Bombay H.C : Whether, on the facts and in the circumstances of the case, the dividend income of Rs. 18,134 on 160 bonus shares of M/s Birla Brothers Pvt. Ltd. held by the assessee’s wife, Smt. Shardadevi, is taxable in the hands of the under s. 64(iii) of the IT Act, 1961 ?

R. J. Joshi with R. L. Butani, for the Revenue : R. H. Toprani, for the Petitioner

KANIA, J.:

This is a reference under s. 256(1) of the IT Act, 1961 (referred to hereinafter as “the said Act”). The questions referred to us for our determination in this reference are as follows :

Asst. yr. 1968-69 :

“Whether, on the facts and in the circumstances of the case, the dividend income of Rs. 18,134 on 160 bonus shares of M/s Birla Brothers Pvt. Ltd. held by the assessee’s wife, Smt. Shardadevi, is taxable in the hands of the under s. 64(iii) of the IT Act, 1961 ?” and Asst. yr. 1969-70 : “Whether, on the facts and in the circumstances of the case, the dividend income of Rs. 16,000 on 160 bonus Shares of M/s Birla Brothers Pvt. Ltd. held by the assessee’s wife, Smt. Shardadevi, is taxable in the hands of the assessee under s. 64(iii) of the IT Act, 1961 ?”

The present respondent is the executor of the will of R. D. Birla the original respondent, who was the assessee. We propose to refer to the said R. D. Birla as “the assessee”. Some time prior to 1945, the assessee had transferred 400 shares of Birla Brothers P. Ltd. to his wife, Shardadevi. In the course of the accounting period ending March 31, 1967, relevant to the asst. yr. 1967-68, Shardadevi received 160 shares of Birla Brothers P. Ltd., as bonus shares on account of the said holding of the said 400 shares. In respect of these bonus shares dividend was received during the two accounting periods relevant to the assessment years in question, namely, asst. yrs. 1968-69 and 1969-70, respectively. As in the past, the assessee included in his declared income 2/3rds of the dividends on the said 400 shares of Birla Brothers P. Ltd., transferred by him to Shardadevi, under s. 64 of the said Act. As the assessee had not declared in his return the dividend income in respect of the bonus shares, he was called upon to explain why the same should not be taxed in his hands under s. 64 of the said Act. The ITO, in the assessment proceedings for the said two assessment years, took the view that the original holding of 400 shares of the said company which had been transferred by the assessee to Shardadevi had increased to 560 shares as a result of the issue of bonus shares with the result that the entire 560 shares should be regarded as the assets transferred by the assessee to his wife and the dividend income thereon should be included in the income of the assessee. On appeals preferred by the assessee, the AAC reversed the decision of the ITO and held that the dividend income of the said bonus shares was not liable to be included in the income of the assessee under the provisions of s. 64(iii) of the said Act, as they stood at the relevant time. The decision of the AAC was upheld by the Tribunal in appeals preferred by the Revenue to the Tribunal. It is from the consolidated decision of the Tribunal in the said appeals that the present reference arises and the aforesaid questions have been referred to us.

The relevant portion of s. 64 of the said Act, at the material time, ran thus : “In computing the total income of any individual, there shall be included all such income as arises directly or indirectly— . …… (iv) subject to the provisions of cl. (i) of s. 27, in a case not falling under cl. (i) of this sub-section, to the spouse of such individual from assets transferred directly or indirectly to the spouse by such individual otherwise than for adequate consideration or in connection with an agreement to live apart ; ……..” It is common ground that the case does not fall within cl. (i) of s. 27 of the said Act.

We find that the question raised before us are covered by the decision of a Division Bench of this Court in Popatlal Bhikamchand vs. CIT (1959) 36 ITR 577 (Bom). In that case the assessee, who held 350 shares in a company, transferred the shares to his minor son by way of a gift. Later, the minor son was allotted 744 bonus shares on his original holding of 350 shares. The question was whether the dividend income from the 744 bonus shares allotted to the minor could be included in the total income of the assessee under s. 16(3)(a)(iv) of the Indian IT Act, 1922. It was held that although the bonus shares were in the hands of the minor son undoubtedly an accretion to the assets transferred by the assessee, they could not be regarded as ” assets transferred” by the assessee, the dividend income from those bonus shares could not be regarded as arising even indirectly from the assets transferred by the assessee, and, therefore, the dividend income on the 744 bonus shares could not be taxed in the hands of the assessee under s. 16(3)(a)(iv) of that Act. The Legislatare had not by enacting s. 16(3)(a)(iv) sought to tax in the hands of the assessee income arising from accretions to the assets transferred by him to his minor child. It is true that this decision does not pertain directly to the provisions of s. 64(iv) of the said Act as they stood at the relevant time. But we find that the provision, which came up for construction in that case was in pari materia with the provision before us. The relevant portion of s. 16(3) of the Indian IT Act, 1922, which has been set out at p. 579 of the aforesaid report, reads thus : “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 …… (iv) from assets transferred directly or indirectly to the minor child, not being a married daughter, by such individual otherwise than for adequate consideration.”

The ratio in the aforesaid decision must, therefore, apply to the case before us. We may point out that in CIT vs. T. Saraswathi Achi (1982) 133 ITR 315 a Division Bench of the Madras High Court applied the ratio in Popatlal Bhikamchand vs. CIT (1959) 36 ITR 577 (Bom), to the case which arose before them and which had to be considered under s. 64(1)(iv) of the said Act, namely, the IT Act, 1961.

In the result, the questions referred to us are both answered in thenegative and against the Revenue. The CIT to pay the costs of the reference to the assessee.

[Citation : 142 ITR 377]