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Issues Involved:
1. Whether the dividend income received by the assessees on the shares of Austin Distributors Limited held by them arises by virtue of revocable transfers of assets by the transferors within the meaning of section 16(1)(c) of the Indian Income-tax Act. 2. Whether in the circumstances of the case, the assessees are entitled to the refund claimed under section 48 of the Act. Detailed Analysis: Issue 1: Revocable Transfers under Section 16(1)(c) The primary question was whether the dividend income received by the assessees on the shares of Austin Distributors Limited held by them arises by virtue of revocable transfers of assets by the transferors within the meaning of section 16(1)(c) of the Indian Income-tax Act. The Tribunal held that the transfers were revocable, and thus, the dividend income should be deemed the income of the transferors (sellers), not the assessees (purchasers). - Contractual Terms: The contract of sale and the loan acknowledgment indicated that the purchasers did not pay the price immediately but were treated as having borrowed the amount from the sellers. The loan was secured by hypothecation of the shares and dividends until full repayment. - Control and Management: The sellers retained significant control over the company's management until the loans were fully repaid. This included the right to appoint directors and manage the company's affairs. - Provisions for Retransfer: The agreement contained provisions for the retransfer of shares to the sellers in case of default by the purchasers. This was seen as a clear provision for retransfer, making the transfer revocable under section 16(1)(c). - Legal Interpretation: The court interpreted section 16(1)(c) to include any transfer that provides for retransfer of assets or gives the transferor a right to reassume power over the assets. The court concluded that the transaction in question was a revocable transfer as it contained provisions for retransfer and resumption of control. Conclusion on Issue 1: The dividend income received by the assessees arose by virtue of revocable transfers of assets within the meaning of section 16(1)(c) of the Indian Income-tax Act. Issue 2: Entitlement to Refund under Section 48 The second question was whether the assessees were entitled to the refund claimed under section 48 of the Act. The Tribunal had denied the refund on the basis that the dividend income was deemed the income of the sellers due to the revocable nature of the transfers. - Section 48(3): This section states that where the income of one person is included under any provision of the Act in the total income of another person, only the latter is entitled to a refund. Since the dividend income was deemed to be the income of the sellers under section 16(1)(c), the assessees were not entitled to the refund. - Includibility of Income: The court clarified that the term "is included" in section 48(3) means "includible" under the provisions of the Act, not necessarily actually included in the assessment of another person. Thus, the dividend income was includible in the total income of the sellers. - Section 49B: The court noted that section 49B, which deals with the treatment of tax on dividends, applies only if the dividend is included in the total income of the recipient. Since the dividend income was not included in the assessees' total income but in the sellers', section 49B did not apply. Conclusion on Issue 2: The assessees were not entitled to the refund claimed under section 48 of the Act because the dividend income was deemed the income of the sellers under section 16(1)(c). Final Judgment: The court answered the questions as follows: 1. Question 1: Yes, the dividend income received by the assessees arises by virtue of revocable transfers of assets within the meaning of section 16(1)(c). 2. Question 2: No, the assessees are not entitled to the refund claimed under section 48 of the Act. These answers were given specifically with reference to the case of Tarunendra Nath Tagore. The Tribunal was allowed to make proper references for the other assessees if desired. The Commissioner of Income-tax was awarded the costs of the reference.
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