Union of India Vs. Moksh Builders And
Financers Ltd. & Ors  INSC 264 (27 October 1976)
BEG, M. HAMEEDULLAH
CITATION: 1977 AIR 409 1977 SCR (1) 967 1977
SCC (1) 60
RF 1978 SC1362 (31)
Benami transaction--Proof of benami nature.
Evidence Act (1 of 1872) ss. 17 and
33--Evidence of admissions-Admissibility.
The appellant (plaintiff) filed a suit on
behalf of and for the benefit of itself and of other creditors against the
respondents (3 defendants) and prayed for a declaration that,, (1) the sale
deed of the house in dispute by the 2nd defendant in favour of the 1st
defendant was void as against the plaintiff and all other creditors of the 3rd
and (2) that the house was and continued to
be owned by the 3rd defendant. The house was sold in the name of the 2nd
defendant for Rs. 69,000. He is the son of the 3rd defendant who was alleged to
be the real purchaser. As the 3rd defendant failed to pay the arrears of income
tax due from him the house was attached as his property. The 2nd defendant
raised an objection but the objection was rejected. The 3rd defendant filed an
appeal against the assessment of income tax and while the appeal was pending
before the Appellate Assistant Commissioner, the 2nd and 3rd defendants, and
five other persons formed a limited company, namely, the 1st defendant. The
Appellate Assistant Commissioner allowed the 3rd defendant's appeal and ordered
a fresh assessment of his income, and the Income Tax Officer made a fresh
assessment. Soon after the 2nd defendant purported to convey the house of the
1st defendant for Rs. 1,00,000 of which Rs. 90,000/ were payable to the 2nd defendant
in the shape of shares in the company. The house was again attached for
recovery of the tax due from the 3rd defendant. The 1st defendant objected to
The objection was allowed and the parties
were referred to the Civil Court for. redress and the suit was filed. The trial
court decreed the suit, but the High Court, in appeal, set aside the judgment.
Allowing the appeal to this Court,
HELD: The evidence disclosed that the 3rd
defendant 'was the owner of the house, and his son, the 2nd defendant, was
merely a benamidar for him; and that the 1st defendantCompany was formed just
to transfer the house to it in an effort to save it from attachment and sale
for realisation of the income tax arrears of the 3rd defendant. [978 A-C] (a)
In a case where it is asserted that an assignment in the name of one person is
in reality for the benefit of another, it is necessary to find out the source
whence the consideration came, and to examine who actually was enjoying the
benefits of the transfer. [907 F-G] Gangadara Ayyar and others v. Subramania
Sastrigal and others (A,I.R. 1949 F.C. 88) referred to Meenakshi Mills, Madurai
v. The Commissioner of Income-tax, Madras [(1956) S.C.R. 691] followed.
(b) Although the. onus of establishing. g
that a transaction is benami is on the plaintiff, where it is not possible to
obtain evidence which conclusively establishes or rebuts the allegation., .the
case must be dealt with on reasonable probabilities and legal inferences
arising from proved. or admitted facts. While the burden initially rests on the
party who would fail if no evidence is led at all, after the evidence is
recorded, it rests upon the party against whom judgment would be given if no
further evidence were adduced by either side. Thus, the burden of proof is not
static, and may shift during the course of the trial Where the 968 entire
evidence has been led by the contesting parties on the question in issue,
abstract considerations of onus are out of place, and the truth or otherwise of
the case must always be. adjudged on the evidence: led by the parties. It is
therefore necessary to weigh the evidence in this case and to decide whether.
even if it were assumed that there was no conclusive evidence to establish or
rebut the benami allegation, what would, on a careful assessment of the
evidence, be a reasonable. probability and a legal inference from relevant and
admissible evidence. [973 A-D] Kalwa Devadattam and two Others v. The Union of
India and others  3 S.C.R. 191 followed.
In the present case, the 2nd defendant, at
the time of the sale, was just 18 years old, and did not have any money of his
own. His father them. 3rd defendant was alive. The High Court did not examine
the reliability of the 2nd defendant's evidence regarding the source. from
which he received the sum of Rs. 60,000/even though it was an important
question and had been examined by the trial court with reference to the entire
evidence on record. The reasonable preponderance of probability on the evidence
is, that the 2nd defendant had failed to establish the source of the
consideration of Rs. 60,000/even though it was an important fact within his
special knowledge. [973 E-H] (d) The 2nd defendant had also failed to prove
that he enjoyed the benefit of the sale. [974-G] In order to find out whether
the 3rd defendant was enjoying the benefit of the transaction, the finding of
the High Court was clearly against the evidence on record. The admissions
contained in the records before the Income Tax Officer proved that the house
was purchased by the 3rd defendant out of his own funds in the name, of his
son, the 2nd defendant, and that the 3rd defendant was enjoying the income
accruing from. it as his own income. [975 E-F] (f)(i) The admissions by the 3rd
defendant were substantive evidence of the facts admitted and such admissions,
duly proved, were admissible evidence irrespective of whether the party making
them appeared in the witness box or not, and whether that party when appearing
as a witness was confronted with those statements in case a statement contrary
to those admissions was made. They were taken into consideration against the
3rd defendant and not against the 2nd defendant. [975 H, 976 A-B] Bharat Singh
and another v. Bhagirath  1 S.C.R. 606, followed.
(ii) There is no requirement of the Evidence
Act that unless the admissions were adverse to his interests when made, they
could not be read against the person making them. [976 F] (iii) The contention
that the evidence of the admissions is admissible only in terms of s. 33 of the
Evidence Act was untenable because that section deals with statements of
persons who cannot be called as witnesses and does not restrict or override the
provisions relating to admissions in the Evidence Act. [977 A-C] (g) The 2nd
defendant, who had failed to obtain an order for the release of the house from
attachment when it was first attached, hastened to sell the house when the
assessment proceedings were pending before the Income-tax Department. The 1st
defendant-Company was in fact dominated by the 3rd defendant and his close
relations, it did not even pay the sale price. in cash, and there was no
evidence' to show that it was able to transact any substantial business.
Therefore, the sale of the house in favour of the 1st defendant was a sham
transaction and was effected only to defeat and delay the creditors of the 3rd
defendant. [978 A-B]
CIVIL APPELLATE JURISDICTION: Civil Appeal
Nos. 17391740 of 1968.
(From the Judgment and Decree dated 14-2-1967
of the Delhi High Court in Regular First Appeal Nos. 5-D, and 54-D of 1958).
969 V. S. Desai and Girish Chandra, for the
Sachin Chaudhary, B.P. Maheshwar and Suresh
Sethi, for the Respondent No. 1 in (CA. 1739/68) and for Respondent No. 2 in
1739/68) and Respondent No. 1 in (CA. No. 1740/68).
A. K. Sen and D. Goburdhan, for Respondent
No. 2 in (CA. No. 1740/68).
The Judgment of the Court was delivered by
SHINGHAL, J.,---These two appeals by certificate have been consolidated by an
order of this Court dated April 15, 1969. They are directed against a common
judgment of the Delhi High Court dated February 14, 1967, in Regular First
Appeals Nos. 5-D and 54-D of 1958, by which the judgment and decree of the
trial court dated January 13, 1958 have been set aside with costs throughout.
As this has resulted in the dismissal of the suit raised by the Union of India,
it has filed the present appeals.
The facts giving rise to the appeals are
Harjas Rai Malhotra, defendant No. 3, is the
father of Krishan Lal Malhotra, defendant No. 2. The liability of defendant No.
3 to income-tax and super-tax for the assessment year 1947-48, was fixed Rs.
1,25,090/11/in March, 1952. A demand was made for its payment, but he neglected
to meet it and a certificate was issued on October 8, 1952 to the Collector of
Delhi for its recovery as arrears of land revenue. The Collector was asked to
attach house No. 15, Keeling Road and house No. 9, Hailey Road in New Delhi, of
defendant No. 3. Both the houses were attached on October 13, 1952. Meanwhile,
defendant No. 3 appealed against the order of assessment. The Appellate
Assistant Commissioner allowed the appeal on May 12, 1953, set aside the
assessment and directed a fresh assessment. The order of fresh assessment was
made on November 30, 1953 and the income tax demand was reduced to Rs. 1,05,769.13.
The assessments for 1944-45 and 1948-49 were completed on March 28 and 31,
1953, respectively, raising a tax demand for Rs. 1,94,738.15. A recovery
certificate was issued to the Collector for the same on May 4, 1953 and the
house at No. 15, Keeling Road was again attached on August 6, 1953.
We are not concerned with the house at No. 9,
Hailey Road, for the controversy before us relates to house No. 15, Keeling
Road, hereinafter referred to as the house. That house had been ostensibly
purchased by defendant No. 2 in December, 1946 for Rs. 60,000/-. He filed an
application objecting to the attachment on the ground that the house belonged
to him, but the Collector dismissed the objection holding that the house
belonged to defendant No. 3. Defendant No. 2 did not appeal against that order
and did not question it by a suit.
Thus far, the facts are not in dispute.
970 It was alleged in the plaint that the
house was purchased by defendant No. 3, "benami", in the name of his
son defendant No. 2, out of his "own funds drawn from his bank
account" and that 'the "full beneficial ownership, right, title and
interest in the said property has always belonged and continues to this day to
belong to the 3rd defendant." The plaintiff alleged further that during
the pendency of his appeal to the Appellate Assistant Commissioner against the
assessment which had been made in March 1952 for 1947-48 and the assessment
proceedings for 1944-45 and 1948-49, defendant No. 3 "in collusion and
conspiracy with the 2nd defendant and certain other persons, and with the view,
intent and purpose of defeating and delaying his creditors including the
plaintiff, had recourse to diverse ways and means" as detailed in the
plaint. He was thus alleged that, in February 1953, defendants Nos. 2 and 3 and
five other persons purported to form a limited company known as Moksh Builders
and Financiers Ltd., hereinafter referred to as the Company, which was arrayed
as defendant No. 1 in the suit, with an authorised capital of Rs. 5,00,000/divided
into 5000 shares of Rs. 100/each. There were 7 subscribers to the Memorandum
and the Articles of Association of the Company and each of them took 10 shares,
Soon after the Appellate Assistant Commissioner made his aforesaid order dated
May 12, 1953 for fresh assessment of the income-tax liability of defendant No.
3, a sale deed dated May 25, 1953 was brought into existence whereby defendant
No. 2 "purported to convey" the house to defendant No. 1 for Rs.
1,00,000/of which Rs. 90,000/were payable in the shape of shares in the
Company, Rs. 8,000/payable to Sunrise .Investors Ltd.
and Rs. 2000/in cash. The plaintiff pleaded
that "these transactions were all sham, colorable, and effected and
entered into with the active aid, instigation and advice of the 3rd defendant
and to subserve and carry out the object of placing his property, viz., No. 15,
Keeling Road out of the reach of his creditors". It was further urged as
follows,-"The consideration mentioned in the sale-deed of 25th May, 1953
was illusory. In effect and substances the 2nd defendant purported to sell a
house to the 1st defendant in which company in return was to become a holder of
shares . of controlling interest, the shares being the alleged price., Except
for the legal fiction of the I st defendant Company being juristic person the
'sale was by the vendor to himself. . None of these devices and subterfuges
could divest the 3rd', defendant of his ownership of the property in question.
The 1st defendant company by its_ promoters directors and office bearers was
fully aware of all the facts of the case, including the true state of the title
to the property No. 15, Keeling Road, the highly embarrassed financial
circumstances of the 3rd defendant the facts that he owed to the plaintiff"
alone taxes to the amount of several lakhs of rupees etc. The 1st defendant is
not a purchaser in good faith for consideration of the said property or without
notice of the title of the 3rd defendant. On the other hand the sale deed dated
25th May, 1953 to the 1st defendant was executed by the namelender the 2nd
defendant at the instance of the true owner of 971 the 3rd defendant with
intent to defeat or delay the latter's creditors, and is voidable at the option
of any of such creditors including the present plaintiff." Defendant No. 1
objected to the attachment of the house for the realisation of the arrears of
income-tax of defendant No. 3. The Additional Collector allowed the objection
by a summary inquiry, and the Chief Commissioner dismissed the appeal on April
1, 1954. Both those officers, according to the plaintiff, proceeded on
"prima facie considerations" and left the parties to seek their
redress in the civil court.
With these specific averments the, plaintiff
raised its suit seeking leave to sue on behalf and for the benefit of itself
and the other creditors, if any, of defendant No 3.
It prayed for a declaration that (i) the sale
deed dated May 25, 1953 was void as against the plaintiff and all other
creditors of defendant No. 3, and (ii) the house is and continued to be owned
by defendant No. 3. In the alternative, the plaintiff prayed for a declaration
that the shares allotted to defendant No. 2 belonged to defendant No. 3. It
also prayed for a declaration that it was entitled to proceed against the
"properties which may be declared to be of 3rd defendant's" by
attachment and sale to realise the tax arrears due from him. A prayer was made
for setting aside the orders of the Additional Collector and the Chief Commissioner
on the objection petition of defendant No. 2.
Defendant No. 3 did not appear to contest the
suit in spite of personal service and the trial court made an order on April
15, 1955 to proceed against him ex-parte. Separate written statements were
filed by the Company and defendant No. 2 The Company took the plea, inter alia,
that it had been genuinely and properly formed and that it was a bona fide
purchaser for value and the "transaction was quite real and genuine".
It denied that the sale deed dated May 25, 1953, was executed at the instance
of defendant No. 3, or that it was intended to defeat or delay his creditors. P
was pleased that defendant No. 2 was the rightful owner of the house which he
had rightfully purchased with "his own money (Rupees 10,000/'by cheque No.
32920 dated 14.11.1946 on the New Bank of India Ltd., New Delhi drawn by his
mother K. Rani and Rs. 50,000/paid in cash before Sub-Registrar)".
The Company also pleaded that the transaction
of sale in its favour was without notice of anybody else's claim and was
Defendant No. 2 filed a short written
statement stating that he was the owner of the house having purchased it with
"his own money". He pleaded that he had paid Rs. 10,000/by cheque on
New Bank of India Ltd., New Delhi, and Rs. 50,000/were paid before the
SubRegistrar. He pleaded further that he had no knowledge of the Collector's
order and that his order, if any, was ex-parte. As regards the Company,
defendant No. 2 pleaded that it was a real and genuine Company and that out of
his shares worth Rs.
90,000/he had sold shares worth Rs. 74,000/-.
12 --1338SCI/76 972 The trial court found
that the house was purchased "benami" in the name of defendant No. 2,
by defendant No. 3 with his own money and that the sale of the house to the
Company by defendant No. 2, was "sham and was effected in order to defeat
or to delay the creditor of defendant No.
3 and that defendant No. 1 had no real
existence." The trial court therefore granted a decree declaring that the
sale deed dated May 25, 1953 was void as against the plaintiff and all other
creditors, if any, of defendant No. 3 and that the House" is and continues
to be owned by the 3rd defendant and that the plaintiff is entitled to proceed
against the said properties by way of attachment and sale to realise the tax
arrears due from him." The trial court set aside the orders dated October
9, 1953 of the Additional Collector on the objection petition of defendant No.
2 and of the Chief Commissioner dated April 1, 1954.
As the High Court has set aside the judgment'
and decree of the trial court, the present appeals have been filed by the
plaintiff as aforesaid. We shall refer to the findings of the High Court as and
The main point in controversy was whether the
house was purchased by defendant No. 3 'benami' in the name of defendant No. 2?
This was the subject matter of issue No. 1 in the trial court.
We have made a reference to the plaintiff's
plea that the purchase was "benami" and payment was made out of the
funds of defendant No. 3, which were drawn by him from his own account. As has
been mentioned, defendant No. 3 did not care to appear and contest the suit
even though he was served and knew the nature of the plaintiff's claim and the
basis thereof. Defendant No. 2 appeared at the trial and pleaded that he
purchased the property "with his own money".
The source of the money was within his
special knowledge, but it will be recalled that he contended himself by
pleading that Rs. 10,000/were paid by him by a cheque and Rs. 50,000/ were paid
before the Sub-Registrar. We have made a reference to the plea of the Company
in this respect.
It is no body's case that the sale of the
house to defendant No. 2 was fictitious and that the title of the transferor was
not intended to pass. What we have to examine is whether the title, on sale of
the house in December 1946, was transferred to defendant No. 3, who was. the
real purchaser, and not to defendant No. 2, who was only the ostensible
transferee and was no more than a "benamidar". It has been held in
Gangadara Ayyar and others v. Subrarnania Sastrigal and others(1) that "in
a ease where it is asserted that an assignment in the name 011 one person is in
reality for the benefit of another, the real test is the source whence the
consideration came" It is also necessary to examine in such eases who
actually has enjoyed the benefits of the transfer. Both these tests were
applied by this Court in Meenakshi Mills, Madurai v. The Commissioner of
IncomeTax Madras.(2) It is therefore necessary, in the present case, to (1) A
I.R. 1949 F.C. 88.
(2)  S.C.R. 691.] 973 find out the
source of the consideration for them. transfer, as also to find out who has
been in enjoyment of the benefits of the transaction. It is equally well
settled that, although the onus of establishing that a transaction is 'benami'
is on the plaintiff, 'where it is not possible to obtain evidence which
conclusively establishes or rebuts the allegation, the case must be dealt with
on reasonable probabilities and legal inferences arising from proved or admitted
facts." The burden of proof is, however not static, and may shift during
the course of the evidence. Thus while the burden initially rests on the party
who would fail if no evidence is led at all after the evidence is recorded, it
rests upon the party against whom judgment would be given if no further
evidence were adduced by 'either side, i.e. on the evidence on record. As has
been held by this Court Kalwa Devadattam and others v. The Union of India and
others(1) that where evidence has been led by the contesting parties on the
question in issue, abstract considerations of onus and out of place, and the
truth or otherwise of the case must. always be adjudged on the evidence led by
the parties. This will be so if the court finds that there is no difficulty in
arriving at a definite, conclusion. It is therefore necessary to weigh the
evidence in this case and to decide whether, even if it were assumed that there
was no conclusive evidence to establish or rebut the "benami"
allegation, what would, on a careful assessment of the evidence, be a
reasonable probability and a legal inference from relevant-and admissible
The sale in question was admittedly made in
December 1946. Defendant No. 2 had admitted in his statement date May 29, 1957
that he was born in 1928. He was therefore 18 years old at that time. His
father (defendant No. 3) was also alive at that time, and it is not his case
that he (defendant No. 2) had any money' of his own, for he has stated that he
got Rs. 10,000/from his mother and Rs.
50,000/from his grandfather to constitute the
sum of Rs. 60,000/for which he purchased the house. It is however a significant
fact that the defendant No. 2 did not disclose any such source of the money in
his written statement dated April 15, 1955. It took, him two years to come out
with such a case. He was given an opportunity, during the course of his
cross-examination, to explain the omission regarding the disclosure of the
source of the sum of Rs. 50,000/in his written statement, but he contented
himself by saying that he could not give "any reason as to why he (I)
omitted to mention in the written statement about receipt of Rs. 50,000/ from'
his (my) grandfather".
Similarly he failed to explain why he did not
mention in his written statement that the cheque for Rs. 10,000/was drawn by
his mother. It is true that there is a mention in document Ex. D1 that out of
the sum of Rs. 60,000/"a sum of Rs. 10,000/has already been paid to the
vendor by the vendee by cheque No. 32920 dated November 14, 1946, on the New
Bank of India Ltd., New Delhi," but it is again significant that while the
document states that the payment of Rs. 10,000/was made by (1)  3 S.C.R.
974 the vendee (defendant No. 2)'by the
aforesaid cheque, he has stated in the trial court that the cheque for Rs.
10,000/was issued by his mother, in favour of the vendor. He was not able to
explain the discrepancy: and merely stated that his written statement (which
did not disclose the source and the name of the person who drew the cheque for
Rs. 10,000/-) was correct. If it had been a fact that defendant No. 2 really
obtained a cheque for Rs. 10,000/from his mother, in the vendor's name, and, if
it was not really a cheque drawn by his father, there was nothing to prevent
him from establishing that f. act with reference to the counter-foil of his
mother's cheque book or her account with the bank.
The defendant has also not stated whether he
repaid the money to his mother and, if so, when, or whether it was a gift to
him and, if so, why, when she had another son also.
As it is, it cannot be said that defendant
No. 2 has been able to establish that it was he who paid the sum of Rs. 10,000/to
According to the written statement of
defendant No. 2, the balance of Rs. 50,000/was paid before the Sub-Registrar.
He has stated that about 7 or 8 days before his death, his grandfather Sohna
Mal (who died in October 1946) paid him Rs. 50,000/'after taking. out the money
which was "lying underneath his pillow." He could not however stand
the test of cross-examination, for he could not state where the money was kept
by his grandfather and whether, he at all had a bank account. The High Court
did not care to examine the reliability of the defendant's evidence regarding
the source from which he received Rs. 60,000/even though it was an important
question and had been examined by the trial court with reference to all the
other evidence on the record including the statement of Amar Nath Sharma D.W.3.
We find that there is no reason for us to
disagree with the trial court's view in the matter, based on the parol evidence
on the record. In arriving at this conclusion, we have not relied on that part
of the trial court's judgment where it has made a reference to the admission of
defendant No. 3, for we shall deal with them separately. The reasonable
preponderance of probability therefore is that defendant No. 2 has failed to
establish the source of the consideration of Rs. 60,000/even though it was art
important fact within his special knowledge. He could not therefore be said to
be the real owner of the house.
It is also an important fact that defendant
No. 2 has failed, to prove that he enjoyed the benefit of the sale.
He claimed that he had shown the rent of the
house in his income-tax returns, but he did not produce any rent note.
Even the tenant who was 9aid to be living in
the house on the date of the sale, has not been examined. While the trial court
has examined this aspect of the controversy, the High Court has missed it
The High Court went by the view that
statement Ex. P. 1 of defendant No. 3, the income-tax return of defendant No. 3
showing the house as his property, his statement of account and the assessment
order for the year 1948-49 showing the same, were not admissible 975 in
evidence against defendant No. 2 and that there was no evidence either of the
plaintiff or the defendants on which a finding as to the "benami"
nature Of the transaction could be based. That decision is obviously based on a
misappreciation of the law relating to "benami" transactions for, as
has been stated, it was necessary to find out whether it was defendant No. 3
who had enjoyed the benefit of the transaction. Moreover, the finding of the
High Court is against the evidence on the record, and must be set aside. We
have therefore no hesitation in holding that the purchase of the house was
"benami" and that its ostensible owner defendant No. 2 was not the
real owner but was a "benamidar." The ancillary question is as to who
was the real owner of the house for whom defendant No. 2 was the
"benamider"?. We have not taken the admissions of defendant No. 3
into consideration so far, but they have a direct bearing on the question now
before us. lie recorded a statement Ex. P. 1 dated August 12, 1950 before Puran
1, Income-tax Officer, which has been proved
by the witness. It has been stated there as follows,-"I purchased 15 Keeling
Road on 12.12.46 for Rs. 60,000/in the name of my son (Major Krishan Lal). This
money was paid out of my bank accounts and I have shown the details and
payments from my bank pass books." 0 Then there is document Ex. P. 6 which
is a copy. of the personal account of defendant No. 3. It was filed in
connection with the return of his income-tax for 1947-48.
An attempt was made to argue that the
document had not been proved or marked as an exhibit. We have seen the original
document and we have no doubt that the whole of it was tendered in evidence and
was marked as Ex. P. 6. The identity of the document has been established by
the statement of Puran Chand P.W. 1 that the scribbling on it was made by him.
The document has therefore been proved beyond doubt. It shows that it was
defendant No. 3 who spent Rs.
60,000/on "property" in that
assessment year. Both exhibits P. 1 and P. 6 go to prove that the house was
purchased by defendant No. 3 out of his own funds in the name of his son
defendant No. 2 who, it will be recalled, was admittedly only 18 years old at
that time and did not have any money of, his own. Moreover defendant No. 3
showed the income accruing from the house as his own income in his return for
the years 1947-48 and 1948-49. Counsel for the respondents have urged for the
exclusion of these admissions. The main attack was that they were admissions of
a co-defendant and were not admissible against defendant No. 2. As has been
stated, we have not taken them into consideration as evidence against that
defendant. There is however no force in the other argument that they are not
admissible in evidence against defendant No. 3 as he was not confronted with
them in the, trial court and they were not adverse to the interest of their
maker at the time when they were made. It has 976 been held by this Court in
Bharat Singh and another v.
Bhagirath(1) that an admission is substantive
evidence of the fact admitted, and that admissions duly proved are
"admissible evidence irrespective of whether the party making them
appeared in the witness box or not and whether that party when appearing as
witness was confronted with those statements in case it made a statement
contrary to those admissions." In taking.this view this Court has noticed
the decision in Ajodhya Prasad Bhargava v. Bhawani Shanker Bhargava and
another(2) also. The point has been considered and answered as follows in
Wigmore on Evidence, Volume IV, 1048 (at page 3),-"The theory of the
Hearsay rule is that an extra judicial assertion is excluded unless there has
been sufficient opportunity to test the grounds of assertion and the credit of
the witness, by cross-examination by the party against whom it is offered
(post, 1362); e.g.
if Jones had said out of court. "The
party--opponent Smith borrowed this fifty dollars", Smith is entitled to
an opportunity to cross-examine Jones upon that assertion..
But if it is ,Smith himself who said out of
court, I borrowed this fifty. dollars, certainly Smith cannot complain of lack
of opportunity to cross-examine himself before his assertion is admitted
against him. Such a request would be absurd. Hence the objection of the Hearsay
rule falls away, because the very basis of the rule is lacking, viz, the need
and prudence of affording an opportunity of crossexamination." Moreover,
the defendant No.3 had full opportunity,. to appear and defend himself, but he
did not do so and the case proceeded against him ex-parte. The plaintiff even
tried to examine him as his own witness, but his appearance could not be
secured in spite of the prayer for the issue of summonses and a warrant. There
is therefore force in the argument to the contrary.
So also, there is no force in the argument
that the aforesaid admissions or statements of defendant No. 3 could not be read
against him as they were not adverse to his interest when made. There is no
such requirement of the Evidence Act and the argument is untenable as it
unreasonably restricts the opportunity to prove the true state of affairs on
the party's own showing and to demolish his subsequent claim as
self-contradictory. This point has also been dealt with in Wigmore on Evidence,
1048 (at page 4) in this way,-"It follows that the subject of an admission
is not limited to facts against the party opponent's interest at the time of
No doubt the weight of credit to be given to
such statements is increased when the fact stated is against the person's
interest at the time; but that circumstance has no bearing upon their
admissibility. On principle, it is plain that the probative reason why a
party-opponent's utterance is sought to be used against him is ordinarily the
reason noted above, in par. (1)b,. viz. that it exhibits (1)  1 S.C.R.
(2) A.I.R. 1957 All. 1.
977 an inconsistency with his present claim,
thus tending to throw doubt upon it, whether he was. at the time .speaking,
apparently in his own favour or against his own interest.' The contrary view,
has been characterised by Wigmore as "a fallacy. in the fullest
sense." Another argument which has been advanced against the admissibility
of the aforesaid admissions of defendant No. 3 is that they could be evidence
only in terms of section 33 of the Evidence Act. That argument is also quite
untenable because section 33 deals with statements of persons who cannot be
called as witnesses, and does not restrict or override the provisions relating
to admissions in the Evidence Act. The High Court also committed a similar
error of law in its impugned judgment. The aforesaid admissions of defendant No.
3 are therefore satisfactory evidence to prove.that he himself was the owner of
the house and his son, defendant No. 2 was merely a "benamidar" for
It would thus appear that the finding of the
trial court on issue No. 1 which dealt with the question whether the house was
purchased by defendant No. 3 "benami" in the name of defendant No. 2,
was correct and should be restored as the High Court's finding to the contrary
has been vitiated by the substantial errors of law mentioned above.
The other important question is whether the
sale of the house in favour of the Company (defendant No. 1 ) was a sham
transaction and was effected to defeat and delay the creditors of defendant No.
3. This was the subject matter of issue No. 2 and the trial court's finding in
affirmative has not even been examined by the High Court.
We find that the admitted facts of the case
are by themselves sufficient to show that the finding of the trial court is
justified and does not call for any interference.
Defendant No. 3 was assessed to income-tax
for a sum of Rs. 1,25,090/11/for assessment year 1947-48 in March 1952.
Defendant No. 3 failed to pay that amount on
demand and a recovery certificate was issued on October 8, 1952. The house was
therefore attached on October 13, 1952. Defendant No. 2 raised an objection,
and prayed for the release of the house. The Collector rejected the objection
on March 3,.
1953. No appeal, or other remedy was sought
against .that order. The Appellate Assistant Commissioner however allowed the
appeal of defendant No. 3 against the assessment of income-tax and ordered a
fresh attachment by his order dated May 12, 1953. In the meantime, the Company was incorporated in February, 1953. The assessment of incometax for the years
1944-45 and 1948-49 was completed in March 1953 raising the tax demand to Rs.
1,94,735.15, and a recovery certificate was issued on May 4, 1953. It was in these circumstances that defendant No. 2, who had failed to obtain an order
for the release of the house as aforesaid, hastened to sell it to the Company
22 on May 25, 1953. As has been stated, a fresh recovery certificate was issued
to the Collector on May 4, 1953 and the house was again attached on August 6, 1953. These facts speak for themselves and are quite sufficient to justify the
trial court's finding that sale of the house to the Company was a sham
transaction and arose out of the anxiety to save the house somehow from sale
for realisation of the incometax. The Company was in fact dominated by
defendant No. 2 and his close relations and did not even pay the sale price in
cash. It is also significant that the shares of the other 'relations were
insignificant. Moreover the. Company could not lead evidence to show that it
was able to transact any substantial business whatsoever. We have therefore no
reason to disagree with the trial court's finding that the Company was formed
just to transfer the house to it in an effort to save it from attachment and
sale for realisation of the income-tax arrears of defendant No. 3. The finding
of the trial court on the issue is quite correct and the High Court committed a
serious error of law in not examining this aspect of the matter at all even
though it had a great bearing on the controversy.
In the result, we are constrained to allow
The impugned judgment and decree of the High
Court dated February 14. 1967 are set aside and the decree of the trial court
is restored with costs throughout one hearing fee.