C.S.P. Singh, J. - (1.) THE assessee was, in the relevant assessment year 1948-49, a Hindu undivided family. Its assessment for that year was made by including in the returned income amounts of certain credits appearing in the books of the assessee as being income from undisclosed source. In view of the additions made in its income, the Income-tax Officer issued a notice under Section 28(3) of the Indian Income-tax Act, 1922, on February 27, 1958. Penalty proceedings dragged on and eventually terminated by an order, dated August 22, 1963, by which the Income-tax Officer imposed a penalty on the assessee for concealing its income. THE assessee had while the penalty proceedings were pending claimed a partition of the joint Hindu undivided family as from the 6th May, 1958. THE Income-tax Officer had not accepted the partition but the assessee went up in appeal against that order and the appeal was eventually allowed on the 12th December, 1963, by an order recognising the partition as from 6th May, 1958.
(2.) AGAINST the order of penalty, the assessee filed an appeal by W.T.R. No. 344 of 1969 (Lala Narendra Lal, Shamli v. Commissioner of Income-tax). Rajendra Lal and Narendra Lal are two brothers. The family of Rajendra Lal consists of himself and his wife, Shrimati Shusheela Devi, while that of Narendra Lal consists of himself, his wife, Shrimati Kamla Devi, a major daughter, Manjula Rani, and a minor daughter, Roopa Rani. The family was joint and a partial partition took place on August 7, 1959. In that partition, 2,200 shares of Upper Doab Sugar Mills, Shamli, were divided as under : (1) Rajendra Lal--100 shares of the value of Rs. 10,000, (2) Smt. Shusheela Devi--1,000 shares of the value of Rs. 1,00,000. (3) Narendra Lal--100 shares of the value of Rs. 10,000. (4) Smt, Kamla Devi--100 shares of Rs. 10,000. (5) Manjula Rani (major daughter)--450 shares of the Value of Rs. 45,000. (6) Roopa Rani (minor daughter)--450 shares of the value of Rs. 45,000. It will be seen that the two branches, i.e., Rajendra Lal and Narendra Lal, got equal shares. For the assessment year 1962-63, the Income-tax Officer included the value of the shares allotted to the wife and daughters of Narendra Lal in the total wealth of the assessee, Narendra Lal, under Section 4(1)(a)(i) and 4(1)(a)(ii) of the Wealth-tax Act. He also repelled the other contention made by the assessee that dividends which had been declared in respect of each share but had not been actually paid to him should not be included in his net value. The assessee, thereafter, filed appeals before the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal, but was unsuccessful. Thereafter, they applied far and obtained consolidated reference in respect of both the years under Section 27(1) of the Wealth-tax Act. The Tribunal referred the following two questions for answer to this court: "(1) Whether, on the facts and circumstances of the case, the provisions of Section 4(1)(a)(i) and 4(1)(a)(ii) of the Wealth-tax Act, 1957, were rightly applied; and (2) Whether the dividends of Rs. 53,809 and Rs. 12,500, respectively, declared by the company but not actually paid to the assessee prior to the valuation dates could be assessed to wealth-tax for the assessment years 1962-63 and 1963-64 ?" When the matter came up before a Division Bench of this court, it was urged on behalf of the revenue that inclusion of the value of shares allotted to the wife and his daughters was justified and reliance for this proposition was placed on a decision of this court in Rajendra Lal v. Commissioner of Income-tax, [1970] 78 I.T.R. 803 (All.). The Division Bench, however, doubted the correctness of the view expressed in Rajendra Lal's case in view of the decision of the Supreme Court in N. V. Narendra Nath v. Commissioner of Wealth-tax, [1969] 74 I.T.R. 190; [1969] 3 S.C.R. 882 (S.C). It referred the matter to a larger Bench and that is how the case has now come up before us.
(3.) IN order to return an answer to the first question, it would be useful to quote Section 4(1)(a)(i) and (ii) of the Wealth-tax Act, 1957: "4. Net wealth to include certain assets.--(1) IN computing the net wealth of an individual, there shall be included, as belonging to him--(a) the value of assets which on the valuation date are held-- (i) by his wife to whom such assets have been transferred by the individual, directly or indirectly, otherwise than for adequate consideration or in connection with an agreement to live separately, or (ii) by a minor child not being a married daughter to whom such assets have been transferred by the individual otherwise than for adequate consideration, or... ." It will be noticed that before Section 4 may be brought in aid. two conditions are necessary. Firstly, that the assessment must be in respect of an individual and, secondly, that assets which are sought to be included should have been transferred by that individual either to his wife or to his minor child. In the present case, the assessee is an individual and so the first test is satisfied. The dispute centres round the question as to whether the second condition is satisfied. The assets, i.e., the shares which were allotted to the two coparceners, i.e., Rajendra Lal and Narendra Lal and their respective wives and children, indisputably belonged to a Hindu undivided family and a partial partition took place on the 18th August, 1959, which was effected by an indenture between the two brothers, Rajendra Lal and Narendra Lal, as also Shrimati Shushila Devi, wife of Rajendra Lal, and Shrimati Kamla Devi, wife of Narendra Lal, on her own behalf and as guardian of the minor daughter, Kumari Roopa Rani, and major daughter, Kumari Manjula Rani of Narendra Lal. The shares were allotted by the assessee to his wife and major and minor daughters by this indenture. The question is as to whether it can be said that this transaction had resulted in transfer of shares by Narendra Lal in his individual capacity to his wife and his minor daughter.;