MAKKAR PILLAI Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) These are references made by the Income Tax Appellate Tribunal, Madras A Branch under clauses (2) and (1) respectively of S.66 of the Indian Income Tax Act. They arise out of the assessment to income tax of the same individual M. K. Makkar Pillai, Alwaye, for the assessment years 1123 and 1124 M. E. As the question referred is more or less the same they were heard together and are being disposed of by this single order.

(2.) The assessee by his first wife, deceased, had 8 children who were all adults. By second wife he had 3 daughters who are all minors. In October 1941 he floated a private limited company to take over his lucrative business in cashew nuts, lemon grass oil, etc. Out of the 300 shares, the assessee retained for himself 180 shares and caused the allotment of 10 shares each to his second wife and 11 children We are concerned with the dividends, which accrued on the 40 shares appertaining to the second wife and her 3 minor children. The Income Tax Officer in the first instance and later, the Appellate Assistant Commissioner and the Appellate Tribunal in successive appeals held that these dividends should be included in the income of the assessee for the assessment years 1123 and 1124 by virtue of the operation of S.20(3)(a) clauses (iii) and (iv) of the Travancore Income Tax Act, XXIII of 1121 corresponding to the similar sub clauses in S.16 of the Indian Act. It was contended on behalf of the assessee, that the clauses (iii) and (iv) above will not hit the transfers in favour of the second wife and the minor children effected long previously particularly in view to S.37 of the Travancore Act, to which there is no corresponding section in the Indian Act, which specially provided against evasion of liability to assessment as a result of settlement etc., but effected only after the 1st January 1945. The , question was therefore formulated in the Reference Case No. 6 of 1955 herein:

(3.) Before proceeding to discuss the question, it will be useful to extract the relevant provisions of the Act. S.20(3) runs as follows: