1960 (3) TMI 60 - HC - Income Tax

Summary

Issues Involved:
1. Whether the Tribunal was right in law in holding that 5/6ths of dividend income from shares held by the assessee's wife should be included in the assessee's total income under section 16(3)(a)(iii) of the Indian Income Tax Act.
2. Whether the transaction of purchasing shares was a benami transaction.
3. Whether the payment made by the husband for the shares constituted a transfer of assets under section 16(3).

Issue-wise Detailed Analysis:

1. Inclusion of Dividend Income under Section 16(3)(a)(iii):
The primary issue was whether the dividend income from shares held by the assessee's wife should be included in the assessee's total income under section 16(3)(a)(iii) of the Indian Income Tax Act. The Tribunal had held that 5/6ths of the dividend income should be included in the assessee's income, as it considered that the shares were purchased with funds provided by the assessee. The Tribunal reasoned that the husband and wife were co-owners of the shares, with the husband contributing Rs. 20,000 and the wife contributing Rs. 4,000. Therefore, the Tribunal directed that only 5/6ths of the dividend income should be included in the assessee's total income.

2. Benami Transaction:
The Income Tax Officer and the Appellate Assistant Commissioner did not distinguish between a case under section 16(3) and a benami transaction. The Tribunal's order suggested that the transaction had elements of both a gift and a benami transaction. However, the High Court clarified that a benami transaction involves an ostensible transfer with no intention of the transferor to part with the beneficial interest. The Tribunal's finding that the transaction was benami to the extent of Rs. 20,000 was not supported by evidence, as the husband had recouped the payments from the dividends received by the wife.

3. Transfer of Assets under Section 16(3):
Section 16(3) requires that in computing the total income of an individual, the income of the wife arising from assets transferred by the husband without adequate consideration should be included. The High Court found that there was no direct transfer of shares by the husband to the wife. The wife paid Rs. 4,000 from her own funds and intended to pay the balance from her income. The husband's subsequent payments to Mr. Jackson were recouped from the dividends, indicating that these payments were loans rather than transfers of assets. The High Court concluded that there was no intention by the husband to transfer assets to the wife at the time of purchase, and the provisions of section 16(3) did not apply.

Conclusion:
The High Court concluded that the Tribunal's decision to include 5/6ths of the dividend income in the assessee's total income was incorrect. The Court found that there was no evidence to support the conclusion that the shares were purchased benami for the husband's benefit or that there was a transfer of assets under section 16(3). The Court answered the question referred to it in the negative, in favor of the assessee, and awarded costs to the assessee's legal representative.