(1.)This is an appeal on a certificate of fitness granted by the High Court of Calcutta under S. 66A(2) of the Indian Income-tax Act, 1922. The assessee, Provat Kumar Mitter, is the appellant before us. He was a registered holder of 500 Ordinary shares of the Calcutta Agency Ltd. By a written instrument, dated January 19, 1953, he assigned to his wife, Ena Mitter, the right, title and interest to all dividends and sums of money which might be declared or might become due on account or in respect of those shares for the term of her natural life. We may read here the material portion of the instrument:
"This Deed Witnesseth that for effecting the said desire and in consideration of the natural love and affection of the Settlor for the Beneficiary the Settlor as the beneficial owner assigns unto the Beneficiary the right, title and interest to every dividend and sum of money which may be declared or become due and payable on account of or in respect of the said shares (not being the price or value thereof) and further hereby covenants with the Beneficiary to hand over and/or endorse over to the Beneficiary any dividend Warrant or any other document of title to such dividend or sum of money as aforesaid and to instruct the said Company to pay any such dividend or such sum of money to the Beneficiary. To Hold the same unto the Beneficiary absolutely during the term of her natural life.
And It Is Hereby Agreed And Declared that the Beneficiary shall remain entitled to and shall receive and stand possessed absolutely of every dividend and sum of money which she may receive on account of the said shares during the term of her natural life and that the Settlor shall have no right, title or interest therein or derive any benefit therefrom during the said period."
(2.)It is to be noticed that under the terms quoted above the shares themselves remained the property of the assessee, and it was only the income arising therefrom which was sought to be settled or assigned to his wife. During the accounting year which ended on March 31, 1953, the dividend declared on the shares amounted to Rs. 12,000/-. In assessing the assessee for the assessment year 1953-54 the Income-tax Officer included the said sum of Rs. 12.000/- in his income under the provisions of S. 16(1)(c) and S. 16(3) of the Act, as he said in his assessment order. The contention of the assessee was that since the settlement was for the lifetime of his wife, the third proviso to S. 16(1) (c) applied and the dividend which his wife received could not be deemed to be his income under S. 16(1)(c); as to S. 16(3) of the Act the assessee contended that it did not apply, because there was no transfer of the shares to his wife. The assessee, accordingly, appealed to the Appellate Assistant Commissioner. Before that authority a somewhat unusual contention was put forward on behalf of the Department, viz., that the third proviso to S. 16(1)(c) should be ignored inasmuch as it was repugnant to the main provisions contained in S. 16(1)(c) and the general scheme of the Act. A further contention urged on behalf of the Department was that since the shares continued to stand in the name of the assessee and the dividends had been declared in his name, the transfer of the dividend to the beneficiary was only an application of the dividend income and, therefore, the assessee could not claim exemption from being taxed on it as a part of his own income. The Appellate Assistant Commissioner accepted both the aforesaid contentions and dismissed the appeal.
(3.)In a further appeal to the Income-tax Appellate Tribunal, the assessee again relied on the third proviso to S. 16(1)(c) of the Act and the Departmental Representative urged the same two contentions plus a new one to the effect that the deed by which the dividend had been transferred was altogether invalid inasmuch as it was an unregistered instrument and, therefore, no valid transfer of the dividend income had been effected by it. The Tribunal rejected the Department's contention that the third proviso was in conflict with the main provisions of S. 16(1)(c) or the scheme of the Act. As to the second contention that the transfer of the dividend income was a mere application of it by the assessee after it had accrued to him, the Tribunal apparently expressed no opinion. It gave effect, however, to the third contention of the Department, namely, that the deed being an unregistered instrument did not operate as a valid transfer of the dividend income in favour of the assessee's wife.