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TMI Blog1971 (9) TMI 34X X X X Extracts X X X X X X X X Extracts X X X X ..... -63. The assessee is an individual. He was a managing director of the Hindustan Embroidery Mills (Private) Ltd., Chheharta, Amritsar. He held 16,955 shares in the said company. In his capacity as a managing director, he was actively engaged in the affairs of the company. The board of directors of the company by its report dated 18th December, 1961, made the following recommendation: " We recommend that a sum of Rs. 1,70,000 be reserved for income-tax and out of the balance, dividend amounting to Rs. 1,41,690 at 20 per cent. of the paid up capital be paid to the shareholders. Out of the balance of Rs. 64,690.85, the sum of Rs. 40,000 be transferred to rehabilitation reserve account. The balance of Rs. 24,690.85 be carried forward. " At the ordinary annual general meeting of the company, held on 27th January, 1962, the proposed dividend was declared. Before the declaration of the dividend between 17th January, 1962, and 19th January, 1962, the assessee disposed of 12,500 shares of the company in the following manner: -------------------------------------------------------------------------------------------------------------------------------------------------- No. of Natur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 94. The dictionary meanings of 'system' include 'plan' and the dictionary meanings of 'systematic' are 'pertaining to, or consisting of, for the purpose of, observing, or according to system, methodical, habitual, intentional' (Chambers' Twentieth Century Dictionary). Since the word 'exceptional' is used in section 94(3)(b) in contradistinction to 'not systematic', it would appear from a reading of the judgment in Bilsland's case that the word 'systematic' was interpreted in that case as the opposite of 'planned', for the court observed that 'the more planned or devised the avoidance is, the more exceptional it is'. Thus, the interpretation in that case does not appear to fit in with the normally accepted meanings of the word 'systematic'. Another point to be noticed is that under sub-sections (1) and (2) of section 94, single transactions resulting in avoidance of tax are brought in the net, for the word 'transaction' is used in those sub-sections in the singular. It, therefore, appears to me that the word 'exceptional' does not have any reference to the number of transactions which have resulted in the avoidance of tax, but has reference to the absence or presence of a plan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... karlal Balabhai's case, and observed as follows : " The omission of the words 'avoided or would avoid' in section 94 assumes greater significance in view of the fact that section 94 merely mentions that 'the result of any transaction relating to such securities or the income thereof is that in respect of such securities within such year either no income is received by him or, the income received by him is less than the sum, etc.' Therefore, the observations of the learned Chief Justice 'may not apply wholly to the provisions of section 94 inasmuch as the emphasis in section 94(2) is not on 'avoidance of tax', but on 'either no income is received by him or the income received by him is less than the sum, etc., to which the income would have amounted, etc. Even under section 44F, the learned judges had held that in the case before them there was avoidance of tax. I, therefore, feel that the judgment of the Gujarat High Court is of little avail to the assessee even when the same is very illuminating on the provisions of section 44F. The omission of the words 'more than ten per cent. of the amount of income-tax and super-tax from section 94 is also of interest inasmuch as under sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat is, by way of exception to the normal practice of the assessee and it should not be systematic, that is, part of a regular reprehensible practice carried on by the assessee. 'Exceptional' has been defined by Cassell's new English Dictionary as 'forming an exception, unusual, extraordinary, unprecedented' and 'systematic' as methodically done, formed or arranged on a regular plan, not haphazard, and in the Oxford Shorter Dictionary, as 'methodical' ' according to a plan', 'not casual or sporadic or unintentional'. Looking to the plain meaning of the word 'systematic' and facts of the case before us and the point of time at which the transfer has been effected, I can arrive at the only conclusion that the said transfer was 'methodically done, formed or arranged on a regular plan, not haphazard'; it was not 'casual or sporadic or unintentional' because the assessee was neither in the imminent need of discharging a liability nor was there any immediate business need for such transfer. The transfer has been made in favour of persons who were otherwise affluent and whose assessed income was considerable. The assessee being a managing director of the company, a closely held company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat section 94 as drafted is more onerous than section 44F. Although I am clear in my mind that this inference can be read into the new Act yet I am not very sure whether the intention of the scheme of the legislature was to make it more onerous. Be that as it may, we must interpret these sections as they are, i.e., against the assessee. 3. The third conclusion of my learned brother is that the decision of Justice Bhagwati is not applicable, in the present case because the law is substantially different. I have already said that section 94 is more onerous (and in any case certainly not in pari materia with the old section). Therefore, the judgment of Justice Bhagwati cannot be bodily taken over for the solution of the present case." and concluded : "In this case, the assessee, Shri Gurdial Singh Uppal, has parted with both the corpus and the dividends. Prima facie, it would, therefore, appear that there is no case for invoking the anti-avoidance section. However, this benefit would only cover the subsequent years and only in subsequent years, the dividend income ought to be assessed in the hands of the donees or the donor, as the case may be. I do not think that the Income-ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s or the income thereof is that, in arrangements, transfers, or any other tran- respect of such securities within such year, sections relating to such securities) that either no income is received by him or the such person has thereby avoided or would income received by him is less than the sum avoid more than ten per cent. of the amount to which the income would have amounted of the income-tax or super-tax for any year if the income from such securities had which would have been payable in his case accrued from day to day and been appor- in respect of the income firm those securi- tioned accordingly, then the income from ties if the income had been deemed to such securities for such year shall be deem- accrue from day to day and had been appor- ed to be the income of such person. tioned accordingly, and the income so deemed to have been apportioned to him had been treated as part of his total income from all sources for the purposes of income- tax or super-tax, then those securities shall be deemed to be securities to which sub- section (3) applies. (3) For the purposes of assessment to (3) The provisions of sub-section (1) or income-tax or super-tax in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was not satisfied that the transfers in question were not made in order to avoid tax. It has also not been contended before us by the learned counsel for the assessee that the transfers in question do not result in avoidance of tax. It is, therefore, idle to suggest that the decision of the Gujarat High Court has any material bearing on the interpretation of section 94(2). We, therefore, agree with the decision of the Tribunal that section 94(2) is attracted to the facts of the present case. So far as the second question is concerned, we are clearly of the view that the Tribunal as well as the Appellate Assistant Commissioner and the Income-tax Officer have completely erred in holding that the assessee is not entitled to the benefit of section 94(3)(b) of the 1961 Act. The language of this provision and the language of section 44F bearing on this matter is almost identical. In our opinion, the decision of Bilslnd's case which was followed by the Gujarat High Court in Sakarlal Balabhai's case fully covers the matter. In Bilsland's case Mr. Justice Lawrence observed as as follows : "In my opinion, the words 'exceptional and not systematic' in sub-section (4) have relation primar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etation that where two or more words susceptible of analogous meaning are coupled together noscitur a sociis they take as it were their colour from each other. Being associate words they explain and limit the application of each other. The juxtaposition of the words 'exceptional and not systematic' shows that the legislature was using the word 'systematic' in contradistinction to 'exceptional'. The avoidance of tax must be exceptional, that is, by way of exception to the normal practice of the assessee and it should not be systematic, that is, part of a regular reprehensible practice carried on by the assessee..... It may also be noted that section 44F was introduced in our Act by an amendment made in 1939 after the decision in Bilsland's case. The legislature when it enacted section 44F must be taken to have been aware of the decision in Bilsland's case interpreting the words 'exceptional and not systematic' and yet the legislature retained the same phraseology as in section 33, sub-section (4). It may, therefore, be reasonably assumed that the words 'exceptional and not systematic' were used by the legislature in the proviso in the same sense in which they had been judicially i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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