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1963 (3) TMI 45 - SC - Income TaxWhether the dividends paid by j. Thomas & Co. Ltd., to Mrs. Judith Thomas, grossed up to the sums of Rs. 97,091/-, Rs. 78,272/, Rs. 1,00,000/. and Rs. 16,385/respectively for the four years in question could be included in the income of Mr. P.J.P. Thomas and be taxed in his hands under the provisions of section 16 (3) (a) (iii) of the Indian lncome-tax Act? Whether the transfer of shares made by the assessee in favour of Mrs. Judith Knight on December 10, 1947 was to take effect only from the date of their marriage? Whether the dividends referred to above could be included in the total income of Mr. P. J. P. Thomas under the provisions of sec. 16 (1) (c) of the Indian Income-tax Act? Held that - Allow the appeals and answer the question referred to the High Court in favour of the assessee. Sub-cl. (iii) of s. 16 (3) (a) is not attracted to these cases.
Issues Involved:
1. Applicability of Section 16(3)(a)(iii) of the Indian Income-tax Act, 1922. 2. Applicability of Section 16(1)(c) of the Indian Income-tax Act, 1922. 3. Timing and effect of the transfer of shares. 4. Adequate consideration for the transfer. Issue-wise Detailed Analysis: 1. Applicability of Section 16(3)(a)(iii) of the Indian Income-tax Act, 1922: The main issue was whether the dividends paid to Mrs. Judith Thomas could be included in the income of Mr. P.J.P. Thomas under Section 16(3)(a)(iii). The Tribunal and the High Court had differing views on this. The High Court held that the relationship of husband and wife must be considered at the time of computing the total income, not at the time of the transfer. The Supreme Court disagreed, stating that the relationship of husband and wife must subsist both at the time of the transfer and when the income accrues. The Supreme Court concluded that since the transfer occurred before the marriage, Section 16(3)(a)(iii) was not applicable. 2. Applicability of Section 16(1)(c) of the Indian Income-tax Act, 1922: The High Court had ruled in favor of the assessee on this issue, and since the Department did not appeal this decision, the Supreme Court did not consider the correctness of this ruling. Therefore, the dividends could not be included in the total income of Mr. P.J.P. Thomas under Section 16(1)(c). 3. Timing and Effect of the Transfer of Shares: The transfer deed dated December 10, 1947, stated that the transfer was in consideration of the forthcoming marriage. The Supreme Court held that the transfer took effect immediately on December 10, 1947, and was not postponed to the date of marriage. Therefore, at the time of the transfer, Mrs. Judith Knight was not the wife of the assessee, and hence, the provisions of Section 16(3)(a)(iii) were not attracted. 4. Adequate Consideration for the Transfer: Although the High Court considered the issue of adequate consideration, the Supreme Court found it unnecessary to decide on this point due to their interpretation of the first two issues. The Court held that the transfer was not made by the husband to his wife, thus Section 16(3)(a)(iii) was not applicable irrespective of whether there was adequate consideration. Conclusion: The Supreme Court allowed the appeals, ruling in favor of the assessee. The dividends paid to Mrs. Judith Thomas could not be included in the income of Mr. P.J.P. Thomas under Section 16(3)(a)(iii) of the Indian Income-tax Act, 1922. The appellant was entitled to costs in both the Supreme Court and the High Court.
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