rate set out against each of them in column 3 thereof, but after deducting from such turnover: (i) * * * * * * * (ii) resales of goods purchased by him on or after the appointed day from a Registered dealer if the goods at the time of their purchase were goods specified in Schedule C." 879 In the Act, the expression 'registered dealer ' is defined in section 2(25) in these terms: "2.
In this Act, unless the context otherwise requires, (25) "Registered dealer" means a dealer registered under section 22.
" The error in the decision of the High Court lies in its misunderstanding of the scope and effect of section 4 of the Act, which it has tried to project into cl.
(ii) of section 8 and it reads as follows: "4.
(1) Notwithstanding anything in section 3, a dealer who is registered under the , but who is not liable to pay tax under the said section 3, shall nevertheless be liable to pay tax (a) on sales of goods in respect of the purchase of which he has furnished a declaration under sub section (4) of section 8 of the , and (b) on sales of goods in the manufacture of which the goods so purchased have been used, and accordingly, the provisions of sections 7 to 12 (both inclusive) shall apply to such sales, as they apply to the sales made by a dealer liable to pay tax under section 3.
(2) Every dealer who is liable to pay tax under sub section (1) shall, for the purposes of sections 32, 33, 34, 35, 36, 37, 38, 46, 47 and 48 be deemed to be a Registered dealer.
" Sub section (3) of section 7 reads: "7.(3) In order to ensure that after the date of the coming into force of section 15 of the , tax shall not be levied on the sales or purchases of Declared goods at more than one stage, it is hereby provided that if under this Act or any earlier law, any tax has been levied or is leviable on the sale or purchase of such goods then no further tax shall be levied under this Act on any subsequent sale or purchase thereof; and accordingly, for the purpose of arriving at the taxable turn over of sales or purchases of a dealer, there shall be deducted from his total turnover of sales, or as the case may be, of purchases, the sales or purchases of such declared goods as have borne tax at any earlier stage.
" There is no obscurity in the language of cl.
(ii) of section 8 of the Act.
It is clear from the terms of cl.
(ii) of section 8 that no deduction is claimable in respect of resales of goods purchased from a dealer registered under the Central Act, who is not a registered dealer within the meaning of section 2(25) of the Act.
It follows that the 880 expression 'registered dealer ' in cl.
(ii) of section 8 of the Act must bear the meaning of that expression as given in section 2(25) of the Act.
If the meaning of the section is plain, it is to be applied whatever the result.
It is a well settled principle that when a word or phrase has been defined in the interpretation clause, prima facie that definition governs whenever that word or phrase is used in the body of the statute.
But where the context makes the definition clause inapplicable, a defined word when used in the body of the statute may have to be given a meaning different from that contained in the interpretation clause; all definitions given in an interpretation clause are, therefore, normally enacted subject to the usual qualification 'unless there is anything repugnant in the subject or context ', or 'unless the context otherwise requires '.
Even in the absence of an express qualification to that effect such a qualification is always implied.
The expression 'registered dealer ' having been defined in s.2(25) of the Act as having a particular meaning, i.e., a dealer registered under section 22 of the Act, it is that meaning alone which must be given to it in interpreting cl.
(ii) of s.8 of the Act, unless there is anything repugnant to the context.
It was not permissible for the High Court to ignore a statutory definition and give to the expression a wider meaning independent of it.
There is nothing to suggest that the expression 'registered dealer ' is used in cl.
(ii) of s.8 of the Act in any different sense from that in ' which it is defined.
It is significant to notice that whenever the legislature wanted that the expression 'registered dealer ' should have a different meaning, it has expressly said so.
Thus in sub s.(1) of s.4 it mentions of 'a dealer who is registered under the '.
The distinction between the two classes of dealers is, therefore, clearly maintained.
The High Court was obviously wrong in not interpreting the expression 'registered dealer ' in the context of cl.
(ii) of s.8 but with reference to the other provisions of the Act, particularly in the light of section 4 of the Act, to give effect to the so called legislative intent for the levy of a single point tax.
It was in error in making an exposition ex visceribus actus and in relying upon the leading cases of Bywater vs Brandling, Rein vs Lane, Jobbins vs Middlesex Country Council Craies on Statute Law, 6th ed., 99, and Maxwell on Interpretation of Statutes, 8th ed., 30.
The High Court expresses the view that the legislative intent in enacting cl.
(ii) of s.8 of the Act is two fold (1) to restrict the levy 881 of sales tax to a single point and to avoid multiple levy of sales tax on goods, and (2) that sales tax should be levied at the stage of the first sale and should be recovered from the registered dealer who effects the first sale and that all subsequent sales of such goods should not be subjected to sales tax over again.
In the light of this so called legislative intention and the policy of the Act, the High Court observes that 'having regard to the context, collocation and the object of the expression 'registered dealer ' in cl.(ii) of s.8 of the Act ', and 'having regard to the legislative intent, namely, to levy a single point tax under sub s.(3) of s.7 of the Act ', the expression 'registered dealer ' in cl.
(ii) of s.8 would also include a dealer registered under the , on whom a special liability to pay sales tax has been imposed under s.4.
Upon that view, it held that a dealer who purchased goods from a dealer registered under the Central Act, who was liable to pay sales tax on the sale of such goods by virtue of the provisions of s.4 of the Act, would be entitled to deduct from his turnover of sales of goods, resales of goods so purchased by him on or after the appointed day if the goods at the time of their purchase, were goods specified in Schedule C of the Act.
It accordingly held that the meaning of the expression 'registered dealer ' in cl.(ii) of s.8 was not limited only to a dealer registered under the Act but it was wide enough to also include a dealer registered under the Central Act.
There is no dispute with the proposition that the meaning of a word or expression defined may have to be departed from on account of the subject or context in which the word had been used and that will be giving effect to the opening sentence in definition section, namely 'unless the context otherwise requires '.
In view of this qualification, the Court has not only to look at the words but also to look at the context, the collocation and the object of such words relating to such matter and interpret the meaning intended to be conveyed by the use of the words in a particular section, there is no scope for the application of the rule ex visceribus actus.
This rule is never allowed to alter the meaning of what is of itself clear and explicit.
The authorities relied upon by the High Court are, therefore, not applicable.
While accepting that sub s.(3) of s.7 of the Act was to give effect to cl.(a) of s.15 of the Central Act, and therefore cannot control the interpretation of cl.(ii) of s.8, the High Court commits the mistake of interpreting the expression 'registered dealer ' appearing therein, in the context of s.4 of the Act.
The provisions of s.4, sub s.(3) of s.7 and cl.(ii) of s.8 of the Act operate in three different fields.
882 While s.4 of the Act provides that a registered dealer under the Central Act who may not be liable to pay tax under s.3 of the Act may nevertheless in certain contingencies be liable to pay tax, sub section
(3) of s.7 provides for the levy of single point tax on sales in the course of inter state trade and commerce of declared goods, to bring the Act in conformity with cl.(a) of s.15 of the Central Act.
The object and purpose of enacting the provisions of s.8 are entirely different, namely, to lay down the mode of computation of the turnover of sales or purchases of a registered dealer for the imposition of a tax.
Clause (ii) of s.8 allows for deduction of resales from the turnover of such registered dealer when the goods are purchased from a registered dealer, i.e., a dealer registered under s.22 of the Act.
In effect, s.8 deals with transactions of sale or purchase taking place within the State.
There is a fallacy in the reasoning of the High Court.
It seems that the High Court was obsessed with two factors, namely (1) the concept of a single point tax under sub s.(3) of s.7 of the Act, and (2) the fact that a registered dealer under the Central Act who may not be liable to pay tax under s.3 of the Act may nevertheless in certain contingencies be liable to pay tax.
It failed to appreciate that cl.(ii) of s.8 which allows for deduction of sales by one registered dealer to another, deals purely with inside sales.
The expression 'registered dealer ' in cl.(ii) of s.8 is sought to be given an enlarged meaning by stretching, in effect, the legal fiction contained in sub s.(2) of s.4.
After observing that the legal fiction in sub s.(2) of s.4 is created for a limited purpose, it goes on to observe: "It would, therefore, have been inappropriate or at any rate wholly inartistic for the legislature to provide in sub section (2) of section 4 that every dealer who is liable to pay tax under sub section (1) shall be deemed to be a registered dealer for the purpose of clause (ii) of section 8 since the latter section provides for the levy of sales tax on sales of goods of an altogether different dealer after making certain deduction from the turnover of sales of goods of such dealer.
The legislature could have made a specific provision, if any, in this behalf only in clause (ii) of section 8 and not in sub section (2) of section 4." The High Court proceeds on the hypothesis that the transactions in question must have been brought to tax in the hands of the Baroda dealer and, therefore, it became necessary to avoid multiple levy of sales tax.
On that assumption, it felt that it was necessary to give to the assessee the benefit of s.8(ii) of the Act although the Baroda dealer was not a registered dealer within the meaning of 883 section 2(25) i.e., registered as a dealer under section 22 of the Act.
We regret to say that in reaching that conclusion, the High Court has proceeded on mere conjectures and surmises.
For aught we know, the Baroda dealer at the relevant time, might not be engaged in the business of selling goods in the State of Gujarat and was, therefore, not a dealer liable to pay tax at all.
Perhaps he was primarily engaged in effecting sales in the course of inter State trade and commerce, or it may be that the inside sales effected by him did not exceed the taxable limits.
Both the parties proceeded upon the basis that the purchases effected by the assessee were not subjected to tax.
It was, therefore, not right for the High Court to hold that the disallowance of deduction claimed by the assessee under cl.(ii) of s.8 of the Act would result in double taxation of the same goods.
It is evident that the High Court has completely misdirected itself.
The transactions of sales effected by the Baroda dealer to the assessee who was a dealer at Ahmedabad, were clearly inside sales.
While it is true that the Baroda dealer being a dealer registered under s.7 of the was, in certain contingencies, liable to pay tax under s.4 of the Act, but that circumstance by itself would not make him a 'registered dealer ' within the meaning of section 2(25) of the Act.
If the legislature really intended that the expression 'registered dealer ' in cl.(ii) of s.8 should take within its ambit a dealer registered under the , upon whom liability to pay sales tax is imposed by s.4 of the Bombay Act, it would have said so in clear words.
It would have made necessary provision in that behalf in sub s.(2) of s.4 which provides that every dealer liable to pay tax under sub s.(1) shall be deemed to be a registered dealer for purposes of certain sections of the Bombay Act viz., sections 32, 33, 34, 35, 36, 37, 38, 46, 47 and 48.
It is thus apparent that the legal fiction in sub s.(2) of s.4 is created for a limited purpose, namely, to make section 4 a self contained code which not only imposes a charge of tax and lays down the rate structure, but also provides the machinery for assessment and recovery of tax and penalty.
The legal fiction contained in sub s.(2) of s.4 of the Act cannot be stretched any further.
For these reasons, the judgment of the High Court answering the reference in favour of the assessee is set aside.
The question referred by the Tribunal is answered in the negative and in favour of the Revenue.
There shall be no order as to costs.
S.R. Appeal allowed.

summary:
Allowing the appeal by special leave and answering against the assessee, the Court.
^ HELD: Per Bhagwati,J. (Concurring with Sen and Venkataramiah, JJ.) (1) The expression "Registered dealer" is used in section 8 (ii) in its definitional sense to mean a dealer registered under section 22 of the Bombay Sales Tax Act and it does not include a dealer under the Central Sales Tax Act.
[875A] (2) The object of section 8 is to prevent a multiple point taxation on goods specified in Schedule C and for imposition of single point tax on them under the Act.
If a dealer is registered only under the Central Act and not under the Bombay Act, it would mean that he is not liable to pay tax under the Bombay Act and in that event, even if he has sold goods specified in Schedule 'C ', to a registered dealer under an intra State sale, no tax would be payable by him on such sale and if the purchasing dealer is also to be exempt from tax in respect of re sale effected by him, the result would be that the goods would escape tax altogether and not suffer even single point tax.
That is not the intendment of the legislature in enacting section 8(ii); on the contrary it would frustrate the very object of that section.
The situation would be the same even where the sale effected by the dealer registered under the Central Act is an inter State sale.
That sale would undoubtedly be taxable under the Central Act but there is no reason why the Gujarat State would give exemption to re sale of goods in respect of which, at the time of the first sale tax has been levied under the Central Act of which the benefit has gone to another State.
Moreover, in such a case, the first sale being an inter State sale, would be taxable at a fixed concessional rate under section 8(1)(a) or at the rate of 7% or at a rate equal to or twice the rate applicable to the sale of such goods in the State of the selling dealer, under clause (a) or (b) of sub section (2) of section 8 of the Central Act and if that be so, it is difficult to understand why the Legislature should have insisted, for attracting the applicability of section 8(ii), that the goods re sold by the dealer should at the time of their first sale be goods specified in Schedule 'C '.
[873F G, 874C G] 871 (3) Sections 4 and 8(ii) of the Bombay Act are distinct and independent provisions operating on totally different areas.
The legal fiction in sub section (1) of section (4) is created for a specific purpose and it is limited by the terms of sub section (2) of section 4 and it cannot be projected in section 8(ii).
If a dealer is not registered under the Bombay Act, it could only be on the basis that he is not liable to pay tax under the Bombay Act, but even so, section 4 sub section (1) provides that if he is registered under the Central Act, he would be liable to pay tax under the Bombay Act in respect of the transactions of sale set out in that section.
This liability arises despite the fact that the dealer, not being liable to pay tax under section 3 of the Bombay Act, is not registered under that Act.
The dealer not being registered under the Bombay Act, the machinery of the Bombay Act would not of itself apply for the recovery of tax from him.
Section 4 sub section 2, therefore, enacts that every dealer who is liable to pay tax under sub section (1) shall, for the purpose of sections 32 to 38 and 46 to 48 be deemed to be a registered dealer.
Sections 32 to 38 and 46 to 48 are machinery sections and it is for the purpose of making the machinery of these sections applicable for recovery of the tax imposed on the dealer under sub section (1) of section 4 that an artificial fiction is created deeming the dealer to be a registered dealer, that is, a dealer registered under section 22 of the Bombay Act.
Per Sen, J. (On behalf of himself and Venkataramiah, J.).
(1) It is a well settled principle that when a word or phrase has been defined in the interpretation clause, prima facie that definition governs whenever that word or phrase is used in the body of the statute.
But where the context makes the definition clause inapplicable, a defined word when used in the body of the statute may have to be given a meaning different from that contained in the interpretation clause; all definitions given in an interpretation clause, are, therefore, normally, enacted subject to the usual qualification "unless there is anything repugnant in the subject or context", or "unless the context otherwise requires".
Even in the absence of an express qualification to that effect such a qualification is always implied.
The expression "registered dealer" having been defined in section 2(25) of the Bombay Act as having a particular meaning, that is, a dealer registered under section 22 of the Act, it is that meaning alone which must be given to it in interpreting clause (ii) of section 8 of the Bombay Act unless there is anything repugnant to the context [880B D] There being no obscurity in the language of clause (ii) of section 8 of the Bombay Act, it is clear that no deduction is claimable in respect of re sales of goods purchased from a dealer registered under the Central Act, who is not a registered dealer within the meaning of section 2(25) of the Act.
It follows that the expression "registered dealer" in clause (ii) of section 8 of the Act must bear the meaning of that expression as given in section 2(25) of the Act.
If the meaning of the section is plain it is to be applied whatever the result, [879H 880A] (2) The meaning of a word or expression defined may have to be departed from on account of the subject or context in which the word had been used and that will be giving effect to the opening sentence in definition section, namely, "unless the context otherwise requires".
In view of this qualification, the Court has not only to look at the words but also to look at the context, the collocation and the object of such words relating to such matter and interpret the meaning intended to be conveyed by the use of the words in a particular section.
But where there is no obscurity in the language of the section, 872 there is no scope for the application of the rule ex visceribus actus.
This rule is never allowed to alter the meaning of what is of itself clear and explicit.
[881E G] Bywater vs Brandling, ; Rein vs Lane, and Jobbins vs Middlesex County Council, Craies, , held inapplicable.
(3) The provisions of section 4, sub section (3) of section 7 and clause (ii) of section 8 of the Bombay Act operate in three different fields.
While section 4 of the Act provides that a registered dealer under the Central Act who may not be liable to pay tax under section 3 of the Act may nevertheless in certain contingencies be liable to pay tax, sub section (3) of section 7 provides for the levy of a single point tax on sale in the course of inter State trade and commerce of declared goods, to bring the Act in conformity with clause (a) of section 15 of the Central Act.
The object and purpose of enacting the provisions of section 8 are entirely different, namely, to lay down the mode of computation of the turnover of sales or purchases of a registered dealer for the imposition of a tax.
Clause (ii) of section 8 allows for deduction of re sale from the turnover of such registered dealer when the goods are purchased from a registered dealer, that is, a dealer registered under section 22 of the Act.
In effect, section 8 deals with transactions of sale or purchase taking place within the State.
The disallowance of deduction claimed by the assessee under clause (ii) of section 8 of the Act, therefore, would not result in double taxation of the same goods.
[881H 882C, 883C] While it is true that the Baroda dealer being a dealer registered under section 7 of the Central Sales Tax Act, in the instant case, was in certain contingencies, liable to pay tax under section 4 of the Act, but that circumstance by itself would not make him a "registered dealer" within the meaning of section 2(25) of the Act.
If the legislature really intended that the expression "registered dealer" in clause (ii) of section 8 should take within its ambit a dealer registered under the Central Sales Tax Act, upon whom liability to pay sales tax is imposed by section 4 of the Bombay Act, it would have said so in the clear words section (2) of section 4.
The legal fiction in sub section
(2) of section 4 is created for a limited purpose, namely, to make section 4 a self contained code which not only imposes a charge of tax and lays down the rate structure, but also provides the machinery for assessment and recovery of tax and penalty.
The legal fiction contained in sub section
(2) of section 4 of the Act cannot be stretched any further.
[883D E, G]


judgement:
Civil Appeal No. 1712 of 1973.
From the Judgment and Order dated 20 5 1971 of the Allahabad High Court in Estate Duty Reference No. 95/66 connected with Estate Duty Reference No. 78/69.
S.C. Manchanda, K.C. Dua and Miss A. Subhashini for the Appellant.
P.K. Mukherjee and Pramod Swarup for the Respondent.
The Judgement of the Court was delivered by SEN J.
This appeal on certificate under section 65(1) of the (hereinafter referred to as 'the Act ') arises from a judgment of the Allahabad High Court delivered on a case stated under section 64 of the Act by which the High Court answered two of the questions against the accountable person and in favour of the Controller of Estate Duty but the third in the negative, against the Controller of Estate Duty and in favour of the accountable person.
We are not concerned with the first two questions, but only the third, which reads: "Assuming that the shares in dispute really belonged to Sri K.M. Mitra deceased, whether those shares in the circumstances of the case constituted property which passed on the death of Sri K.M. Mitra for the purposes of section 5 of the .
" The facts giving rise to the reference are these: The late Sri K.M. Mitra died on February 11, 1957 leaving a large and extensive estate.
On his death his son Aloke Mitra, the accountable person, filed a return of estate duty valuing the estate of deceased at Rs. 3,75,235.
This included 502 shares of Rs. 100/ each in Mitra Prakashan Pvt. Ltd. and 225 shares of Rs. 100/ in Maya Press Pvt.
Ltd. held by the deceased.
The Assistant Controller of Estate Duty did not accept this part of the return and included 2002 shares in Mitra Prakashan Pvt. Ltd. and 1602 shares in Maya Press Pvt.
Ltd. standing in the name of Smt.
N. Mitra, wife of the deceased, 947 and his three sons, Aloke Mitra, Ashoke Mitra and Deepak Mitra, brother in law B.N. Ghosh and an ex employee, R.N. Misra since they were holding these shares benami.
He accordingly included the value of these shares in the principal value of the estate of the deceased.
His order was affirmed in appeal by the Central Board of Direct Taxes, that is, the Appellate Tribunal.
Under section 64(1) of the Act the Appellate Tribunal referred the question whether the shares allotted to the wife of the deceased as his nominee or as benamidar, were, as from the commencement of the held by her as a full owner thereof by virtue of provisions of section 14 of that Act.
According to the High Court, the said question did not at all arise.
On the finding that the transaction was benami and that the deceased was the real owner of the shares, the wife must be held to have no interest or title to the shares.
She was merely a benamidar or name lender.
Since she had no interest at all, the provisions of section 14 of the were not attracted as she was not possessed of any right or title.
The material facts of the case may now be stated.
The deceased carried on the business of printer and publisher under the name and style of Maya Press.
In 1953, his brother in law, B.N. Ghosh alongwith some other persons floated two companies, Mitra Prakashan Pvt. Ltd. and Maya Press Pvt. Ltd.
Under an agreement dated May 29, 1953 the deceased agreed to transfer his publishing business to Mitra Prakashan Pvt. Ltd. for a consideration of Rs. 2,07,500 and the printing business to Maya Press Pvt. Ltd. for Rs. 1,64,800.
It was agreed that the consideration would be paid by Mitra Prakashan Pvt. Ltd. in the form of cash to the extent of Rs. 7,500/ and the balance by allotting 2000 fully paid up shares of the value of Rs. 100/ each to the deceased or his nominees.
The other company, namely Maya Press Pvt.
Ltd. agreed to pay Rs. 4,800/ in cash and the balance of Rs. 1,60,000 in the form of 1600 fully paid up shares of the value of Rs. 100/ each to be allotted in the name of the deceased or his nominees.
In pursuance of this agreement, the business of Maya Press was transferred by the deceased on July 1, 1953 to the two companies.
On January 24, 1954 the deceased wrote to the two companies letters intimating that the shares be allotted to his wife Smt.
N. Mitra, three sons Aloke Mitra, Ashoke Mitra, Deepak Mitra, brother in law B.N. Ghosh and and employee, R.N. Misra.
The companies allotted the shares accordingly.
They in addition allotted two more shares to the deceased.
Thus, 502 shares were held by the deceased in his own name in Mitra Prakashan Pvt. Ltd. and 225 shares in Maya Press 948 Pvt.
Ltd. The rest were held by his wife, sons, brother in law and an ex employee.
It has been found that the total number of shares issued by the two companies was 2006 by the Mitra Prakashan Pvt. Ltd. and 1605 by Maya Press Pvt.
Ltd. Out of these 2002 and 1602 shares respectively were held by the deceased and his nominees.
The deceased by transferring his personal printing and publishing business to the two new companies had thus become through himself or his nominees practically the exclusive owner of these two companies.
It is an admitted fact that the deceased supplied the entire consideration for the purchase of these 2002 and 1602 shares and that his wife, sons, brother in law or the ex employee did not make any contribution for their acquisition.
On these facts, both the Assistant Controller of Estate Duty as well as the Appellate Tribunal held that the share scrips standing in the name of the wife of the deceased and his sons, brother in law and the ex employee really belonged to the deceased as they were mere benamidars and, therefore, included the value of the shares held by the deceased in the name of his wife and sons etc.
in the principal value of the estate passing on his death.
The true legal effect of the finding of the Appellate Tribunal is this: Smt.
N. Mitra, wife of the deceased, his three sons, brother in law and the ex employee held the shares benami for the benefit of the deceased.
They were, therefore, the benamidars of the deceased.
While upholding the order of the Assistant Controller, the Central Board of Direct Taxes observed that the mere fact that the subject matter was the shares in the two companies would not throw any more onus of proof on the Assistant Controller than would be thrown if the subject matter was some other property.
When money was paid by the deceased, it was for the accountable person to prove the gift.
The deceased had clearly mentioned in the letters dated January 24, 1954 to the two companies that the shares should be issued and allotted in the names of the persons nominated by him.
If the deceased intended to make an outright gift of these shares, he would have very well said so in the letters.
There being no presumption of advancement, the mere fact that the shares were got issued in their names without making any indication of gift, would not make the nominees recipients of any gift.
Using of names of benamidars for holding of shares in companies was as common as for any other type of property.
As regards the enjoyment of the income of these shares, it observed that there was no clear evidence to show that the money was actually used by the nominees.
It appeared that the dividends were only credited by book entry to the 949 personal accounts of the deceased, Aloke Mitra and the deceased 's wife the account of the deceased 's wife was also credited with dividends in the names of others than Aloke Mitra.
There was nothing to show that before the death of the deceased these amounts were actually withdrawn and utilised by the persons to whom they were supposed to belong.
Whatever was done after the death of the deceased may, by agreement between the heirs, have been adjusted in the allocation of other assets, and obviously could not be of any legal effect in determining the question whether the shares belonged to the deceased.
As already stated, the only question of law in the opinion of the Appellate Tribunal which could be referred under section 64(1) of the Act, was whether the shares allotted to the wife of the deceased as his nominee or as benamidar were, as from the commencement of the held by her as full owner thereof by virtue of the provisions of section 14 of that Act.
But it declined to make a reference on the other questions, holding that the finding that the shares were held by the deceased in the name of his wife and sons etc.
benami, was a finding of fact and it did not give rise to any question of law.
The accountable person being dissatisfied moved the High Court under section 64(3) and it directed the Tribunal to draw up a supplementary statement of the case and refer two other questions of law said to arise from its order.
When the reference came up before the High Court, it declined to answer questions other than those which were questions of law.
It refused to be drawn into the question of benami, which was purely one of fact, and not one of mixed law and fact and, therefore, following the decision of this Court in Shree Meenakshi Mills Ltd. vs C.I.T. held that the finding was not open to review under section 64(1) of the Act.
In answering the reference in the negative and against the Controller of Estate Duty, and in favour of the accountable person, the High Court merely observed 'As at present advised ' and preferred to follow the two decisions of the Andhra Pradesh High Court in Smt.
Shantabai Jadhav vs Controller of Estate Duty and Smt.
Denabai Bomab Shah vs Controller of Estate Duty taking a view to the contrary.
There is no discussion in the judgment at all and it seems that its attention was not drawn to section 5(1) of the Act.
Following the view in Smt.
Shantabai Jadhav 's case and Smt.
Denabai Bomab Shah 's case the High Court observed that since the shares 950 stood in the name of the wife and sons etc.
benami for the deceased, the deceased had no power to transfer since he had not obtained a release from the benamidars or a declaration from an appropriate court.
On this wrongful assumption, the High Court held that the deceased remained incompetent to transfer the shares till his death, and so, the property in them would not be deemed to pass upon his death by reason of section 6 and, therefore, they were not includible in the estate of the deceased under section 5(1) of the Act.
In Controller of Estate Duty, U.P. vs T.N. Kochhar the High Court following the judgment under appeal, observed: "It is well settled that the property which stands benami in the name of another is one in respect of which the beneficial owner has no competency to dispose of.
Before he can dispose of such a property he has to acquire a declaration from the appropriate court of law releasing the property in his favour.
" The High Court seems to assume that there is some interrelation between sections 5 and 6.
It has held that though the shares in question really belonged to the deceased, they would not, on the facts and in the circumstances of the case, constitute property which 'passed ' on the death of the deceased for the purpose of section 5(1) of the Act since the shares stood in the name of wife and sons etc.
benami for the deceased, but he had only beneficial interest therein inasmuch as the deceased was at the time of his death not competent to dispose of the shares and they could not be 'deemed to pass ' under section 6 of the Act.
The main question involved in the appeal is whether in the case of a benami transaction, the value of the property held by a benamidar passes upon the death of the real owner and is includible in the estate of the deceased under section 5 of the Act, or being so held by the benamidar, it cannot be deemed to pass on his death because of section 6 of the Act and, therefore, the value of such property cannot be included in the principal value of the estate of the deceased.
That depends upon the precise effect of section 5(1) and section 6 and their relation ship to one another namely, whether the chargeability of estate duty under section 5(1) of the Act, is limited and controlled by section 6.
The imposes a tax upon the principal value of all properties, settled or not settled, passing on death or deemed to pass on death.
Estate duty is chargeable at percentage rates rising with the value of the estate on all property passing on 951 death, including property of which the deceased was competent to dispose and gifts made within limited period before death.
Primary liability falls on the deceased 's estate.
The charging section is sub section
(1) of section 5 which provides that in case of a person dying after the commencement of the Act, estate duty is leviable on the capital value of all property, settled or not settled which 'passes ' on death at the rates fixed in accordance with section 35.
That is followed by a group of sections, sections 6 to 15, which relate to the levy of estate duty on properties which by the Act are 'deemed to pass ' on death.
For the avoidance of doubt, it is provided by sub section
(3) of section 3 that references in the Act to property passing on death of a person shall be construed as including references to property deemed to pass on the death of such person.
The expression 'property passing on death ' is defined in section 2(16) to include property passing immediately on death.
In general, the word 'passes ' may be taken as meaning 'changing hands on death ' regardless of its destination.
Section 6 of the Act, upon which the controversy turns, provides: "6.
Property which the deceased was at the time of his death competent to dispose of shall be deemed to pass on his death.
" By no rule of construction can the operation of sub section (1) of section 5 of the Act be curtailed by the operation of section 6.
It is in addition to or supplemental of, the provisions of sub section (1) of section 5, which is the charging section.
As a matter of construction, two views are possible.
One view is that the two sections are mutually exclusive and they have independent fields of operation.
Whenever property changes hands on death, the State is entitled to step in and take a toll of the property as it passed without regard to its destination or to the degree of relationship, if any, that may have subsisted between the deceased and the person or persons succeeding.
Section 5(1) gives effect to that principle and it imposes a duty called estate duty upon the principal value of all property, settled or not settled, which passes on death.
Section 6 does not apply to property of which the deceased was competent to dispose of and which passes on his death; it applies only to property which does not pass on his death but of which he was competent to dispose.
Sections 5(1) and 6 being mutually exclusive, the application of section 5 accordingly precludes recourse to section 6.
The other and the better view appears to be that section 5(1) alone 952 is capable of imposing a charge of duty and where both section 5(1) and section 6 apply, the property would still be dutiable under both concurrently.
Section 6 is merely subsidiary and supplementary and it declares that the expression 'property passing on the death of the deceased ' shall be 'deemed to include property which the deceased was competent to dispose of '.
When section 6 has brought property within the charge of duty 'either alone ' as in the case of competency to dispose of under section 6, which could not be supposed to 'pass on death ' or concurrently with section 5, its function is at an end.
In England, the Finance Act, 1894 (57 & 58 Vict. c. 30) imposed by section 1 estate duty 'upon the principal value ascertained as hereafter provided of all property, real or personal, settled or not settled which passed on the death ' of a person dying after the commencement of the Act.
By section 2, sub section
(1) 'property passing on the death of the deceased ' shall be deemed to include categories of properties specified therein.
The precise relationship between sections 1 and 2, before the law was amended in 1969, was a question on which judicial opinion fluctuated widely.
For over 60 years, they were regarded as mutually exclusive and having independent fields of operation; the view was that property could not be liable to duty concurrently.
In a situation where both sections 1 and 2 might apply, section 1 took priority and excluded section 2 liability.
It was laid down by the House of Lords, in a series of cases, that section 2(1) was not a definition section, explanatory of section 1, but an independent section operating outside the field of section 1: Earl Cowley vs Inland Revenue Commissioners, Attorney General vs Milne, Nevill vs Inland Revenue Commissioners.
In Earl Cowley 's case the House of Lords reversing the decision of the Court of Appeal, held that if the case fell within section 1, it went out of the purview of section 2.
Lord Macnaghten after observing that section 1 contained the pith and substance of the enactment, stated: "It is comprehensive, broad and clear. .
The first question as it seems to me the question that lies at the very threshold of our inquiry is simply this: Under which section of the Finance Act 1894 does the present case fall? Is it the ordinary and normal case of property passing on death, or is it one of those exceptional cases in which property is deemed to pass, though there is no passing of property in fact? Does it come under section 1 or under section 2?" 953 After differing from the Court of Appeal, he went on to say: "What the Act has in view for the purpose of taxation is property passing on death,.
Now, if the case falls within section 1 it cannot also come within section 2.
The two sections are mutually exclusive.
In my opinion the two sections are quite distinct, and section 2 throws no light on section 1.
But section 2 does not apply to an interest in property which passes on the death of the deceased.
That is already dealt with in the earlier section .
That is section 1.
You do not want section 2 for that.
You cannot resort to section 2.
For that would be giving the duty twice over.
The Crown cannot have it both ways.
Double duty is forbidden by the Act." (Emphasis supplied) The ratio decidendi in Earl Cowley 's case was that if a case fell within section 1 without the aid of section 2(1), one is not concerned with section 2(1).
Lord Macnaghten 's exposition of the inter relation of sections 1 and 2 in Earl Cowley 's case contained the essential characteristics of a statement of legal principle; it was expressed in very precise language, and with a confidence that excluded the possibility of any alternative view.
In Attorney General vs Milne (supra) Lord Haldane, after referring to Earl Cowley 's case, said: "Section 2 is thus not a definition section, but an independent section operating outside the field of section 1." Lord Atkinson, however, adopted Lord Haldane 's earlier view, treating section 2 as merely supplementary to section 1, and as designed to make liable to estate duty certain dispositions of property which were outside the scope and beyond the reach of section 1. "This section", he said, "is not a definition section".
He did not, however, say (and that is significant) that the two sections were mutually exclusive.
Lord Dunedin took a different view.
Having said that whether Lord Macnaghten was strictly correct or not in saying that whether the two sections were mutually exclusive or not seemed to him to matter little, he added: "It seems to me that that is as much as to say that the words, 'property passing on the death ', in the first section, are to be read as if the words, 'including the property following, 954 'that is to say ' (and then all the sub sections) had been there inserted." In Nevill vs Inland Revenue Commissioners (supra) Lord Haldane said: " 'Passes ' may be taken as meaning 'changes hands '.
The principle is contained in section 1.
Section 2 combines definitions of such property with the extension of the application of the principle laid down in section 1 to certain cases which are not in reality cases of changing hands on death at all.".
In Public Trustee vs Inland Revenue Commissioners (Re.
Arnholz) the House of Lords after a lapse of over 60 years, however, struck a discordant note.
The theory of 'mutual exclusiveness ' of sections 1 and 2 enunciated by Lord Macnaghten was not accepted.
It was held s.1 imposed the charge in general terms and s.2, by exclusion and inclusion, defined area of that charge.
No clear exposition was given or required to be given on the facts of the case of what was the precise effect of the two sections or their relationship to one another.
There followed a period of uncertainty as to the precise relationship between the two sections, although subsequent to Arnholz 's case section 1 alone was held to be still capable of imposing a charge of duty, and where both sections 1 and 2 applied, the property was held to be dutiable under both concurrently.
If the property which passed was identical with the property which would otherwise be deemed to pass, the question under which head it shall be taxed was purely academic.
Estate duty is not leviable more than once on the same death in respect of any property, even if it is chargeable under more than one head.
In Weir 's Settlement Trusts, Re.
Mc Pherson vs Inland Revenue Commissioners, the contention on behalf of the tax payer was that the decision in Public Trustee vs Inland Revenue Commissioners (Re.
Arnholz) established the complete reverse of the view expressed by Lord Macnaghten in Earl Cowley 's case, that is, established that section 2 exhaustively laid down the only circumstances in which estate duty was leviable, and that if the circumstance could not be brought within section 1, as being circumstances set out in section 2, that was the end of the matter, the phrase in section 1 'property which passes on the death ' having no content independent of section 2.
955 Russell L.J., in delivering the judgment of the Court of Appeal, resolved the doubts as to the relationship of ss.1 and 2 of the Act, and rejected the contention of the tax payer, observing: "It was certainly not decided by the majority in Arnholz 's case that, as a matter of construction, the entire content of 'property. which passes on death ' in section 1 was to be found in s.2.
" As regards the relationship of sections 1 and 2, he stated: "Our view of the relationship of the two sections is as follows.
It is section 1 that imposes the charge of estate duty on the value of property described as 'property. which passes on the death '.
Section 2(1) does not describe a different category of property, being property deemed to pass on a death.
Section 2(1) states certain situations in relation to property which involve that property in section 1 as property which passes on a death.
We see no reason to hold that section 2(1) was intended exhaustively to define and limit the situations in relation to property which thus involve that property.
The language is not apt for that purpose; and the fact that the situations envisaged embrace occasions when without guidance from section 2 (1) the property would be manifestly 'property. which passes on the death ' does not mean that they embrace all such occasions.
" The question is a difficult one on which there may well be divergence of opinion, as reflected in these English decisions which largely turn on the construction of sections 1 and 2 of the Finance Act, 1894, the provisions of which are somewhat similar to those of sections 5 and 6 of the Act.
The simultaneous existence of a right to tax under sections 1 and 2 was inconsistent with the well known statement of Lord Macnaghten in Earl Cowley 's case and could not, therefore, be sustained.
Nevertheless, the trend of judicial opinion in England rightly changed, as we think that Lord Macnaghten 's opinion ought not to be regarded as subject to such refinement.
The Andhra Pradesh High Court in Smt.
Shantabai Jadhav 's case (supra) held that notwithstanding the fact that the property was purchased in the name of the wife, and had been included by 956 the deceased as his own property in the wealth tax returns filed by him, it could not be held to be the property of the deceased, for the purpose of its inclusion in the estate of the deceased.
It was observed: "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, i.e., to keep it beyond the reach of the creditors.
Whatever may 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.
Section 6 of the enacts that property which the deceased was at the time of his death competent to dispose of shall be deemed to pass on his death.
It is thus manifest from the section that Estate duty could be levied in respect of the properties which could be disposed of by the deceased at the time of his death.
" Repelling the contention that the wife could not have alienated the properties by herself and that any disposition by her would not pass the title to such purchaser, having regard to the fact that it was open to the husband to impeach the sale sometime later, on the ground that the beneficial interest always vested in him, consideration having been paid by him, the Court relied upon the provisions of section 41 of the Transfer of Property Act and further observed: "Be that as it may, so long as the documents stand in the name of his wife, he could not dispose of the property.
It is true that it was open to him to have obtained the declaration that he was the beneficial owner thereof notwithstanding the fact that his wife was the ostensible owner.
But, so long as the husband does not have any recourse to these proceedings for obtaining such a relief, he could not have been in a position to dispose of the property standing in the name of the third person as his own.
This proposition was not contested on behalf of the Central Board of Revenue.
" In Smt.
Denaabi Boman Shah 's case (supra) following its earlier decision in Smt.
Shantabai Jadhav 's case while dealing with a similar benami transaction, the High Court held that the value of property held by a benamidar could not be included in the value of the property left by the deceased. 957 In Controller of Estate Duty vs M. L. Manchanda, the Punjab and Haryana High Court following these decisions had held that property which stood in the name of wife and of which the husband was the real owner, was upon the wife 's death chargeable to estate duty under section 5(1) of the Act, observing: "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.
" In delivering the judgment of the Full Bench in O. section Chawla vs Controller of Estate Duty, Dwivedi J. observes: "The scheme of the Act is two fold.
Firstly, there are properties which pass on the death of a person.
Section 5(1) imposes duty on their value.
Secondly, there are properties in which the deceased had an interest or power of appointment and which really do not pass on his death.
The scheme of the Act is to impose duty on the value of such properties also.
In the second class will fall provisions like sections 6, 7, 8, 9 and 10.
The Act creates a fiction of law to declare that the properties mentioned in those sections will be deemed to pass on the death of a person, though they do not 'pass ' in fact.
" This two fold scheme is made plain by the definition in section 2(16) and section 3(3).
Section 2(16) defines the phrase 'property passing on death '.
Section 3(3) declares that references in the Act to 'property passing on the death ' of a person shall be construed as including references to 'property deemed to pass on the death ' of such person.
The statement of objects and reasons of the Bill which ripened into the Act also emphasises the two fold scheme.
It states that the 'object of the Bill is to impose an estate duty on property passing or deemed to pass on the death of a person '.
The object of section 6 is to catch properties in the set of section 5(1) which do not really pass on the death of a person.
For instance, property comprised in a revocable gift is property which the donor is competent to dispose of whether the gift is 958 revoked or not and will be covered by section 6.
Similarly, property in respect of which the deceased had the power of appointment will also fall within section 6.
" We are in agreement with the observations made by the learned Judge on the relative scope of section 5 and section 6 of the Act, which bring out the true legislative intent.
In applying the Act to any particular transaction, regard must be had to its substance, that is, its true legal effect, rather to the form in which it is carried out.
On the facts found, it has been established beyond doubt that the deceased was the real owner of the shares.
The ownership which the deceased had in the shares passed on his death and must be brought to charge under sub section
(1) of section 5.
All that has been said above is sufficient to dispose of the appeal.
It, however, becomes necessary to deal with the law relating to benami transactions as there is some misconception as to the nature of the rights of a benamidar.
What follows is purely elementary.
The law in this matter is not in doubt and is authoritatively stated by a long line of decisions of the Privy Council starting from the well known case of Gopeekrist Gosain vs Gungapersaud Gosain to Sura Lakshmiah Chetty vs Kothandarama Pillai and of this Court in Shree Meenakshi Mills Ltd. vs C.I.T. As observed by Knight Bruce L.J. in Gopeekrist Gosain 's case, the doctrine of advancement is not applicable in India, so as to raise the question of a resulting trust.
When a property is purchased by a husband in the name of his wife, or by a father in the name of his son, it must be presumed that they are benamidars, and if they claim it as their own by alleging that the husband or the father intended to make a gift of the property to them, the onus rests upon them to establish such a gift.
In Sura Lakshmiah Chetty 's case, the law was stated with clarity by Sir John Edge in these words: "There can be no doubt now that a purchase in India by a native of India of property in India in the name of his wife unexplained by other proved or admitted facts is to be regarded as a benami transaction, by which the beneficial interest in the property is in the husband, although the ostensible title is in the wife.
" 959 It is but axiomatic that a benami transaction does not vest any title in the benamidar but vests it in the real owner.
When the benamidar is in possession of the property standing in his name, he is in a sense the trustee for the real owner; he is only a name lender or an alias for the real owner.
In Petheperumal Chetty vs Muniandy Servai, the Judicial Committee quoted with approval the following passage from Mayne 's Hindu Law 7th ed., para 446: "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.
" The cardinal distinction between a trustee known to English law and a benamidar lies in the fact that a trustee is the legal owner of the property standing in his name and cestui que trust is only a beneficial owner, whereas in the case of a benami transaction the real owner has got the legal title though the property is in the name of the benamidar.
It is well settled that the real owner can deal with the property without reference to the latter.
In Gur Narayan vs Sheo Lal Singh, the Judicial Committee referred to the judgment of Sir George Farwell in Mst.
Bilas Kunwar vs Dasraj Ranjit Singh, where it was observed that a benami transaction had a curious resemblance to the doctrine of English law that the trust of the legal estate results to the man who pays the purchase money, and went on to say: ". the benamidar has no beneficial interest in the property or business that stands in his name; he represents, in fact, the real owner, and so far as their relative legal position is concerned he is a mere trustee for him.
" In Guran Ditta vs Ram Ditta the Judicial Committee reiterated the principle laid down in Gopeekrist Gosain 's case and observed that in case of a benami transaction, there is a resulting trust in favour of the person providing the purchase money.
A benamidar has no interest at all in the property standing in his name.
Where the transaction is once made out to be benami, the Court must give effect to the real and not to the nominal title subject to certain exceptions.
In Mulla 's Hindu Law, 14th edn.
, p. 638, four exceptions to the normal rule are brought out.
But these exceptions are not material in this case.
One of the exceptions 960 enumerated therein is that where a benamidar sells, mortgages or otherwise transfers for value property held by him without the knowledge of the real owner, the real owner is not entitled to have the transfer set aside unless the transferee had notice, actual or constructive that the transferor was merely a benamidar.
The principle is embodied in section 41 of the Transfer of Property Act.
The section makes an exception to the rule that a person cannot confer a better title than he has.
The section is based on the well known passage from the judgment of the Judicial Committee in Ramcoomar Koondoo vs Macqueen: "It is a principle of natural equity, which must be universally applicable, that where one man allows another to hold himself out as the owner of an estate, and a third person purchases it for value from the apparent owner in the belief that he is the real owner, the man who so allows the other to hold himself out shall not be permitted to recover upon his secret title unless he can other throw that of the purchaser by showing, either that he had direct notice, or something which amounts to constructive notice, of the real title, or that there existed circumstances which ought to have put him upon an inquiry that, if prosecuted, would have led to a discovery of it." A benamidar is an ostensible owner and if a person purchases from a benamidar, the real owner cannot recover unless he shows that the purchaser had actual or constructive notice of the real title.
But from this it does not follow that the benamidar has real title to the property, he is merely an ostensible owner thereof.
The law is succinctly stated by Mayne in his Treatise on Hindu Law, 11th edn., at p. 953, in the following terms: "A benami transaction is one where one buys property in the name of another or gratuitously transfers his property to another, without indicating an intention to benefit the other.
The benamidar, therefore, has no beneficial interest in the property or business that stands in his name; he represents in fact the real owner and so far as their relative legal position is concerned, he is a mere trustee for him.
In other words, a benami purchase or conveyance leads to a resulting trust in India, just as a purchase or transfer under similar circumstances leads to a resulting trust in England.
The general rule and principle of the Indian law as to resulting trusts differs but little if at all, from the general rule of English law upon the same subject.
" 961 (See also : Shree Meenakshi Mills Ltd. vs C.I.T. per Venkatarama Ayyar J., and Thakur Bhim Singh vs Thakur Kan Singh ; Per Venkataramiah J.] In the light of these settled principles the liability to pay estate duty under section 5 (1) of the Act arises upon the death of the real owner and not of the benamidar, who is merely an ostensible owner.
The test lies in whether upon the death of the benamidar, there would be incidence of liability to estate duty.
If the view of the High Court were to be accepted, the estate left by the deceased would escape the duty altogether.
We do not see how section 6 of the Act comes into play at all in this case.
In view of the finding that the shares were purchased by the deceased benami in the name of his wife and sons etc.
, the real ownership of the property was vested in the deceased was entitled to deal with the same as if it were his own and the benamidars held it in trust under section 82 of the Trusts Act, 1882 for the benefit of the deceased.
The benamidars, subject to the equities flowing from section 41 of the Transfer of Property Act, could not deal with the shares in any way.
Accordingly, the estate belonged to the deceased who died possessed of the same, and under section 5(1) of the Act the entire value of the shares was includible in the principle value of the estate of the deceased on his death.
For these reasons, the judgment of the High Court is set aside and the question is answered in the affirmative and in favour of the Controller of Estate Duty.
There shall be no order as to costs.
N.V.K. Appeal allowed.

dataset_name: IN-Abs

summary:
One M carried on the business of printer and publisher.
In 1953 his brother in law alongwith some other persons floated two companies a publishing firm and a printing press.
Under an agreement dated May 29, 1953 M agreed to transfer his business to the newly floated companies, and on January 24, 1954 he wrote letters intimating that the shares in the companies be allotted to his wife, his 3 sons, his brother in law and an ex employee.
The companies allotted the shares accordingly.
502 shares were allotted to M in his own name in the publishing firm and 225 shares in the printing press.
Of the remaining, 2002 shares in the publishing firm and 1602 shares in the printing press were allotted to M and his nominees.
M died on February 11, 1957.
On his death the respondent, the accountable person filed a return of estate duty in which he included the value of the 502 shares in the publishing firm and 225 shares in the printing press.
The Assistant Controller of Estate Duty did not accept this part of the return and included the 2002 shares in the publishing firm and 1602 shares in the printing press standing in the name of the wife of the deceased, his 3 sons, brother in law and the ex employee, since they were holding these shares benami, and included the value of these shares in the principal value of the estate of the deceased.
In appeal, the Central Board of Direct Taxes, the Appellate Tribunal affirmed this order.
It observed that the mere fact that the subject matter was the shares in the two companies would not throw any more onus of proof on the Assistant Controller than would be thrown if the subject matter was some other property.
When money was paid by the deceased, it was for the accountable person to prove the gift.
The deceased had clearly mentioned in his letters dated January 24, 1954 to the two companies that the shares should be issued and allotted in the names of the persons nominated by him.
If the deceased intended to make an outright gift of the shares, he would have very 944 well said so in the letters.
There being no presumption of advancement, the mere fact that the shares were got issued in their names without making any indication of gift, would not make the nominees recipients of any gift.
The High Court answered the reference against the appellant and in favour of the accountable person.
Following the decisions of the Andhra Pradesh High Court in Shantabai Jadhav vs Controller of Estate Duty and Smt.
Denabai Bomab Shah vs Controller of Estate Duty (1964) 51 ITR (ED) 1 it observed that since the shares stood in the name of the wife and sons etc., benami for the deceased, the deceased had no power to transfer since he had not obtained a release from the benamidars or a declaration from an appropriate court.
As the deceased, remained incompetent to transfer the shares till his death, the property in them would not be deemed to pass upon his death by reason of section 6 and therefore, they would not be included in the estate of the deceased under section 5(1) of the Act.
Allowing the appeal, to this Court ^ HELD: 1.
The liability to pay estate duty under section 5(1) of the Act arises upon the death of the real owner and not of the benamidar, who is merely an ostensible owner.
The test lies in whether upon the death of the benamidar, there would be incidence of liability to estate duty.
[961B] 2.
The finding being that the shares were purchased by the deceased benami in the name of his wife and sons, the real ownership of the property was vested in the deceased who was entitled to deal with the same as if it were his own and the benamidars held it in trust under section 82 of the Trust Act, 1882 for the benefit of the deceased.
The estate, therefore, belonged to the deceased who died possessed of the same and under section 5(1) of the Act the entire value of the shares was includible in the principal value of the estate of the deceased on his death.
[961C E] 3.
(i) The imposes a tax upon the principal value of all properties, settled or not settled passing on death or deemed to pass on death.
Estate duty is chargeable at percentage rates rising with the value of the estate on all property passing on death, including property of which the deceased was competent to dispose and gifts made within limited period before death.
Primary liability falls on the deceased 's estate.
[950H; 951A] (ii) The scheme of the Act is two fold.
Firstly there are properties which pass on the death of a person.
Section 5(1) imposes duty on their value.
Secondly, there are properties in which the deceased had an interest or power of appointment and which really do not pass on his death.
The scheme of the Act is to impose duty on the value of such properties also.
In the second class will fall provisions like sections 6, 7, 8, 9 and 10.
The Act creates a fiction of law to declare that the properties mentioned in those sections will be deemed to pass on the death of a person, though they do not 'pass ' in fact.
[957D E] (iii) The object of section 6 is to catch properties in the net of section 5(1) which do not really pass on the death of a person.
For instance, property comprised in a revocable gifts is property which the donor is competent to dispose of whether the gifts is revoked or not and will be covered by section 6.
Similarly property in respect of which the deceased had the power of appointment will also fall within section 6.
[957H; 958A] O.S. Chawla vs Controller of Estate Duty (1973) 90 ITR approved.
945 4.
In applying the Act to any particular transaction, regard must be had to its substance, that is, its true legal effect, rather to the form in which it is carried out.
[958B] 5.
By no rule of construction can the operation of sub section (1) of section 5 of the Act be curtailed by the operation of section 6.
It is in addition to or supplemental of the provisions of sub section (1) of section 5, which is the charging section.
[951E] In the instant case, it has been established that the deceased was the real owner of the shares.
The ownership which the deceased had in the shares passed on his death and must be brought to charge under sub section (1) of section 5.
[958C] Smt.
Denabai Bomab Shah vs Controller of Estate Duty and Smt.
Shantabai Jadhav vs Controller of Estate Duty (1964) 51 ITR (ED) 1 disapproved.
(i) The provisions of sections 5 and 6 of the Act are somewhat similar to those of sections 1 and 2 of the Finance Act, 1894 in England.
[955F] (ii) The precise relationship between sections 1 and 2, before the law was amended in 1969, was a question on which judicial opinion fluctuated widely.
For over sixty years they were regarded as mutually exclusive and having in dependent fields of operation, the view was that property could not be liable to duty concurrently.
In a situation where both sections 1 and 2 might apply, section 1 took priority and excluded liability.
[952D E] Earl Cowley vs Inland Revenue Commissioners, L.R. , Attorney General vs Milne, L.R. [1914] A.C. 765, Nevill vs Inland Revenue Commissioners, LR [1924] A.C. 385 referred to.
(iii) In Public Trustee vs Inland Revenue Commissioners (Re Ambody) LR the House of Lords struck the discordant note, holding that section 1 imposed the charge in general terms and section 2 by exclusion and inclusion, defined area of that charge.
In Weir 's Settlement Trusts, Re Mc Pherson vs Inland Revenue Commissioners LR [1971] Ch.D. 145 the Court of Appeal resolved the doubts as to the relationship of these two sections.
[954C; G, 955A] 7.
When a property is purchased by a husband in the name of his wife or by a father in the name of his son, it must be presumed that they are benamidars, and if they claim it as their own by alleging that the husband or the father intended to make a gift of the property to them, the onus rests upon them to establish such a gift.
When the benamidar is in possession of the property, standing in his name, he is in a sense the trustee for the real owner; he is only a name lender or an alias for the real owner.
[1958F; 959A] Gopeekrist Gosain vs Gungapersaud Gosain (1854) 6 MIA 53, Sura Lakshmiah Chetty vs Kothandarama Pillai L.R. [1924 25] 52 IA 286, Shree Meenakshi Mills Ltd. C.I.T. referred to.
946 8.
A benamidar has no interest at all in the property standing in his name A benamidar is an ostensible owner and if a person purchases from a benamidar, the real owner cannot recover unless he shows that the purchaser had actual or constructive notice of the real title.
But from this it does not follow that the benamidar has real title to the property, he is merely an ostensible owner thereof.
[960E] Mayne Hindu Law 11th Edn.
p. 953 referred to.