1985 (9) TMI 80 - HC - Income Tax

Summary

Issues:
1. Inclusion of capital gain from the sale of shares in the total income of the assessee under section 64(v) of the Income-tax Act, 1961.
2. Determination of whether the transfer of shares settled upon trust for the benefit of a minor son constitutes adequate consideration.
3. Inclusion of dividend income from shares in the total income of the assessee-settlor under section 64(v) of the Income-tax Act, 1961.

Analysis:
Issue 1:
The case involved the assessment year 1965-66, where the assessee settled 1,500 shares of a company upon trust for the benefit of his minor son. The shares were later sold, resulting in a capital gain. The Revenue sought to include this gain in the total income of the assessee under section 64(v) of the Income-tax Act, 1961. The Tribunal had initially ruled in favor of the assessee, stating that the transfer was for full and adequate consideration. However, the court referred to a previous decision where it was held that capital gain from transferred assets is liable to be included in the transferor's income. The court agreed with this precedent and held that the capital gain must be taxed in the hands of the assessee.

Issue 2:
The second issue pertained to the transfer of 3,000 shares settled upon trust for the benefit of the assessee's minor son. The question was whether this transfer constituted adequate consideration. The court referred to a previous decision where it was concluded that the capital gain on the sale of transferred assets must be included in the transferor's income. Therefore, the court ruled in favor of the Revenue on this issue as well.

Issue 3:
Regarding the inclusion of dividend income from the shares in the total income of the assessee-settlor, the court relied on a decision where it was held that income arising directly or indirectly from transferred assets must be included in the transferor's income. Therefore, the court ruled in favor of the Revenue on this issue also.

In conclusion, the court answered all three questions in favor of the Revenue, directing the assessee to pay the costs of the reference. The judgment emphasized the application of section 64 of the Income-tax Act, 1961, in determining the taxation of income arising from transferred assets, even if the transfer occurred before the Act's commencement.