# SMT. SURASAIBALINI DEBI v. PHANINDRA MOHAN MAJUMDAR

- **Citation:** [1965] 1 S.C.R. 861
- **Court:** Supreme Court of India
- **Decided:** 1964-10-27
- **Case number:** Civil Appeal No. 158 of 1964
- **Bench:** P. B. Gajendragadkar C.J, J. c. SHAH, N. Rajagopala Ayyangar
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/smt-surasaibalini-debi-v-phanindra-mohan-majumdar-3271
- **Pages:** 22

## Headnote

Benanzi transaction-Inconie-tax evad'ed-True owner-Right to rec9ver
possession.
The plaintiff (respondent) was employed at Calcutta in the Court of
V{ards and the service rules did not pennit him to start or carry on any
trade o.r bu5iness of his own. It \Vas therefore arranged with the defendant
that the <lefcndanl shouli..l be hc!.J ot1t to be the O\Vncr of a boarding houscthe suit propt:rty---0f which the plaintiff was the true O\vner, anU the
plaintiff wns to be in possession as manager. Plaintiff had to leave Calcutta
on n1edical advice and he put th~ defendant in possession on the understanding that on the plaintiff's return the defendant would hand over possession. \.\'hen the defendant refused to so hand over, plaintiff filed the suit
f•Jr recovery of possession. His .. claim was decreed by the trial Court and
in appeal.
In appeal to the Supreme Court, defendant's successor in
interest contenc.Jed, that the suit should have been dismissed because the
plaintiff admitted ln his evidence, that he escaped payment of income-tax
by submitting a separate return for the salary earned by him in service,
and by showirlg that the business income from the suit property belonged to
the defendant; and that therefore, the Court should not countenance his
claim au<l assist hin1 in obt<1ining possession of the suit property.
HELD (Per Gajendragadkar. C. J.
and Shah J.) : It was not the
object of the parties at the time \Vhen the transaction· was entered into
to circu1nvent or defeat the provisions of the Income-tax Act.
It is true
that the plaintiff obtained benefit of a lower rate of tax for the business
income and his personal income escaped taxation.
But it cannot on that
account be held that the transaction on which he founded his claim was
unlawful.
In claiming a decree for possession from the defendant, the
plaintiff did not plead any invalidity of the transaction under which possession of the business \Vas entrusted to the defendant. The plaintiff. as the
owner of the business, was therefore not prevented from enforcing his
title against the defendant there being no taint attached to the entrustment
in the circumstances of the case. [868 D-F, G]
Per Ayyangar J.-The plaintiff having adopted the device of purchasing
the property hennn1i in the name of the defendant, for the purpose, even
nt the inception, of evading the provisions of the Income-tax Act, would
not be entitled to recover possession of the property on the ba!<is of his.
title.
But the plaintiff's claim on the footing of possession was-not open to
any objection because the basis of his claim \Vas independent and wholly
dissociated from the illeg::ll transaction of the original benami purchase
and fell into line with the decision of the Privy Council in Sajan
Singhv. Sardara Ali [1960] A.C. 167. [876 F; 882 D-E]

## Text

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SMT. SURASAIBALINI DEBI
v.
PHANINDRA MOHAN MAJUMDAR
October 27, 1964
(P. B. GAJENDRAGADKAR C.J., J. c. SHAH AND
N. RAJAGOPALA AYYANGAR JJ.)
Benanzi transaction-Inconie-tax evad'ed-True owner-Right to rec9ver
possession.
The plaintiff (respondent) was employed at Calcutta in the Court of
V{ards and the service rules did not pennit him to start or carry on any
trade o.r bu5iness of his own. It \Vas therefore arranged with the defendant
that the <lefcndanl shouli..l be hc!.J ot1t to be the O\Vncr of a boarding houscthe suit propt:rty---0f which the plaintiff was the true O\vner, anU the
plaintiff wns to be in possession as manager. Plaintiff had to leave Calcutta
on n1edical advice and he put th~ defendant in possession on the understanding that on the plaintiff's return the defendant would hand over possession. \.\'hen the defendant refused to so hand over, plaintiff filed the suit
f•Jr recovery of possession. His .. claim was decreed by the trial Court and
in appeal.
In appeal to the Supreme Court, defendant's successor in
interest contenc.Jed, that the suit should have been dismissed because the
plaintiff admitted ln his evidence, that he escaped payment of income-tax
by submitting a separate return for the salary earned by him in service,
and by showirlg that the business income from the suit property belonged to
the defendant; and that therefore, the Court should not countenance his
claim au<l assist hin1 in obt<1ining possession of the suit property.
HELD (Per Gajendragadkar. C. J.
and Shah J.) : It was not the
object of the parties at the time \Vhen the transaction· was entered into
to circu1nvent or defeat the provisions of the Income-tax Act.
It is true
that the plaintiff obtained benefit of a lower rate of tax for the business
income and his personal income escaped taxation.
But it cannot on that
account be held that the transaction on which he founded his claim was
unlawful.
In claiming a decree for possession from the defendant, the
plaintiff did not plead any invalidity of the transaction under which possession of the business \Vas entrusted to the defendant. The plaintiff. as the
owner of the business, was therefore not prevented from enforcing his
title against the defendant there being no taint attached to the entrustment
in the circumstances of the case. [868 D-F, G]
Per Ayyangar J.-The plaintiff having adopted the device of purchasing
the property hennn1i in the name of the defendant, for the purpose, even
nt the inception, of evading the provisions of the Income-tax Act, would
not be entitled to recover possession of the property on the ba!<is of his.
title.
But the plaintiff's claim on the footing of possession was-not open to
any objection because the basis of his claim \Vas independent and wholly
dissociated from the illeg::ll transaction of the original benami purchase
and fell into line with the decision of the Privy Council in Sajan
Singhv. Sardara Ali [1960] A.C. 167. [876 F; 882 D-E]
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 158 of
1964.
Appeal by special leave from the judgment and decree dated
August 30, and September 2, 1963 of the Calcutta High Court in
:ippeal from Original decision No. 125 of 1960.
862
SUPREME COURT REPORTS
[1965] l S.C.R.
S. K. Hazara ar:d P. K. Mukherjee, for the appellant.
G. S. Chatterjee and S. c. Maamular, for the respondent.
The Judgment of P. B. GAJENDRAGADKAR C.J. and J.C. SHAH
J. was delivered by SHAH 1., AYYANGAR J. delivered a separate
Judgment.
Shah J.
An action instituted by Phanindra Mohan Majumdar
hereinafter caJlcd 'the plaintiff' on the original side of the High
Court of Calcutta for a declaration that he "is the sole proprietor
of and absolutely entitled to a boarding house business carried on
in the name and style of International Home at 42, Harrison Road,
Calcutta and for an order for delivery of possession of the boarding
house business" was decreed by a single Judge of the High Court,
and the decree was confirmed in appeal under cl. 15 of the Letters
Patent by a Division Bench of the High Court.
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Surasaibalini Debi a trustee appointed under a deed of settlement dated August 23, 1952 executed by the defendant
Prabhendra Mohan Gupta her father, was impleaded as a party on D
the death of the defendant has appealed to this Court with special
leave.
The case of the plaintiff set out in his plaint was that in or
about the year 1941 he took a lease of J\o. 42, Harrison Road,
Calcutta and had started a boarding house business in the premises
under the name and style of International Home, that he conducted the business with his own funds which
belonged to him
absolutely from the date of its inception, that he was personally
managing the business and utilising the profits thereof for his own
purposes, that when he started the business he was in the employment of the Court 0f Wards and by the service rules governing
the said employment he was not permitted to start or carry on
any trade or business of bis own and on that account it was
arranged with the defendant Prabhendra Mohan Gupta-. hereinafter called 'Gupta'-that the latter be held out as the nominal
owner of the said business and pursuant to that arrangement the
lease of the premises for the business was taken in the name of
Gupta and licences from the police and the municipal authorities
were also taken in the name of Gupta, that from the very inception
he was .in possession and management of the business and exercised all rights of ownership over the same being absolutely entitled
thereto, that Gupta had never made a claim to title in the business,
that towards the end of the year 1948 he-the plaintiff-suffered
a serious illness and was advised to leave Calcutta temporarily,
that on or about December 8, 1948 he entrusted the management
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SURASAIBALINI V. PHANINDRA MOHAN (Shah /.)
863
A of the business of the boarding house to Gupta with all its assets
on the understanding that upon his return to Calcutta,
Gupta
would hand over to him possession and management of the said
business and of all papers, documents and books of account
relating thereto and render accounts of the receipts and disbursements during the period of his management, that in or about
B December 1949 he returned to Calcutta and occupied one of the
rooms in the boarding house and called upon Gupta to hand over
possession and management of the business, and to return all
papers, documents, books of account relating thereto and
to
render accounts of the management of the business by Gupta during
C h;s absence but the latter wrongfully and in breach of the trust
and confidence reposed in him refused to hand over possession and
rrnnagement of the business and rr.oreover wrongfully denied the
plaintiff's right, title and interest in the premises and in the
business.
D
Gupta by his written statement submitted that the business was
started by him with his own funds in premises obtained on lease by
him and that he had appointed the plaintiff as his manager or agent
in respect of the business. He asserted that he was the real owner
of the business, and denied that the management "of the business
was entrusted to him by the plaintiff when the latter left Calcutta on
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account of his illness on December 8, 1948 or at any time. He
also denied that there was any understanding that Gupta would
hand over the man:!gement or possession of the business to the
plaintiff as alleged.
On these pleadings the only substantial issue raised by the Trial
F Court was about the plaintiff's title to the Boarding House known
as International Home.
A subsidiary issue about a claim for
accounts of the business from Gupta was given up at the trial and
need not be considered.
On a review of the evidence the Trial Judge held that the plainG tiff had started the business of International Home with his own
funds and that the defendant Gupta was held out as an ostensible
owner of that business. In coming to that conclusion the learned
Trial Judge relied upon the following circumstances. The plaintiff Majumdar was carrying on business as owner ~f "Sunny lodge"
a boarding house business between the years 1938-41, and that
H business was closed in or about February 1941 because the
landlord of the premises in which it was conducted obtained a
decree-in-ejectment against the plaintiff and compelled him
to
864
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SUPREME
CQ)JRT R2PORTS
[I 965] I S.C.R.
vacate the premises.· Tlwreafter tenancy was obtained of 42, ;Harrison Road on May 1, 1941 and in July the International Home was
started and the furniture and utensils which were .used in the
Sunny Lodge were used in the new business.
The case .of Gupta
that he had purcha~d the furniture and the utensils from
the
plqintiff for a sum of Rs. -900 and had started tire business .for
himself was disbelieved for the reason that Gupta w:;is always in
straitened. circumstances and h;id often to oorrow" small sums pf
money from the .plaintiff who V(as 111 all mpterial times gainfully
employed.· At t])e commencement of t~e-business, fordive"tse purposes such as deposit with the landlord towards rent, provi~ion
for furniture, utensils and· other things for the poarding house
Rs. 4,000 were needed and this. Gupta who \vas' in i!llpecunious
circumstances could not have procured.
The defendant's sons
Dwipendrq and Samaren were boar<;lers in the boarding house and
had to pay" charges to the boilrding 110.use for service rendered to
them, whereas the members of the plaintiff's. family boarded and
lived in the boarding house an'd no charges were levied from them.
The plaintiff was till December 1948 managing the boarding house
exclusively· and all the earnings were taken by him.
The defendant's story that P,ayments were made to him by the plaintiff when
Jw:Visited Calcu(ta was unre1iable. There were between the yems
l 941 and 1948 no letters·from the defendant to the plaintiff which
supported his case that he was the· owner pr that he was claiming
·either to receive the profits' of the business or even asking for
accounts.
The defendant was in the year 1941 a man of about
70 years of age and· he had no mean;, to start a business.
The
books of accounts of the busin~s which admittedly were maintainA
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ed had been removed by the·defCndant and he had failed to produce
the same before the Trial Court. The J~tters written by the defen- 'F
dant after December 8, 1.948 \vhen the ")Jlaintiff was -away from
Calcutca due to his illness gave detailed information to him ahout
the business' and its progress. From time to time the-defendant had
written letters asking the plaintiff to return to Calcutta and take
over lhe 111anagen1ent of the business.
The Trial Court recognised that the lease of the premises in
which the business was carried on stood in, t!Je n.ame of Gupta, that
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the licences from the police and municipal authorities for conduct-
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ing the business were also in the. name of Gupta, that in the staff
register of the business the plaintiff's nam!! was shown as manager,
that the plaintiff submitted the returns for the purposes of incomeH
tax of the profit~ of the business in the name of Gupta and he
dealt with the authoritie& as if he was the manager and·not the
SURASAIBALINI v. PHANINDRA MOHAN (Shah J.)
865
A owner of the business. But these circumstances were, in the view
of the Trial Judge, consistent with Gupta being a nominal owner
of the business, whereas the other circumstances were consistent
with the plaintiff alone being the owner of the business of International Home. In his view the, motive for holding out Gupta as
owner was the existence of the service rules which governed the
B plaintiff when he was employed with the Court of Wards between
the years 1941 and 1944 and by virtue of which. he was not permitted to conduct any business of his own.
The appellate Court
agreed with the view of the Trial Court.
In this appeal with special leave this Court normally does not
C seek to re-appreciate the evidence, and concurrent findings of the
Courts below are not allowed to be re-opened unless there are
special circumstances justifying a departure from that
course.
Counsel appearing on behalf of the appellant has not seriously
attempted to challenge the finding of the Courts below on the first
D issue. But counsel submitted that assuming that on the evidence
it was established that the real owner of the business was the
plaintiff, his suit must still fail, for the plaintiff had with a view
to circumvent the service rules of the Court of Wards, entered
into an unlawful agreement with Gupta and had held out the
latter as owner of the business, fr being settled law that the Court
E will not countenance the claim . .of the plaintiff who was on his
own admission guilty of an act prohibited by law and assist him
in obtaining possession of the business.
In addition,
counsel
;ubmitted that the arrangement for holding out Gupta as a nominal
owner was made between the plaintiff and Gupta to evade liability IC? pay income-tax and thereby to defeat the provisions of the
F Income-tax Act and on that account also the agreement under'
which the business was to be held by Gupta as a nominal owner
was invalid and the plaintiff was not entitled to claim possession
of the business relying upon his own unlawful conduct.
Before the Trial Cou;t neither of these two pleas was raised.
G In appeal the High Court pointed out that the object of the arrangement whereby Gupta was held out as the owner was to avoid the
service rules of the Court of Wards, but there was no evidence to
prove that the service rules which prohibited an employee of the
Court of Wards from carrying on business belonging to himself
were statutory rules.
Disregard of the rules did not
therefore
H necessarily taint the arrangement with immorality or illegality and
that fhe plaintiff in suing to recover possession of his business was
not seekiog to enforce an illegal arrangement.
In the view of
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866
SL'PRE:\ff
COURT
REPORTS
( 1965] l s.c.R.
the High Court evasion of income-tax was again not the object or
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the consideration for the arrangement.
The service rules were not tendered in e'1idence.
It is
not
disputed however that the service rules did not prohibit an employee of the Court of Wards from carrying on a business as a
manager or agent of another. What was prohibited was carrying
on business as an owner.
An arrangement which facilitated conduct of a business, contrary to the rules, by holding out a third
person as a nominal owner of the business, was in the view of the
High Court not illegal, and no areurnent has
been advanced
before' us challenging that view.
B~t the legality of the arrangement between the plaintiff and Gupta was challenged on
the
ground that it was intended or designed to circumvent the provisions of the Income-tax Act.
In support of this plea, there was
no pleading, no issue was rdised about it, and this part of the
appellant's case was not even relied upon before the Trial Court.
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In this ap,-,eal ~r. 1-Jazara for the appellants submitted that on the
admissior •; made by plaintiff in his evidence the Court was hound D
to non-st:it him.
Jn his evidence before the Court the
plaintiff
admitted that he had submitted returns of income earned in the
business ior the years 1943, 1944, 1945 and 1946 and a::sessment
of tax was made in the year 194 7 and on demand by the Incometax Officer he had filed an affidavit stating that he was a manager
of the business. Plaintiff also admitted that when called upon he
had submitted a separate personal return for the salary earned by
him, but that income was not taxed and tax was assessed on the
business income as if it belonged to Gupta.
The plaintiff also
adrnitted that his object in filing the affidavit was to get rid of
tax liability on his personal income.
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By the device of making an untrue statement the plaintiff has
undoubtedly evaded tax.
The plaintiff was earning salary as an
employee of :he Court of Wards and had presumably some other
income which in the aggregate amounted to Rs. l ,800 per
annum.
If the business of International Home was disclosed as
belonging to the plaintiff, the aggregate of the personal and busiG
ness income was liable to be charged to tax under the Incometax Act, 1922.
By the expedient of holding out the defendant
as an ostensible owner of the business the plaintiff j!Vaded liability
for payment of tax on his personal income and even tax on the
business income was char~ed at a lower rate.
But on that account
we are unable to hold, disagreeing with the High Court, that the
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object in entering into the arrangement for holding out Gupta
as owner of the business was to evade payment of income-tax.
SURASAIBALINI v. PHANINDRA MOHAN (Shah J.)
867
A As found by the Courts below the purpose of the arrangement
was to circumvent the service rules.
It is true that
having
started the business in the name of the defendant, the plaintiff was
able to evade payment of tax, which if the true state of affairs
was known, he would have been liable to pay. The plaintiff might
B
have incurred penalties by failing to disclose the true state of
affairs, he may also be liable for that conduct to be proceeded
against under the provisions of the Income-tax Act or under the
Indian Penal Code.
We are, however, unable to hold that from
the inception the object of the arrangement was to enter into an
unlawful arrangement.
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The plaintiff's case was that he was in management and possession of the business as owner till December 1948 when he left
Calcutta after entrusting the management of the business to Gupta,
subject to the understanding that the possession and management of
the business was to be restored to the plaintiff when he returned to
Cakutta and sought to resume management. There is
nothing
D illegal in such a contract.
The plaintiff's cause of action as set
<;mt in the plaint was that he sought to obtain possession of the
business which belonged to him, and which he ~ad entrusted to his
agent or trustee.
Gupta denied that he was an agent or trustee
of the plaintiff, and set up title to the business and claimed that
he was not liable to return the business. Once the plea <Jf Gupta
E that he was the owner of the "business failed, there was no other
defence which could be held out against the plaintiff's claim. It
is true that if the plaintiff seeks the assistance of the C:ourt to
effectuate an unlawful transaction, the Courts will refus~ to assist
him. Where, however, the plaintiff is seeking to enforce his title
F to property and it is not an integral part of his pleading which he
must prove to entitle him to relief that there was between him
and the defendant an unlawful transaction or arrangement which
he seeks to enforce, the plaintiff will be entitled to the ~ssistance
of the Court, even if the initial title of the plaintiff is ranted in an
illegal transaction.
G
On the finding of the High Court the proved object for the
arrangement to hold out Gupta as owner of the business, is not
shown to be in fraud of the public administration, and the alternative object suggested by counsel for the appellant is not proved.
It is unnecessary therefore to enter upon a discussion of
the
authoi;ities which make a distinction between claims in ,,,hich a
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party' to an action has to rely essentially upon a conspiracy to
effectuate an illegal or fraudulent purpose, to support his claim
to the property transferred to or held out in the other party's name,
L2 Sup./6S-12
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SUPREME
COCRT
REPORTS
[1965] l S.CR.
and claims in which the unlawful or unworthy object is fulfilled,
the property is owned by the claimant, and the claimant, seel::s
the dssistance of the Court not to effectuate his unlawful purpose,
but in substance to enforce his title by a plea in detinue under
a transaction which is not tainted by illegality.
A .R.P.L. Pala11ian11a Chettiar v. P.L.A.R. Arunasalam Chettiar(')
illustrates
the former principle.
In that case the Judicial Committee declined to assist the enforcement of a claim in fraud of the public
administration in Malaya, because the plaintiff had of necessity to
disclose before he could obtain a decree for restoration of his property transferred to the defendant that he had practised deceit on
the public administration. Sajan Singh v. Sardara A Ii ( 2 ) illustrates
the other principle. In that case the Court's assistance was given
to the plaintiff to restore to him his property of which he was wrongfully dispossessed by the defendant, even tl1ough title to the proporty
was acquired by the plaintiff by an unlawful transaction, between
lilt defendant and the plaintiff.
In the present case as we have already observed, it was not the
object of the parties at the time when the transaction which is called
in the High Court benami was entered into to circumvent or to
defeat the provisions of the Income-tax Act by taking advantage of
the fact that the business stood in the name of Gupta. It is true that
the plaintiff obtained benefit of a lower rate of tax for the business
income and his personal income escaped taxation. But it cannot
on rhat account be held that the transaction on which he founded
his claim was unlawful. In claiming a decree for posse,sion from
the defendant the plaintiff did not plead any invalidity of the tran-
»action under which possession of the business was entrusted to
Gupta. He merely pleaded his title to the business, entrustment
thereof to Gupta and refusal on the part of the latter to deliver possession when demanded.
On the lindings recorded by the Trial
Court as well as by the High Court the plaintiff's title is proved.
Entrustment of the b~siness when the plaintiff left Calcutta in
1948 is also established by the evidence, and Gupta has ad:nittedly
refused to deliver possession when demanded. The plaintiff as the
owner of the business was in the circumstances not prevented from
enforcing that title against Gupta, there being no taint attaching
to the entrustment.
The appeal therefore fails and is dismissed.
Having regard
to the circumstances of the case, we make no order as to costs.
J) LR. 11962] A.C. 294.
(:) LR. (1960] A.C. 167.
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SURASAIBALINI v. PHAS!NDRA MOHAN (Ayyangar !.)
869
A
Ayyangar J. I agree with the order proposed by my learned
brother Shah J. that the appeal fails and should be dismissed as
also in regard to the order for costs.
As, however, I am unable
to agree with certain of the findings recorded by my learned brother
I propose shortly to state my reasons for the decision.
B
The facts of the case have all been set out in the judgmen.t just
now pronounced and it is needless for me to repeat them.
The
main point in controversy in the suit was as to whether Phanindra
Mohan Majumdar the respondent, who was the plaintiff in the suit
out of which this appeal arises, had established that he was the
proprietor of the Boarding House carried on in the name and style
c of "International Horne" at 42, Harrison Road, Calcutta. That
property admittedly stood under the registered conveyance in the
name of bis father-in-law, defendant Gupta and that business was
also conducted by the defendant. The case set up by the respondent was that the purchase of the property was with his funds and
that the defendant-Gupta was merely a benamldar. The evidence
D on this point was examined elaborately by the learned Single Judge
at the trial and by tho Division Bench on appeal and they concurrently found that the defendant-Gupta was merely a benamidar
for the respondent and that the purchase of the property in the
name of the defendant and the carrying on of the hotel busines~
by the defendant was really on behalf of the respondent.
That
E finding was not challenged before this Colirt and does not, therefore, require any examination.
Accepting that finding, however, two questions were raised by
the learned Counsel for the appellant. One was that the purpose
for which this benami transaction was entered into by the resF pondent was, on his own case, to circumvent the Service Rules of
the Court of Wards of which he was an employee. Though no
argument based upon the effect of this admission was urged before
the learned trial Judge, the question whether the respondent was
entitled to maintain the suit for the recovery of possession from the
defendant having regard to this object of the benami transaction
G
viz., to evade the Service Rules of the Court of Wards and in view
of the circumstance that that object had been achieved, was raised
be.fore the Division Bench. The learned Judges, however, rejected
the contention by pointing out that those Rules were not shown to
be statutory and, in fact, the Rules themselves were not before the
Court. In those circumstances, they considered that a breach of
H the rule or an attempt to evade it would not necessarily make the
transaction unlawful so as to preclude the respondent from recovering the property title to which he had established. Lcained Coun.,cl
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870
SUPREME COURT REPORTS
[1965] I S.C.R.
for the appellant repeated this argument before us but I agree
A
that it is not tenable having regard to the state of the evidence
and to the fact that the Rules were not statutory.
There was, however, another illegality which came out
in
the course of the evidence of the respondent and which, it was
submitted, was another object for which the property was purB
chased in the name of the defendant-{Jupta which requires more
;erious attention. This relates to the claim of the appellant that
it had been established that the object of putting the property
/>enami in the name of the defendant-Gupta was to evade
income-tax and that as a matter of fact, the t~ liability for certain
of the years of assessment had thereby been successfully evaded
C
by the respondent.
·The evidence in relation to this matter was this :
The suit
property was purchased and the Boarding House business
was
started in 1941, so that from the calendar year 1942 onwards i.e.,
from the assessment years 1943-44 onwards the respondent if the
D
beneficial owner would have been liable to income tax on the
in:ome derived from the hotel business.
During this period the
respondent was also employed in the Court of Wards, so that he
would have been liable to income tax' on the aggregate of rhe
mcomes he was receiving from these two sources.
In respect of
the assessment years 1943-46 he received in 1947 a notice calling
E
upon him to submit returns on the basis that he was the real owner
of the International Home, 42, Harrison Road. The respondent
then asserted that the property and the business did not beloni: to
him. but to the defendant Gupta and that he was merely a manager
unJcr Gupta. In connection with this assertion to the Income-tax
department he swore two affidavits one in December ·1947 and the
¥
other in January 1948, before the Presidency Magistrate, Calcutta
which con'taincd these representations. In his cross-examination
resp•Jndent's attention was drawn to the affidavits and to their
contents and his answer was this :
A. "Then I was charged with the amounts as I was asked
by the Income-tax Officer to· file an affidavit. Then I
made the first affidavit which is here in the file. I showed
him my first affidavit whereupon the Income-ta'I!. Officer
told me rnmething.
Pursuant to that I told him, 'I rejected the first affidavit and made a second
affidavit
wh;ch was accepted by them'.-{ln the second affidavit
dated January 31, 1948 he stated: 'I am an employee
under Gupta-proprietor of International Home,
42,
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SURASAIBALINI v. PHANINDRA MOHAN (Ayyangar !.)
871
Harrison Road, Calcutta. I have been working there as
manager since July 1941 and my monthly salary varied
from Rs. 25 to Rs. 150 from my last appointment to
this date)' ...... Then I stated that my money was not
taxable because it amounted only to Rs. 1,800 . and I
asked them to exempt me and accordingly I was exempted .from paying the income tax. . ...
Court Question : Do I understand that in 1947 and
1948 your object of filing this affidavit was to get rid
of the income-tax liability if possible so far as you are
personally concerned ?
C
A : That is so."
On the basis of this clear admission it was urged before the
learned Judges of the Division Bench that the respondent made
the purchase in the name of the defendant-Gupta really to evade
income tax which he would have been liable to pay if the property
D and business had stood in his own name and that as he had successfully evaded the payment of income tax and had thus achieved
his unlawful object, the Court would not permit him to assert
title to the suit property and would not lend its aid to enable him
to recover possession of his property. The learned Judges, however, rejected this submission· for two reasons : ( 1) that the defenE dant had not pleaded this illegality in the written statement and
was not therefore entitled to urge this as a ground for non-suiting
the plaintiff; (2) That the evidence and the admission I have
extracted, did not establish that the object of the respondent in
effecting this purchase benami in the name of the defendant was, at
its inception, to evade incometax. In other words, the learned Judges
F considered that it had not been proved that at the inception of the
purchase the object was to evade income tax, but that the respondent merely availed himself of the opportunity · afforded by the
benami purchase to evade tax when the same was sought to be
levied on him some 5 or 6 years after the date of the original purchase.
G
H
Learned counsel for the appellant challenged this reasoning and
submitted that the learned Judges had not approached the question
correctly.
First as to the point that in the absence of a pleading tho defendant was not entitled to rely on the taint of illegality in the tran:·
saction for persuading the Court to refuse relief to the plaintiff; I
see force in the submission of learned Counsel for the appellant
on this question. The law on this point as to pleading is quite
87~
SUPREME COURT R\!PORTS
(1965] 1 S.C.R.
clear and has been stated in decisions of tlte hi_g!Jest authority _on
several occasions and it is sufficient" to summarise the underlying
principles.
Where· a contract or transaction ex facie is illegal
there need be no pleading of· the. parties raiiing the issue of illegality
and the Court is bound to take judicial notice of the nature of the
contract or transaction and mould its relief according to the cfrcumstances. The case before us is, not how,evc:r, of that type. Even
where the contract is not ex facie legal "if the facts given in evidenc~ .clearly di.Sclose the illegalify the Court is bound to take
notice of this fact even if not pleaded by the defendant"
(P~r
Lindley L.J. in Scott v. Brown('). The enunciation of the law
on thfo point l;>y Devlin J. in Edler ·v. Auerbach(') though more
el a borate· and summarising the principles formulated'.by the House
of Lords,.-in North-Western Salt Company Ltd. v;
Electrolytic
,A !ka/i Company Ltd. (8 ) does not contradict the statement by Lindley L:f. Ip the easy on hand there is a clear ,admission by the respondent himself of the facts Qn which illegality i.s sought to be
made out.
The affidavits which he swore for the purpose of
evading the liability t9 tai. are before the Court and in ,the circumstances I consider that it is clearly establishi:d .that tlje object
9f th.e. respondent was td' evatle the payment of income-tax.
'
.
The.. other grounc,! od' which the learned Judges rejected this
plea of illegality was that tliere w~s no proof.· that the object which
the respondent sought to achieve by the· benami w_as not proved
to <have ·been .the evasion of income-tax.
Counsel;for the appcl"
lam contended' that the apptoach of learned Judges of the High
Court :10 this que5tian was not'realfstic and iliat their _finding was •
T
not ""Cortect.
.,,l
1 ·.-
. I see conside;able force in this submi;sion also. It was really
an,,aqcidept that the nptice in respec~,of incomc;-tax as' r<;"gards the
incqme· fro111 this prpperty, .anc_l business can1e to be issu.ed ·to th~
resp,ojfdent in 1947 ·or thereapouts.
Unl~ss one proceeded on. the
ass,umption that (he. respondent w~ not aware that
incom_e~tax.
wa~ payable on income from property· or business, he , coulc_l
obviously have acted only on the footing that the defendant-·
Guptl\ as the apparent owner of,the property would alone be made
Iiil!;>le for ihe payment of th'e>,tax.
In these circumstances it
appears to me to be clear that the Object of the transaction of
benami was even in its· Jnteption to ensure that there was no
aggregation of the income from the property and the hotel. business
·,
:-(!) [1892] 2 Q.B. 724 at 729.
I (2) [1950] I K.B. 359, at p. 371.
(3) [19H] A.C. ~61.
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SURASAIHALINI v. PHANINDRA MOHAN (Ayyangar J.)
873
A with the salary or ocher remuneration which he was getting from
the Court of Wards.
The question next to be considered is the effect of the object
<H the bmami being to evade the provisions of a revenue.law like
the Income Tax Act. Now s. 23 of the Indian Contract Act enacts
B that th·~ consideration or object of an agreement is lawful "unless
it is forbidden by law or is of such a nature that if permitted, it
would defeat the provisions of any law". On what I have stated
earlier, the object of the agreement being to defeat the provisions
of the Indian Income Tax Act would certainly not be lawful.
c
In this connection I might briefly refer to the decision in
Emery v. Emery('). It was an action by the husband seeking to
rewver from the wife one half of certain securities which the
husband had purchased in the name of the wife. The finding was
that the bonds, a moiety of which was sought to be recovered were
held in the name of the wife as trustee for the wife and husband
D in equal shares so far as· the beneficial interest was
concerned.
Wynn-Parry J. considered the evidence as to why the securities
were purchased in the name of the wife and why there was a
complete absence in the documents of any
reference to the
husband havipg any beneficial interest in those securities. The
evidence led before the Court disclosed that under the law of the
E
United States, where the dividends on the bonds were payable if
the payment was to a non-resident .. alien the recipient would be
liable to a withholding tax. The husband was a non-resident alien
and if bis beneficial interest was disclosed the dividend payable in
respect of this investment would have protanto suffered the deducF tion of tax, while the wife being an American would not have
been so liable.
The question that was raised before the learned
Judge was whether in those circumstances the husband could
assert his title to the moiety of the securities to which he claimed
beneficial interest. The learned Judge dismissed the action holding that as the securities were put in the name of the wife in order
G to evade the law the husband who did not come before the Court
with clean hands could not claim his title and that the property
should lie where it was.
The main argument raised was that a
breach of a Revenue law of a foreign country stood on a footing
different from an attempt to evade a law of the United Kingdom
and this was negatived.
We are not, however, concerned with
H that problem, because here what was intended to be circumvented by means of this device was the Indian Income Tax Act. That
(I} [1959] I Ch. 410.
874
SUPREME COURT REPORTS
[1965) I S.C.R.
an agreement to defraud Revenue is manifestly illegal is beyond
A
dispute but if authority were needed I might refer to Miller v.
Kar/inski(') and Alexander v. Rayson(')-(sce Cheshire and
Fifoot on Contract, 5th ed. 286).
No doubt, for the purpose of deciding whether property could
be recovered by the assertion of a real title there is a clear distincB
tion between cases where only an attempt to evade a statute or to
commit a fraud has taken 'place and cases where the evasion or
the fraud has succeeded and the impennissible object has been
achieved.
The leading decision upon this point is that of the
Privy Council in Petherpermal Chetty v. Muniandi
Servai(•)
C
where Lord Atkinson dealing with the effect of benami conveyances
which are motivated by the design to achieve an illegal or fraud11lcnt purpose, quoted from Mayne's Hindu Law (7th ed. p. 595.
para 466) the following as correctly setting out the law :
"Where a transaction is once made out to be a mere
be11ami it is evident that the be11amidar absolutely disappears from the title.
His name is simply an alias for
that of the person beneficially interested. The fact that
A has assumed the name of B in order to cheat X can
be no reason whatever why a Court should assist or permit B to cheat A. But if A requires the help of the
Court to get the estate back into his own possession, or to
get the title into ·his own name, it may be very material
to consider whether A has actually cheated X or not. If
he has done so by means of his alias, then it has ceased
to be a mere mask, and has become a reality. It may be
very proper for a Court to say that it will not allow him to
resume the individuality which he has once cast off in
order to defraud others.
If, however, he has not defrauded any one, there can be no reason why the Court
should punish his intention by giving his estate away
to B, whose roguery is even more complicated than bis
own ...... For instance, persons have been allowed ·to
recover property which they had assigned away ...•
where they had intended to defraud creditors, who, in
fact, were never injured ...... But where the fraudulent or illegal purpose has actually been effected
by
means of the colourable grant, then the maxim applies,
'In pari de/icto potior est conditio
possidentis'.
The
(t) 62 T.L.R. 85.
(2) (!930J l K.B. 169.
(3) 11908] LR. 35 I. A. 98.
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SURASAIBALINI v. PHANINDRA MQHAN (Ayyangar J.)
875
A
Court will help neither party. 'Let the estate lie where
it falls'."
I might point out that later decisions both of the Indian High
Courts and of the Privy Council have all proceeded on
the
acceptance of the principles which Lord Atkinson formulated in
B Petherpermars case. (1)
Pausing here, it might be pointed out that exactly the same
conclusion has been reached by 'the Courts· in England where
a benami transaction was entered into for the purpose of defrauding creditors. It is hardly necessary to add that the position
C in England under which a resulting trust is deemed to arise When
a purebase is made ir. the name of another with one's own money
and without an intention of conferring on him a beneficial title
is identical with the law as to benami in India. In Gascoigne v.
Gascoigne(') a husband took a lease of lands in his wife's name
and built a house upon it with his own money. The reason why
D he entered into this type of transaction was that he was in debt
and was desirous of protecting his property from his creditors. He
then brought an action against the wife for a declaration that she
held the property as trustee for him. The husband succeeded in
the County Court. On appeal to the Divisional Court, Lush J.
allowing the appeal stated that it was proved that the plaintiff was
E guilty of a fraud upon the law to evade and. disappoint the provision of the legislation and he could not come in equity to be
relieved against his own act, though the defence also was
dishonest, and in the circumstances, the Court would say, "Let the
estate lie where it falls".
F
Learned Counsel for the respondent submitted that the
English decision just now referred to as well as Emery v. Emery(')
proceeded upon the peculiarity of the English law in which there
is a presumption of an ·advancement but that as there was no
such presumption in India the position would be different where
the Court has to deal with the effect of .benami transactions brought
G about in order to effectuate a fraud or to evade the provisions
of a statute.