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1967 (4) TMI 27 - HC - Income TaxAssessee s wife purchased share of D out of funds provided by assessee. D sold the concern to B and assessee got the shares of B in lieu of shares of D - held that dividend income, on shares of the B, belonging to the assessee s wife is assessable in the hands of the assessee under s. 16(3)(a)(iii)
Issues Involved:
1. Assessability of dividend income from shares purchased with funds provided by the assessee under Section 16(3)(a)(iii) of the Indian Income-tax Act, 1922. Issue-wise Detailed Analysis: 1. Assessability of Dividend Income under Section 16(3)(a)(iii): The core issue in this case is whether the dividend income from 988 shares of Britania Biscuit Co. Ltd., acquired by the assessee's wife using funds provided by the assessee, is assessable in the hands of the assessee under Section 16(3)(a)(iii) of the Indian Income-tax Act, 1922. Facts: - The assessee's wife initially purchased 4 shares of Delhi Biscuit Co. Ltd. using her own funds. - Subsequently, she purchased 52 additional shares using funds provided by the assessee. - Delhi Biscuit Co. Ltd. was later sold to Britania Biscuit Co. Ltd., and the assessee's wife received 1,064 shares of Britania Biscuit Co. Ltd. in exchange for her 56 shares in Delhi Biscuit Co. Ltd. - Out of these, 76 shares were attributable to the 4 shares bought with her own funds, and the remaining 988 shares were attributable to the 52 shares bought with funds provided by the assessee. Legal Question: The question is whether the dividend income from these 988 shares is assessable as the income of the assessee under Section 16(3)(a)(iii), which includes in the total income of an individual any income arising directly or indirectly from assets transferred by the individual to his wife. Analysis: - The court examined whether the dividend income from the 988 shares can be considered as arising directly or indirectly from the funds (Rs. 6,500) transferred by the assessee to his wife. - It was noted that the wife did not make any further payment when converting her 52 shares of Delhi Biscuit Co. Ltd. to 988 shares of Britania Biscuit Co. Ltd. Thus, the shares of Britania Biscuit Co. Ltd. are directly traceable to the original funds provided by the assessee. - The court rejected the argument that the wife should be deemed to have sold her shares in Delhi Biscuit Co. Ltd. and then purchased shares in Britania Biscuit Co. Ltd. The transaction was seen as an exchange rather than a sale and repurchase. Supporting Case Law: - The court referred to the decision in Westminster Bank Ltd. v. Osler, where the exchange of securities was considered equivalent to a realisation of the original holdings, supporting the view that the transformation of shares was a direct continuation of the original asset. Distinguishing Case Law: - The court distinguished the case from Popatlal Bhikamchand v. Commissioner of Income-tax, where the Bombay High Court held that dividend income from bonus shares did not arise from the original asset transferred. The court noted that the bonus shares represented accumulated income, which is different from the case at hand. - Similarly, the court distinguished the case from Seventhilal Maneklal Sheth v. Commissioner of Income-tax, where the interest income from the reinvestment of sale proceeds of transferred shares was considered as income from income, not directly from the original asset. Conclusion: The court concluded that the dividend income from the 988 shares of Britania Biscuit Co. Ltd. is directly arising from the asset (Rs. 6,500) transferred by the assessee to his wife. Therefore, it is assessable in the hands of the assessee under Section 16(3)(a)(iii) of the Indian Income-tax Act, 1922. Judgment: The court answered the question in the affirmative, holding that the dividend income is assessable in the hands of the assessee. The assessee was ordered to pay the costs of the reference, with an advocate's fee of Rs. 250.
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