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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 ..... . 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 Nature Name to whom Relationship shares transferred with transferor -------------------------------------------------------------------------------------------------------------------------------------------------- 2500 Sale Mrs. Daya Kaur Uppal Wife 2500 Sale S. Iqbal Singh Uppal Son 2500 Gift Anitha Uppal Daughter-in-law 2500 Gift Narpinder Uppal do. 2500 Gift Miss Kamal Would be daughter-in-law ----------------- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se 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 behind the transactions. If the avoidance was unintentional, it must be held to be exceptional but if the circumstances indicated that there was a plan behind it, it was not exceptional but systematic. In the case under consideration, I have held that there was a plan to avoid tax. This plan is clear from the nature of transfers and the circumstances in which they have been effected, in favour of close relations of the appellant, wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore, 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 section 44F it appears that the avoidance of tax should have been of more than 10 per cent. of the amount whereas in section 94 there is no such limitation imposed. The only criterion is 'either no income is received by him or the income received by him is less . . .' Section 94(2) concludes that 'then the income from such securities for such year shall be deemed to be the income of such person'. But, the words used in section 44F are 'then ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... '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 by the members of the family, was well aware of his mounting tax liability in view of the fact that his income was already being assessed in the range of about a lakh of rupees, the transfer was a designed and deliberate, well-planned act so that 'no income is received by him' in respect of the shares so transferred. When looking to the circumstances in their entirety and the time of the resolution recommending the dividends the transfer of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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-tax Officer would be justified in including the dividend income of the subsequent years in the hands of the assessee. However, in the first year of transfer, Shri Gurdial Singh Uppal is caught in the net of section 94(2). In other words, in the first year of transfer, it becomes taxable in the hands of Shri Gurdial Singh Uppal, because the main purpose was avoidance or reduction of the tax liabilities'. Consequently, the income would not be assessa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 the case of any sub-section (2) shall not apply if the owner, such person, the income from any securities or the person who has had a beneficial to which this sub-section applies shall be interest in the securities, as the case may deemed to accrue from day to day, and in be, proves to the satisfaction of the Income- the case of the sale or transfer of any such tax Officer- securities by or to him shall be deemed to have been received as and when it is deemed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent 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 primarily to number. To read the word 'systematic' as meaning 'planned ' or 'devised', as was contended for the Crown, appears to me to be impossible in the context. The more planned or devised the avoidance is, the more exceptional it is. Moreover, 'exceptional' means, in my view, taken out of something; it cannot mean taken out of the ordinary rule; it must mean in this context taken out of the system, and that implies that there must be more than one instance in the system. It seems to me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 interpreted in Bilsland's case. If this is the true meaning it is clear that the avoidance of tax in the present case was exceptional and not systematic, for there was only one instance of such avoidance in the accounting year and it is not possible to say that it was part of a regular practice followed by the assessee." For the reasons recorded above, we answer the first question in the affirmative, and the second question also in the affirmative. In other words, the first question is an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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