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TMI Blog1967 (8) TMI 11X X X X Extracts X X X X X X X X Extracts X X X X ..... private company and used to receive dividends declared by the company on their respective shares. On February 5, 1958, Sudhir Kumar transferred, by way of gift, 10,000 shares in the private limited company to the wives of his two sons, namely, the assessee and Sanjoy, each getting 5,000 shares. On the same day, the assessee and Sanjoy each made a gift of 5,000 shares in the private company to their mother, wife of Sudhir Kumar. Also on the same day, the assessee and Sanjoy each made a gift of 5,000 shares in the private company to the wife of the other brother and a further 5,000 shares in the same company to a married sister of theirs. Thus the wife of the assessee, the wife of his brother, Sanjoy, and the mother of the assessee and Sanjoy each came to possess 10,000 shares in the private limited company. We are not concerned, in this reference, with the transfer of shares made to the sister of the assessee and of Sanjoy. The transfer of shares were all registered, in the names of the transferees, in the share register of the private company. In the return filed for the assessment year 1960-61, the assessee excluded the dividend income derived from the 10,000 shares which he ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income producing assets. It is also submitted that the same Income-tax Officer has assessed the assessee to gift-tax on these gifts. If the Income-tax Officer holds that the transfers were to his own wife, then under the Gift-tax Act gift to one's wife is exempt up to the extent of Rs. 1,00,000. It is verified that the Gift-tax Officer has not allowed this relief in the gift-tax assessment. All these facts go to show that the stand taken by the Income-tax Officer in the present assessment cannot be sustained. There is no material whatsoever to hold that the assessee indirectly transferred his own shares to his wife. In this connection an additional factor to be noted is that the distinctive number of the shares gifted by the assessee to his mother and other ladies is different from the distinctive numbers of shares received by the assessee's wife. It is well-settled that in the case of shares the rights are attached to the particular shares. In this case the shares belonging to the assessee were not as such transferred to the assessee's wife. Therefore, in this particular case it cannot be held that the assets have been transferred to the wife. " The revenue, thereupon, appealed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mukherji, learned counsel for the revenue, submitted that the Appellate Assistant Commissioner and the Appellate Tribunal both drew considerable inspiration from the judgment of the Madras High Court in C. M. Kothari v. Commissioner of Income-tax and, proceeding on that basis, answered the question in favour of the assessee and against the revenue. He submitted that the decision of the Madras High Court in C. M. Kothari's case stood reversed by the Supreme Court in Commissioner of Income-tax v. C.M. Kothari and, consequently, the reasons which weighed with the Madras High Court should not be taken as good reasons any longer. The Tribunal, therefore, should be deemed to have erred in relying upon the Madras High Court decision in finding in favour of assessee. In order to appreciate this argument, it is necessary for us to see what happened in C. M. Kothari's case, in some detail. In that case, there was a firm of stock-brokers known as Messrs. Kothari Sons. In 1947, the firm consisted of C. M. Kothari and his two sons, D.C. Kothari and H.C. Kothari. On October 7, 1957, the firm entered into an agreement for the purchase of a house for Rs. 90,000 and the same day paid an advanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the interchange of the money in the family, either the purchases were made by the donors benami in the names of the donees, or alternatively, from assets transferred indirectly by the husband to the wife in each case. The Income-tax Officer pointed out that the birthday of Mrs. C.M. Kothari had taken place earlier in the year and there was no occasion to give a birthday present to her several months later and on the date coinciding with the purchase of this property. The Income-tax Officer also found that in the past, the father-in-law had never given such a big present to his daughter-in-law on Diwali, and this time there was no special circumstance to justify it. The assessee appealed before the Appellate Assistant Commissioner but failed. The appeal before the Appellate Tribunal also fared the same fate. The Tribunal did not, however, hold that the transaction was benami but confirmed the other finding that the two ladies had acquired their shares in the house out of the assets of the husbands indirectly transferred to them. At the instance of the assessee, the Tribunal stated a case for opinion of the High Court but the High Court answered the question in the negative. When ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evade implications of this section, the case will fall within the section. " The Supreme Court concluded the judgment with the following observation : " The High Court also overlooked the fact that the purchase of the house at first was intended to be in the names of the three partners of the firm. No evidence was tendered why there was a sudden change. It is difficult to see why the ladies were named as the vendees if they did not have sufficient funds of their own. They could only buy the property if some one gave them the money. It is reasonable to infer from the facts that before the respective husbands paid the amounts, they looked up the law and found that the income of the property would still be regarded as their own income if they transferred any assets to their wives. They hit upon the expedient that the son should transfer the assets to his mother, and the father-in-law, to the daughter-in-law, obviously failing to appreciate that the word ' indirectly ' is meant to cover such tricks. " Mr. Mukherjee contended that in the instant case, the motive of the father-in-law transferring his shares to his two daughters-in-law, the motive of the sons transferring an equal n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... schief of section 16(3)(a)(iii), because the object of transferring shares by the husband to the wife was sought to be achieved by this indirect method. He further submitted that if section 16(3)(a)(iii) was not attracted, section 16(3)(b) would be attracted because the transactions were such as amounted to assets transferred otherwise than for adequate consideration to a person by an individual for the benefit of his wife. Mr. Sukumar Mitra, learned counsel for the assessee, tried to repel the contentions raised by Mr. Mukherjee with the following arguments. He submitted, in the first place, that the Income-tax Officer came to an a priori finding that the transaction amounted to a collateral or associated operation. He further submitted that there was no evidence which would go to establish that the transfer by the father-in-law to the daughters-in-law, the transfer by the sons to the mother or the transfer of the brothers to the other brother's wife was made under an understanding or an arrangement whereby a purpose was sought to be achieved. In the absence of such evidence, he submitted, the circumstances relied on by the revenue would not go to establish the proposition that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transfer by itself was no indication of the purpose behind the transfer. That is not a universal proposition, because there may be some transfers made in some circumstances which by themselves speak. Were it a case in which the father, annoyed with his own wife, had gifted away his entire shareholdings to his daughters-in-law so as to deprive the wife and the sons out of filial piety, compensated the mother by making a gift of equal number of shares to the mother so as to neutralise the injustice perpetrated by their own father upon their own mother, the two transactions might be taken as different transactions. Here there is no such evidence. What was done, in the instant case, can be explicable either on the theory that it was a thoughtless transaction throughout, or that it was done with the purpose of avoiding the effect of section 16(3). This is further reinforced by the fact that not only did the father-in-law make the transfer of shares in favour of the daughters-in-law and the sons made transfer of shares of equal number in favour of the mother but the two brothers transferred equal number of shares to the other brother's wife, thus arriving at the same position which coul ..... X X X X Extracts X X X X X X X X Extracts X X X X
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