9911796707
TMI Blog1981 (3) TMI 35X X X X Extracts X X X X X X X X Extracts X X X X ..... ions : " As per finding in the assessment order of Kumari Shobhana Birla for the assessment year 1967-68, speculation income shown by the minor is held to be the income of the father and natural guardian, Shri K. K. Birla, who actually earned the income by using his skill and creditworthiness." In the assessment order for 1968-69, income from share speculation in the name of the minor, Kumari Shobhana Birla, was included in the income of the assessee by the ITO with the following observations: " Kumari Shobhana Birla is the minor daughter of Shri K. K. Birla. She had not attained the age of discretion during the relevant assessment year. She had a bank account of her name in her personal name and though she was below 14 was allowed to operate the account by the bank. During the year there was speculation in the shares of Orient Paper Mills Ltd. and M/s. Birla jute Co. Ltd. through M/s. B. Newar Co. Oil the point as to who issued instructions to enter into contract with the broker, it was confirmed by the representative that it was Shri K. K. Birla who issued instructions. In the case of Kumari Shobhana Birla, the broker was summoned in the earlier year and be bad confirm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Sri K. K. Birla had utilized his skill in making this earning. Therefore, it was his income. It appears from the order of the AAC that it was established before him that the transactions were effected through I various recognized stock brokers of the Calcutta Stock Exchange. The profits resulting from such transactions were received from the brokers by the account payee cheques drawn in the name of the minor and such cheques in all cases were directly credited in the savings bank account in the name of the minor with the United Commercial Bank, India Exchange Place, Calcutta. It is also recorded that the assessee did not at any point of time claim any right, title, interest or benefit of any such profits. It was also pointed out before the AAC that no fund belonging to the assessee was utilized in the speculative transactions. Indeed, it appears from the subsequent order of the Tribunal that the funds neither of the assessee nor of the minor were involved. In fact, no fund was involved in the speculative transactions. It was contended before the Tribunal that no part of the income from the speculation in shares earned for the benefit of the minor was enjoyed by Shri K.K. Birla as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shares of Birla Gwalior Pvt. Ltd., which was in the name of the wife. The question was whether these sums should be included in the income of the husband under s. 64(iii) of the I.T. Act, 1961. On this aspect, it appears that the assessee had acquired these shares prior to the years in question. Though, there is no evidence on record to show that these shares were acquired by the assessee, it was stated orally from the Bar that these shares were acquired by the assessee in the year 1959-60. For our present purpose, however, it is not relevant to proceed on that basis. The shares were transferred by the assessee to his wife during the assessment year 1960-61. It is also apparent that the shares were acquired by the assessee at a price of Rs. 4.12 for each share. These were transferred by the assessee during the assessment year 1960-61 at a price of Rs. 4.22 to his wife. It is also material in this connection to refer that the assessee was a director of a number of companies but after the coming into operation of the amendment of the Companies Act with effect from 20th of December, 1960, which put a ceiling upon the directorship of the companies for an individual, the assessee had to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the income from speculation business in shares carried on by the assessee in the name of the minor daughter was not assessable in his hands ? 2. If the answer to question No. 1 is in the negative, then whether, on the facts and in the circumstances of the case, the dividend and bank interest, income arising from assets acquired out of the income from the speculation business carried on by the assessee in the name of his minor daughter, was not liable to be included in the assessee's income ? 3. Whether, on the facts and in the circumstances of the case, the Tribunal's finding that the shares of Birla Gwalior Pvt. Ltd. were transferred by the assessee to his wife for adequate consideration, was based on no evidence or irrelevant evidence, or otherwise, unreasonable ? 4. If the answer to question No. 3 is in the affirmative then whether, on the facts and in the circumstances of the case, the Tribunal had misdirected itself in law in holding that the dividend income of Rs. 8,099 from shares of Birla Gwalior Pvt. Ltd. could be included in the total income of the assessee under sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt in those circumstances noted that in that sense the transactions were " admittedly benami ". If the assessee carries on business in the name of the minor then the income must be of the assessee. But here the facts are entirely different. Here the minor was carrying on the business as found by the Tribunal through the guardian, the father. The father was acting not for himself but as the guardian for and on behalf of the minor. In these circumstances, in our opinion, no other conclusion was possible than that was arrived at by the Tribunal. It was not argued before the Tribunal that the transactions were illegal. In any case the transactions could not be illegal. There is no law debarring a minor from entering into a contract through her guardian. Therefore, there was no prohibition on the minor entering into a contract in respect of speculative transactions through her lawful and natural guardian. In any event, in view of the provisions of the Hindu Minority and Guardianship Act, 1956, specially in view of subs. (3) of s. 8, it could not be said that the transaction in question would in any event be void. Even in case of transactions of immovable property which were not permit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ination of the aspect, it appears that there was no transfer of any knowledge as such. There was only performance of certain functions by the guardian which the guardian would have normally in a fiduciary capacity been obliged to do. In the premises, we are of the opinion that on the first aspect it cannot be said that the income of the minor from the speculation business could be included in the income of the assessee. On the second aspect the question is mainly whether the shares of Birla Gwalior Rayon Co. were transferred for inadequate consideration by the assessee to his wife. We have set out the necessary facts hereinbefore. How in a situation of this nature the shares should be valued has been examined by the Supreme Court in two decisions to which our attention was drawn. We may first refer to the observations of the Supreme Court in the case of CWT v. Mahadeo Jalan [1972] 86 ITR 621. There the Supreme Court observed at p. 633 of the report as follows: " An examination of the various aspects of valuation of shares in limited company would lead us to the following conclusion: (1) Where the shares in a public limited company are quoted on the stock exchange and there ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt as will be applicable to the facts of each case. But, one thing is clear, the market value, unless in exceptional circumstances to which we have referred, cannot be determined on the hypothesis that because in a private limited company one holder can bring it into liquidation, it should be valued as on liquidation by the break-up method. The yield method is the generally applicable method while the break-up method is the one resorted to in exceptional circumstances or where the company is ripe for liquidation but none the less is one of the methods." It appears that there are two well-known methods of valuation. In the case of shares of private limited companies which are not quoted in the market, either the yield method or the break-up method is to be followed, though apart from this, other methods might be adopted to suit certain particular contingency. But normally these are the two recognised methods and which one of these two methods would be appropriate in a particular case must depend on the facts and circumstances of each case. Here we have noted that there are restrictions on transferring the shares as set out in the relevant provisions of the articles of association. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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