1961 (2) TMI 89 - HC - Income Tax

Summary

Issues Involved:
1. Applicability of Section 16(3)(a)(iii) of the Indian Income-tax Act to dividends received by Mrs. Judith Thomas.
2. Applicability of Section 16(1)(c) of the Indian Income-tax Act to the same dividends.

Issue-wise Detailed Analysis:

1. Applicability of Section 16(3)(a)(iii):

The main issue is whether the dividends paid to Mrs. Judith Thomas can be included in the income of Mr. P.J.P. Thomas and taxed in his hands under Section 16(3)(a)(iii) of the Indian Income-tax Act.

- Facts: Mr. P.J.P. Thomas transferred 750 "A" shares to Mrs. Judith Knight (later Mrs. Judith Thomas) before their marriage. The relevant accounting years are 1948-1951, and the assessment years are 1949-1953.

- Arguments: The assessee argued that Section 16(3)(a)(iii) does not apply because Mrs. Judith Knight was not Mr. Thomas's wife at the time of the transfer. The assessee contended that the section requires the transfer to be made to a legal wife by a legal husband at the time of the transfer.

- Legal Interpretation: The court examined Section 16(3)(a)(iii), which includes income of a wife from assets transferred by the husband, except for adequate consideration or in connection with an agreement to live apart. The court held that the relevant time to determine the relationship is the time of computing the total income for assessment. Since the marriage had taken place by the time of assessment, the section applies.

- Adequate Consideration: The court discussed whether marriage could be considered "adequate consideration." It reviewed several cases, concluding that while marriage is a valuable consideration, it is not an "adequate consideration" under Section 16(3)(a)(iii) because its adequacy cannot be objectively measured.

- Conclusion: The court held that the dividends could be included in Mr. Thomas's income and taxed in his hands under Section 16(3)(a)(iii).

2. Applicability of Section 16(1)(c):

The issue is whether the dividends can be included in Mr. Thomas's total income under Section 16(1)(c) of the Indian Income-tax Act, which deals with revocable transfers.

- Facts: The transfer deed stated that the shares were transferred "in consideration of my forthcoming marriage with Judith Knight." The marriage took place shortly after the transfer.

- Arguments: The assessee argued that Section 16(1)(c) does not apply because the transfer deed did not contain any provision for retransfer or give Mr. Thomas the right to reassume control over the shares or dividends.

- Legal Interpretation: The court examined the relevant portion of Section 16(1)(c) and its provisos. It noted that a transfer is deemed revocable if it contains any provision for retransfer or gives the transferor a right to reassume power over the assets or income.

- Revocability: The court considered whether the condition of "forthcoming marriage" implied a revocable transfer. It concluded that the transfer became absolute upon the marriage, making the question of revocability irrelevant for the assessment years in question.

- Conclusion: The court held that the dividends could not be included in Mr. Thomas's total income under Section 16(1)(c).

Judgment Summary:

- The dividends paid to Mrs. Judith Thomas can be included in the income of Mr. P.J.P. Thomas and taxed in his hands under Section 16(3)(a)(iii) of the Indian Income-tax Act.
- The dividends cannot be included in Mr. Thomas's total income under Section 16(1)(c) of the Indian Income-tax Act.
- Each party will bear its own costs of the reference.