JAGMOHANDAS GOKULDAS SHAH Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS reference, made at them instance of both the Department and the assessee under s. 256 (1) of the IT Act, 1961, and pertaining to asst. yr. 1974-75, refers the following questions :

(2.) THE assessee was assessed as an individual, and the assessment year concerned is 1974-75, for which the relevant accounting period is Samvat Year 2029. The assessee was the registered owner of 150 equity shares of M/s. Lallubhai Amichand Pvt. Ltd. of the face value of Rs. 1,000 each. By an indenture dt. 26th Oct. 1970, he settled the said shares on trust in favour of his minor son, in accordance with the terms and conditions mentioned in the deed of indenture. This was purported to be in discharge of the assessee's legal obligations under the Hindu Adoption and maintenance Act, 1956, towards the maintenance of his minor son. The ITO taxed in the hands of the assessee the dividend income of Rs. 13,500 in respect of the said 150 shares thus settled on trust, on the ground that it was for inadequate or no consideration. Although the AAC agreed with the ITO's view, the Tribunal, in appeal, took the view that, out of the total dividend income of Rs. 13,500, a sum of Rs. 10,000 should be considered as adequate for discharging the obligations towards maintenance of the minor child, and the balance of Rs. 3,500 had to be brought to tax under the provision of s. 64 (1) (v) of the IT Act, 1961.

(3.) IN somewhat similar circumstances, this Court, in K. M. Sheth vs. CIT/cwt 1977 CTR (Bom) 314 : (1977) 107 ITR 45 (Bom) has taken the view that transfers of shares to a trust set up for the benefit of the minor child of the settlor would squarely fall within the mischief of s. 64 of the IT Act, 1961, and that the dividend income which arose from the settled shares was liable to be included in the total income of the settlor.