T S SRINIVASAN Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE assessee was the karta of a Hindu undivided family and was assessed as such in the previous assessment years. On December 7, 1957, a document was executed, whereunder the assessee purported to become divided in status. THE only other member of the joint Hindu family was, at the material date, his minor son. This document was registered on February 21, 1958. On that date, the assessee wrote to various companies, in which the family held shares, instructing the companies to alter the name of the owner on the books of the companies in respect of those shares according to the mode of division entered into on partition. THE family owned 3, 293 shares in Messrs. Southern Roadways Private Ltd. Of these, 1, 000 shares were transferred to the wife of the assessee and 500 shares to each of his two minor daughters. THE company, in due course, registered the transfer in its books On March 27, 1958, the assessee intimated the Income-tax Officer of the division that had taken place in the family, and after an inquiry, the Income-tax Officer made an order under section 25A of the Income-tax Act. For the assessment year 1959-60, the accounting year ending with March 31, 1959, the assessee filed a return in his status as an individual. By this date, however, a second son had been born to the assessee, with the result that, in respect of the property in the shape of shares which fell to the share of the assessee on the date of partition referred to a new Hindu undivided family consisting of the assessee and his second son came into existence. THE income from the shares allotted to the assessee at the partition was accordingly claimed to be the income of this new Hindu undivided family. In respect of the 2, 000 shares which had been given to the wife and the two minor daughters of the assessee at the time of partition, the assessee claimed that the dividend income therefrom was not assessable in his hands.

(2.) THE Income-tax Officer, however, thought that, by reason of the absence of any reference in the document of partition to the allotment of certain shares to the wife and the minor daughters and by reason of the further fact that the assessee's instructions to transfer the ownership of those shares were made only on February 21, 1958, that is, subsequent to the partition on December 7, 1957, there was a transfer of the property after a declaration of the division in status, and that, therefore, the transfer of these shares had been effected by the assessee as an individual. He accordingly invoked section 16(3) of the Income-tax Act and proceeded to include the dividend income in respect of these 2, 000 shares and the interest thereon in the income of the assessee as an individual. THE assessee appealed to the Appellate Assistant Commissioner. He pointed out that the so-called transfer of the shares to the lady members of the family was effected by the Hindu undivided family on the eve of its disruption, and that this fact had been accepted by the Gift-tax Officer also in the gift-tax assessment. THE Appellate Assistant Commissioner accepted this contention and directed deletion of the sum included by the Income-tax OfficerTHE department carried a further appeal to the Tribunal. THE contention of the department was that these shares had become the separate property of the assessee on December 7, 1957, and the transfer effected subsequent to the date of partition could only be of the property of the individual. THE Tribunal accepted this contention and held that the Appellate Assistant Commissioner was in error in his view that section 16(3) of the Act did not apply, and allowed the appeal of the departmentOn the application of the assessee under section 66(1) of the Act, the following question stands referred to us"Whether on the facts the inclusion of Rs. 59, 758 representing the gross dividend and the sum of Rs. 2, 496 representing the interest on the dividend amounts in respect of 1, 000 shares belonging to the assessee's wife and 500 shares each to the assessee's minor daughters in the total income of the assessee under section 16(3) was lawful ?" *Section 16(3) of the Act, in so far as it is material, reads thus"16(3). In computing the total income of any individual for the purpose of assessment, there shall be included--(a) so much of the income of a wife or minor child of such individual as arises directly or indirectly--(iii) from assets transferred directly or indirectly to the wife by the husband otherwise than for adequate consideration or in connection with an agreement to live apart or(iv) from assets transferred directly or indirectly to the minor child, not being a married daughter, by such individual otherwise than for adequate consideration..." *It is well recognised that the object of this provision is to circumvent the attempts of assessees to place properties belonging to them nominally in the names of members of the assessee's family, and except in the circumstances provided for in the section, the income from the properties so transferred is treated for the purpose of levy of income-tax as the income of the individual himself. It is obviously a question of fact to be determined in the instant case, whether a transaction is hit by this section.