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TMI Blog1971 (7) TMI 24X X X X Extracts X X X X X X X X Extracts X X X X ..... a common statement of case was drawn up by the Tribunal and referred originally to the High Court of Judicature at Chandigarh. After the coming into force of the Delhi High Court Act, 1966, the statement of case is now before us. The questions of law are as follows : " (1) Whether, on the facts and in the circumstances of the case, renunciation of the 'right' to apply for shares amounted to transfer of an asset ? (2) If the answer to the above question is in the affirmative, whether, on the facts and in the circumstances of the case 75% of the dividend income could be included in the total income of the aforementioned assessees under section 16(3)(a)(iv) of the Indian Income-tax Act, 1922, and section 64 of the Income-tax Act, 1961 ? " The assessees in this case are shareholders in a company known by the name of Motor and General Finance Ltd. The said company resolved to issue equity shares of Rs. 10 each at par to the existing equity shareholders, who were entitled to exercise the " right " to renounce the shares offered to them, or any portion of the same, in favour of any other persons, in the prescribed form. The person in whose favour the equity shareholder renounced the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 30 per share. He, therefore, brought to tax in the assessees' hands 75% of the dividend income mentioned above, acting under the provisions of section 16(3)(a)(iv) of the Indian Income-tax Act, 1922, and section 64 of the Income-tax Act, 1961, in the respective years. On appeals before the Appellate Assistant Commissioner, it was contended by the assesses that the " right " which was renounced in favour of the minor daughters concerned was not an asset and that the income received by the assessees' minor daughters was from dividends, whose source was the shares held in the company, for which they had paid Rs. 10 per share, which belonged to them absolutely. In these circumstances, it was pleaded that there was no justification for the revenue to bring to tax 75% of the dividends in question in the hands of the assessees, under section 16(3)(a)(iv). The contention was rejected, and the decision of the Income-tax Officer was upheld. The assessees then took up the matter in appeals to the Income-tax Appellate Tribunal. The original argument about the " right " not being an asset was given up and it was contended on their behalf that it was only a case of renunciation and not trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only one party to the act of renunciation, viz., the assessee. There was, therefore, no question of any transfer of any asset. The argument is not well-founded. There were two parties in each case, viz., the assessee and his minor daughter. The assessee renounced his claim to acquire the new shares in favour of his minor daughter, and the minor daughter in pursuit of the renunciation in question applied for the shares and got them allotted in her favour. It cannot, therefore, be said that it was a case of one party only. By the act of renunciation, the assessee transferred his right to acquire the new shares to his minor daughter. In these circumstances, it cannot be said that, in the present case, it was a case of renunciation and not of transfer. The provisions relating to further issue of capital are contained in section 81 of the Companies Act, 1956. Under that section, after the expiry of the period mentioned therein, whenever it is proposed to increase the subscribed capital of the company by allotment of further shares, then such (further) shares are offered to the persons who, at the date of the offer, are holders of the equity shares of the company, in proportion, as nea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome-tax v. Keshavlal Lallubhai Patel. This case does not appear to us to have any bearing on the present case. The respondent in that case threw his self-acquired property into the common hotchpot of the Hindu undivided family consisting of himself, his wife, a major son and a minor son. Some time later, an oral partition was effected whereby the properties were transferred in accordance with the arrangement to the names of the several members. The question was whether there was any direct transfer of the properties allotted to the wife and minor son to warrant the application of section 16(3)(a)(iii) and (iv) of the Indian Income-tax Act, 1922. Their Lordships held that there was no transfer of assets, direct or indirect, within the meaning of section 16(3)(a)(iii) or (iv) to the wife or minor son. The word " transfer " was used in section 16(3)(a)(iii) and (iv) in the strict sense and not in the sense of including every means by which property may be passed from one to another. The partition of joint Hindu family property was not a transfer in that strict sense. No such question arises in the present case. Here, the new shares which are admittedly movable property and are also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... within the ambit of section 16(3)(a)(iii) or (iv), it must be proved to have arisen directly or indirectly from transfer of assets made by the assessee in favour of his wife and minor children. The connection between transfer of assets and the income must be proximate. The income in question must arise as a result of the transfer and not in some meaning connected with it. The assessee who was a partner in a firm gifted Rs.75,000 to each of his four sons after he retired from the firm. Three of the sons were minors. There was a reconstitution of the firm the next day after the assessee retired from the firm. The three minor sons were admitted to the benefits of partnership in the firm while the major son became a partner. The question was whether the income arising to the minors by virtue of their admission to the benefits of partnership in the firm could be included in the total income of the assessee under section 16(3)(a)(iv). The Tribunal found that the capital invested by the minors in the firm came from the gift made in their favour by their father, the assessee. It was held by the Supreme Court that the connection between the gifts made by the assessee and the income of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reciation in the value of the old shares the assessees suffered a capital loss in the old shares which they were entitled to set off. The argument does not seem to have any substance. In the case before the Supreme Court, the question was about the levy of tax on capital gain. The appellant who was not a dealer in shares held by way of investment 710 ordinary shares in Tata Iron & Steel Co. Ltd. The company made an offer to her, by which she was entitled to apply for 710 new ordinary shares, at a premium with an option of either taking the shares, or renouncing them, wholly or partly, in favour of others. The appellant renounced her right to the new shares and realised Rs. 45,262.50. When this amount was sought to be wholly taxed as a capital gain, the appellant claimed that on the issue of new shares, the value of her old shares depreciated and that as a result of that depreciation, she suffered a capital loss in the old shares to the extent of Rs. 37,630 which she was entitled to set off against the capital gain of Rs. 45,262.50. It was held that the appellant was entitled to deduct from the sum of Rs. 45,262.50, the loss suffered by way of depreciation in the old shares. In the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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