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TMI Blog1967 (4) TMI 27X X X X Extracts X X X X X X X X Extracts X X X X ..... Britania Biscuit Co. Ltd., Calcutta, for a consideration of Rs. 4,35,138. The said consideration was discharged in the shape of ordinary shares of the vendee-company. The face value of those shares was Rs. 10 per share ; but its market value was Rs. 22. For a consideration of Rs. 4,35,138, the vendee company made over to the vendor 19,779 shares. These shares were made over by the Delhi Biscuit Co. Ltd. to its shareholders at the rate of 19 shares of the vendee-company to 1 share of the vendor-company. In lieu of her 56 shares, the assessee's wife got 1,064 shares of the vendee company. Out of these shares, admittedly 76 shares were given to her in lieu of the 4 shares which she had purchased from out of her own funds. At present there is no dispute that the dividend relating to those 76 shares is not assessable to tax in the hands of the assessee. The controversy is whether the dividend realised by the assessee's wife in respect of her 988 shares, which she got in lieu of the 52 shares of the vendor company, that she had purchased from out of the funds provided by the assessee, is assessable to tax in the hands of the assessee for the assessment year 1957-58, the relevant previou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of such individual as arises directly or indirectly. . . . (iii) from assets transferred directly or indirectly to the wife by the husband. . . . " Now we have to see whether the income, with which we are concerned in this case, arises directly or indirectly from any asset transferred by the assessee to his wife. The asset transferred in this case is the payment of Rs. 6,500 by the assessee to his wife in the year 1948. Can it be said that the dividend, with which we are concerned in this case, directly or indirectly arises from that asset ? It is not the case of the assessee that while converting her 52 shares in the Delhi Biscuit Co. Ltd. to 988 shares of the Britania Biscuit Co. Ltd., Calcutta, his wife had made any further payment. She got the share of the Britania Biscuit Co. Ltd., in place of her shares in the Delhi Biscuit Co. Ltd. Therefore, quite clearly, the assessees wife's shares in the Britania Biscuit Co. Ltd. are directly traceable to the sum of Rs. 6,500 given by the assessee to his wife to purchase shares of the Delhi Biscuit Co. Ltd. The connection between the two is obvious. In every sense of the word, it is direct. Therefore, the dividend with which we are con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t avoid the conclusion that there had been a realisation of the security. Lord Buckmaster, who delivered the judgment of the House of Lords, observed thus during the course of his address : " If such transactions be accepted as the equivalent of the realisation of the original holdings it is agreed that the profit or excess value would amount to pounds 141,750, and it was sought on behalf of the Inland Revenue to bring this sum into the account in determining the profits of the appellants' trade for purposes of income-tax under Case I of Schedule D. The bank contended that there had in fact been no realisation of profit, and that there was a mere accretion of capital value which could not be brought into account until in fact it has been realised. The Commissioners decided against this contention, and their opinion had been supported, though with some hesitation, by Rowlatt J. and the Court of Appeal. On behalf of the appellants, it was plausibly argued before the House that the nature of this transaction was equivalent to the mere exchange of an item in the stock-in-trade of a trader, in which case it was contended that unless an item so taken in exchange was sold, or taken out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing of 350 shares. The question was whether the dividend income from the 744 bonus shares, allotted to the minor, could be included in the total income of the assessee under section 16(3)(a)(iv) of the Income-tax Act. Dealing with that question, Shah J. observed thus : " . . . . . in our judgment, the source of the dividend income from the bonus shares is not the assets transferred but the accretion thereto ; and that income cannot be regarded as arising even indirectly from the assets transferred by the assessee." In that judgment, there is not much discussion in support of the conclusion reached. But we are of the opinion that that High Court had come to the above conclusion on the ground that the bonus shares represented distribution of accumulated income. What can be taxed under section 16(3)(a)(iii) or (iv) is the income directly or indirectly arising from an asset transferred and not an income of an income, which arises from an asset tranferred. The case before the Bombay High Court was of an income of an income and not of an income arising directly or indirectly from an asset transferred by the assessee to his wife. Therefore, that case is clearly distinguishable. Relian ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he value of the assets and a certain gain over that value. In other words, the amount of Rs. 1,54,800 received by Bai Laxmibai on the sale of the shares held by her, gave her value of the assets, viz., Rs. 69,730, and a gain, viz., Rs. 70,860. The department for the year 1957-58 chose to look upon it in the latter way and took the view that the assets transferred were converted into cash for their corresponding value at the date of the transfer and the rest was the income in the form of capital gains from the said assets. In other words, an amount of Rs. 69,730 represented in cash the transferred asset, while the surplus of Rs. 70,860 constituted the income. That part, which was income, it included within the total income of the husband and brought it to tax. Now that being the basis adopted by the income-tax department, the same must obviously hold good for the subsequent years of taxation. Now, on this basis the amount of Rs. 1,54,800, which Bai Laxmibai deposited with Messrs. Bhivandiwala & Co. constituted the deposit of the transferred assets to the extent of Rs. 69,730 and the deposit of the income which was the balance. The income, which she got in the next year was, therefor ..... 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