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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 ..... share being of the face value of Rs. 125. During the year 1948, Smt. Kailashwati Khanna purchased 52 more shares from the Delhi Biscuit Co. Ltd. from out of the funds provided by the assessee. In 1951, the Delhi Biscuit Co., Ltd. sold the concern to 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year can be considered as the income of the assessee under section 16(3)(a)(iii) of the Act. That section says : " 16. (3) In computing the total income of any individual for the purpose of assessment, there shall be included--- (a) so much of the income of a wife. . . 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 B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds held that there had been a realisation for, as soon as the new securities were taken in place of the investment in the original War Bonds, a new venture was begun in relation to the new holding and the fact that this transformation took place by the process of exchange did not 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the shares that the assessee's wife got from the Britania Biscuit Co. is not exigible to tax. In that case, the assessee, who held 350 shares in a company, transferred those shares to his minor son by way of gift. Later, the minor was allotted 744 bonus shares for his original holding 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 incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... into cash which amounted to Rs. 1,54,800 and this amount in cash was held by Bai Laxmibai as the assets held by her in another form. There was another way, however, of looking at the matter, viz., that the sale proceeds which Bai Laxmibai realised on the sale of the assets gave her back the 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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