COMMISSIONER OF INCOME TAX Vs. WADIA J B

JUDGEMENT

(1.) THE assessee is a beneficiary under the will and also under a trust deed executed by Lady Aimai Wadia, who died on the 14th April, 1930. Under cl. (3) of the trust deed which was executed by Lady Aimai Wadia on 28th March, 1928 interest, dividends and income from a moiety of the trust property was to be received by the assessee during his lifetime and after his death the said moiety both as to capital and income was to go to the child or children of the assessee, who attained or shall have attained the age of 18 years in equal shares as tenants-in-common. Amongst the properties held under this trust, there were 1,000 shares of the B.E.S.T. Company Ltd. THE company went into liquidation and a sum of Rs. 35,000 was paid by the liquidators to the trustees in respect of the said shares. THE B.E.S.T. Co., at the time when it went into liquidation, had certain accumulated profits and the amount of Rs. 35,000 which the trustees received, included a sum of Rs. 6,125 which represented a distribution out of the accumulated profits during the six previous years of the company preceding the date of liquidation. In the assessment of the assessee for the Asst. yr. 1955-56, the ITO, applying s. 41 of the Indian IT Act, included a half share of the said sum of Rs. 6,125 in the assessment on the basis that the amount was dividend income of the assessee in accordance with the provisions of s. 2(6A)(c) of the Act. THE assessee challenged the inclusion of this sum before the AAC in appeal, but the challenge was not accepted and his appeal was dismissed. THE assessee then filed a second appeal before the Tribunal and contended that the amount of Rs. 3,122-8-0 was not assessable in the hands of the assessee. THE Tribunal upheld the said contention of the assessee and allowed his appeal. THE Tribunal took the view that the said sum could not be regarded as income, which was receivable by the assessee under the trust deed, because although it could be regarded as "income" under the Indian IT Act being included in the term "dividend", in order to regard it as "income" in the hands of the assessee, it will have further to be deemed to be received or receivable by the assessee when in fact it was neither received nor receivable. At the instance of the Department, the Tribunal drew up a question of law as arising out of its order and referred it to this Court. THE said question is as follows :

(2.) THE assessee's grandmother, Lady Aimai Wadia, had executed a will on the 26th Jan., 1929 which she had further modified by a codicil dt. 26th Sept., 1929. Under the will as modified by the said codicil certain immoveable properties were allowed to be sold and converted into cash by the trustees and the proceeds directed to be invested in the investments specified in the will. THE income from the said investments was to go to the assessee for his lifetime. In exercise of the powers conferred upon them, the trustees sold the said immoveable properties and invested the proceeds in shares and securities as provided under cl. 24 of the will. Under the said clause, the trustees had also power and liberty to vary the investments from time to time. In the relevant account year, the trustees sold some of the shares and the sale resulted in a surplus of Rs. 1,171. In the assessment of the assessee for the year 1956-57 this amount was included in his income as profit on sale of shares. In the appeal, which the assessee took against the assessment order, the AAC took the view that the entire amount of the surplus could not be regarded as profit on sale of shares, but only such part of it as had resulted from the sale of the shares, which were sold within three years of their purchase. On this basis he found that a sum of Rs. 907 was the profit on the sale of shares, which could be included in the income of the assessee. THE assessee took a second appeal to the Tribunal. THE Tribunal held that the entire amount of the surplus of Rs. 1,171 could not be regarded as received or receivable by the trustees on behalf of the assessee and hence could not be included in the income of the assessee under s. 41(2) of the Indian IT Act. THE Tribunal accordingly allowed the appeal of the assessee. At the instance of the Department, it then raised and referred to this Court the following question of law as arising out of its order :