COMMISSIONER OF WEALTH TAX Vs. T RUGMINI ACHI

JUDGEMENT

(1.) The following question has been, at the instance of the revenue, referred to us by the Income Tax Appellate Tribunal, Cochin Bench:

(2.) It is true that bonus shares were issued to the transferees and not to the transferor. It is also true that the shares cannot be transferred otherwise than in accordance with the provisions of the Companies Act, 1956. Nevertheless, it cannot be gainsaid that bonus shares were issued on the strength of and by reason of the shares held by the transferees. Although the bonus shares were issued in the names of the transferees, being the holders of the other shares, the bonus shares would not have been issued, but for the other shares. In other words, the bonus shares assumed the character of an accretion, so to say. If that is the position in law, as we think it must be, they must go where the other shares go in terms of the instruments of transfer. However the shares cannot change hands except by means of a proper transfer effected in accordance with the provisions of the Companies Act. Nevertheless, tax is charged not under the Companies Act, bat by the taxing statute. So it is that statute which governs the question. Sub-s.(5) of S.4 of the Act makes the position clear. It says:

(3.) This means that even if the asset transferred under an "irrevocable transfer", as that expression is understood within the meaning of the Explanation to S.4 of the Act which we have considered in ITR Nos. 197 to 200 of 1979, has not been retransfered to the transferor in accordance with the relevant provisions of the Companies Act, for the purpose of a charge under S.3 of the Act, the asset shall be deemed to be an asset of the transferor as soon as the power to revoke in terms of the instrument of transfer arises. If for example, the instrument provides for retransfer on a day subsequent to the expiry of the period of six years, the power to revoke arises on that appointed day whether or not the power has been invoked. Although the shares would continue to remain in the hands of the transferees until revoked, and the income accruing from such shares would be assessable under the Income Tax Act, 1961 in the hands of the transferees, (see Popatlal Bhikamchand v. Commr. of Inc.-Tax, 1959 (36) ITR 577 (Bom.)) such shares will be deemed under the Act to have reverted to the transferor on the day appointed for revocation and will be assessable in his hands as his wealth. This is the irresistible conclusion to which S.4 leads. With respect, we do not agree with the contrary conclusion reached by the Madras High Court in CWT. v. T. Saraswathi Achi, 1980 (125) ITR 186 (Mad.).