1993 (6) TMI 5 - HC - Income Tax

Advertisement Expenditure, Business Expenditure, Expenditure On Advertisement, Income Tax Act, Income Tax Rules, Question Of Law

Summary

Issues:
1. Whether the property in the 4/5ths shares remained with the vendors despite handing over share scrips and blank transfer forms to the guarantor?
2. Whether the Tribunal rightly deleted Rs. 2,98,605 dividend income from the total income of the assessee?

Analysis:

Issue 1:
The case involves the transfer of shares in three textile mills from vendors to purchasers under an agreement. The vendors handed over share scrips and blank transfer forms to the guarantor for transferring shares upon payment. The dispute arose regarding the ownership of the remaining 4/5ths shares during the relevant year. The Income-tax Officer treated it as an absolute conditional sale, making the entire shareholding the property of the purchasers. However, the Appellate Assistant Commissioner and the third Member of the Tribunal disagreed, holding that the property did not pass to the purchasers until full payment. The Tribunal majority dismissed the appeal, stating that the property did not transfer until full consideration was paid.

Issue 2:
Regarding the deletion of dividend income, the Tribunal held that since the property did not pass to the purchasers, the dividend income could not be taxed as their income. The vendors retained the right to receive dividends until full payment of instalments. The Tribunal relied on the Sale of Goods Act and the specific terms of the agreement to determine that the shares were held in trust by the insurance company for the vendors. As the shares were not transferred to the purchasers, the dividend income could not be considered their income. Thus, the Tribunal ruled in favor of the assessee, answering both questions in the affirmative.

In conclusion, the High Court of Bombay upheld the Tribunal's decision, stating that the property in shares did not pass to the purchasers until full payment, and therefore, the dividend income could not be taxed as the purchasers' income. The judgment clarified the legal principles governing the transfer of property and the taxation of dividend income in such transactions.