1973 (7) TMI 44 - HC - Income Tax

Summary

Issues:
1. Assessability of income from shares in the hands of individuals under section 16(1)(c) or section 16(3)(b) of the Income-tax Act.
2. Entitlement of Hindu undivided families to refund of tax deducted at source on dividend income from shares.

Analysis:

The case involves a reference under section 66(1) of the Indian Income-tax Act, 1922, regarding the assessability of income from shares in the hands of individuals and the entitlement of Hindu undivided families to a tax refund. The dispute arises from declarations made by two brothers, Ramgopal and Ramprasad, regarding 500 shares of a limited company thrown into the common hotchpot of their respective joint Hindu families. The key questions revolve around whether the income from these shares is assessable under section 16(1)(c) or section 16(3)(b) and whether the families are entitled to a refund of tax deducted at source on dividend income.

The Income-tax Officer initially included the dividend income from the shares in the assessment of Ramgopal and Ramprasad under section 16(1)(c). The Appellate Assistant Commissioners upheld this decision, with one providing an alternative finding under section 16(3)(b). However, the Tribunal allowed the appeals by the families and individuals, ruling that the income from the shares was not assessable under either section 16(1)(c) or section 16(3)(b). This led to the reference before the High Court.

Regarding section 16(1)(c), the court analyzed the declarations made by Ramgopal and Ramprasad, concluding that the shares ceased to be their property and became that of their joint Hindu families. As the income did not arise from assets remaining the property of the settlor, the provisions of this section did not apply. Additionally, the court referenced the Supreme Court decision in Commissioner of Income-tax v. S. Raghbir Singh to interpret the relevant provisions.

Concerning section 16(3)(b), the court relied on past decisions to determine that the transfer of shares to the joint Hindu families did not constitute a transfer within the meaning of this section. Citing the decision in Damodar Krishnaji Nirgude v. Commissioner of Income-tax and Goli Eswariah v. Commissioner of Gift-tax, the court held that the income from the shares was not includible in the individual's total income.

In conclusion, the High Court answered the questions in the negative for section 16(1)(c) and in the affirmative for section 16(3)(b), ruling in favor of the assesses and directing the revenue to pay their costs.