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TMI Blog1958 (9) TMI 100X X X X Extracts X X X X X X X X Extracts X X X X ..... d interest to every dividend and sum of money which may be declared or become due and payable on account of or in respect of the said shares (not being the price or value thereof) and further hereby covenants with the beneficiary to hand over and/or endorse over to the beneficiary any dividend warrant or any other document of title to such dividend or sum of money as aforesaid and to instruct the said company to pay any such dividend or such sum of money to the beneficiary to hold the same unto the beneficiary absolutely during the term of her natural life." The instrument states further that during the term of the natural life of the wife, the husband shall have no right,: title or interest in the dividends or the monies or any benefit therefrom. It will be noticed that the shares themselves remained the property of the settlor and it was only the income which was sought to be settled or assigned. During the accounting year ended on the 31st March, 1953, the dividend declared on the shares was ₹ 12,000. In assessing the settlor for the assessment year 1953-54, the Income-tax Officer included the dividend in his income under, as he said, the provisions of sections 16( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... registered, but they called for the deed and found that it was an unregistered instrument. Since it was an unregistered instrument, the Tribunal thought that section 25 of the Contract Act applied and the agreement being an agreement made for natural love and affection and for no other consideration between parties standing in near relation to each other, they held that it was altogether void in the absence of registration of the deed. Both the settlor and the Commissioner, thereafter, asked the Tribunal to refer to this court the questions which had respectively been decided adversely to them. The Tribunal acceded to the request and they referred two questions at the instance of the Commissioner and one at the instance- of the assessee. The questions referred are as follows: "(1)Whether the deed dated January 19, 1953, assigning the dividends to accrue merely on account of natural love and affection is void as it is not registered? (2)Whether the third proviso to section 16(1)(c) is repugnant to the main clause of section 16(1)(c) and the general scheme of the Act, and should not be given effect to? (3)Whether, on the facts and in the circumstances of the case, the paym ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the latter. It seems to me, however, that the definition of gift may not completely dispose of the matter, because it has further to be considered whether what was sought to be transferred wa3 an actionable claim. "Actionable claim", as defined in section 3 of the Transfer of Property Act, includes a claim to any beneficial interest in movable property not in the possession, either actual or constructive of the claimant, whether such beneficial interest be existent, accruing, conditional or contingent. Under section 130(1) of the Act, the transfer of an actionable claim, whether with or without consideration, may be effected only by the execution of an instrument in writing, but no registration is required. Whether the benefit transferred is an actionable claim or not we need not consider, because in my view, we must limit ourselves to the question asked. The question asked is whether the deed is void for want of registration. In answering that question, it is, in my view, not open to us or to the parties to digress into any other question as to whether the deed is otherwise void and of no legal effect. It will be sufficient to say that, whether regarded as a deed of g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 16(1)(c) has not always been approached from the correct standpoint and the confusion which has, at times, arisen was caused, because an approach was made to the section from a wrong angle. It is first to be seen who is the person whom the section contemplates. Clearly, it is the person who has received some income and it is equally clear that what the section is doing is to lay down certain principles which should be applied in computing the total income received by him. To come at once to the terms of the section, it begins by speaking of "all income arising to any person." The person contemplated by these words is the person to whom some income has arisen and who has received it. When one remembers that the section is concerned with laying down the principles which will have to be applied in computing the total income of a particular person to whom some income has arisen, one will at once understand that what section 16(1)(c) is concerned with is the exclusion of the income from the total income of that person at least as much as the inclusion of it in the total income of the person who has made the settlement or the disposition or the transfer. The section provides t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oon as it becomes payable and C will be entitled to claim it directly from A in his own right and B will have no right whatsoever to claim it from A in any circumstances. If, on the other hand, the income has to pass through B in going to C, it remains, in law, the income of B and therefore, I cannot see what room there can be of section 16(1)(c) to apply in such a case. To put it briefly, section 16(1)(c), to my mind, can be given an intelligible meaning only if it is read as contemplating a settlement or disposition under which the income transferred becomes the income of the beneficiary without being required to be paid by the settlor or disponer under an obligation imposed by him on himself. If the income first arises to the settlor or disponer and is then to be paid by him to the beneficiary under a covenant which he has created for himself, the case is not within section 16(1)(c) at all, because in such a case there can be no sense in saying that the income shall be deemed in certain circumstances to be the income of the settlor or disponer or transferor, it being in fact his. Turning now to the third proviso, it has to be seen what it provides. It is to be noticed in the fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... because the main clause would exclude itself by its own terms and the case will be altogether outside section 16(1)(c). In such event, the income will be assessable in the hands of the settlor, ; because it has remained his income in spite of the obligation undertaken to pay it over to the wife. Turning now to the settlement in the present case, I have already said that for the purposes of the third question, it is not open to us or to any party to consider whether any valid transfer was effected by it. Cases seem to lay down that a claim to a dividend which has been declared is a chose in action under the English law and would probably be an actionable claim under the Indian law. (See Ann Dalton v. Midland Counties Railway Company [1853] 13 CB 474 and Widgery v. Tepper [1878] 7 Ch. D 423.) Still, however, claims to dividends which may fall due in future may not be choses in action, but we need not tarry over that question and shall proceed on the footing that the deed is a valid deed. Even so, what does it provide? It assigns to the wife the right, title and interest to every dividend and sum of money which may be declared or become due or payable on account of the shares. How is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le in the hands of the transferee and would not be assessable in the hands of the transferor and such cases, again, can only be cases where the income is effectively transferred qua income, so that it ceases to be the income of the transferor and accrues directly to the transferee when it arises. If despite the purported transfer the income remains initially the income of the transferor and it has only to be paid over to the transferee under a binding obligation voluntarily undertaken, it will continue to be assessable in the hands of the transferor under the general charging sections and, therefore, no special provision can be needed to bring it to tax in his hands. In such a case, there is no device on the part of the transferor to avoid tax on the income or the device, even if employed, has not succeeded. Section 16(1)(c), in my view, is not concerned with such a case and its terms show that it is not so concerned. Its concern is with the other type of case where the transfer is such that, by virtue of it, the income is no longer the income of the transferor even in the first instance and cannot be taxed in his hands under the general charging sections and so the consequence is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the income of the settlor or disponer in the first instance and, therefore, it does not require to be made his income by being deemed to be so, nor can it be appropriate to provide that it shall be so deemed. Section 16(1)(c) does not therefore apply to such a case, nor is any provision like the section necessary to bring the income to tax in the hands of the settlor or disponer. The section applies to the first case and contemplates that case alone, for, there, the income, having ceased to be the income of the settlor or disponer under the settlement or disposition, will not be assessable in his hands under the general charging sections and therefore a special provision is needed to make it assessable in his hands. Section 16(1)(c) supplies such a provision by enacting that in such a case the income shall be deemed to be the income of the settlor or disponer. The true scope of the first part of section 16(1)(c) being, in my view, what I have explained above, I cannot, with respect, follow the whole of the reasoning in Rangachari v. Commissioner of Income-tax [1955] 28 ITR 528 though with much that was said in that case I find myself in agreement. The learned Judges who decided t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pplication. By the fact that a case comes initially and prima facie under the main clause of section 16(1)(c) and is then taken out of the clause by the operation of the third proviso, it stands determined that the case is one of settlement or disposition of the income in such terms that they make it cease to be the income of the settlor or disponer and make it accrue directly to the beneficiary from the assets and his income. If that question already stands determined, there can be no need of or scope for any further enquiry. The practical effect of section 16(1)(c), in so far as it deals with settlements or dispositions of income is, in my opinion, as follows : If the settlement or disposition merely provides for an application of the income under a binding agreement contained therein after the income has accrued to the settlor or disponer, section 16(1)(c) will not apply at all. In such a case, the income will be assessed in the hands of the settlor or disponer under the general charging provisions, because it is still his income in the first instance and I presume the beneficiary will also be assessable on what he receives, because his receipts under the settlement or disposit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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