Sabyasachi Mukharji, J. - (1.) The assessment years involved in this reference are 1967-68, 1968-69 and 1969-70, for which the relevant previous years are the previous financial years. In the proceedings for assessment to tax, the ITO included the profit from the speculation transactions earned in the name of Kumari Shobhana Birla, minor daughter of the assessee, Sri K. K. Birla, in the total income of the assessee. The profits from the speculative transactions amounted to Rs. 8,267 in 1967-68, Rs. 5,375 in 1968-69 and Rs. 8,025 in 1969-70. The reasons were given by the ITO for this inclusion in the assessment order for the assessment year 1968-69. In the supplementary or subsequent assessment order passed for 1967-68 under Section 147(b) of the I.T. Act, the ITO included in the income of the assessee the speculation income which was declared in the personal return of the minor daughter with the following observations : " As per finding in the assessment order of Kumari Shobhana Birla for the assessment year 1967-68, speculation income shown by the minor is held to be the income of the father and natural guardian, Shri K.K. Birla, who actually earned the income by using his skill and credit-worthiness." In the assessment order for 1968-69, income from share speculation in the name of the minor, Kumari Shobhana Birla, was included in the income of the assessee by the ITO with the following observations : " Kumari Shobhana Birla is the minor daughter of Shri K. K. Birla, She had not attained the age of discretion during the relevant assessment year. She had a bank account of her name in her personal name and though she was below 14 was allowed to operate the account by the bank, During the year there was speculation in the shares of Orient Paper Mills Ltd. and M/s, Birla Jute Co. Ltd. through M/s. B. Newar & Co. On the point as to who issued instructions to enter into contract with the broker, it was confirmed by the representative that it was Shri K. K. Birla who issued instructions. In the case of Kumari Shobhana Birla, the broker was summoned in the earlier year and he had confirmed that it was Shri K.K. Birla who issued instructions. Shri Newatia states that the facts of the case in the year are the same as in earlier year." It appears that the minor received the income as the amount was deposited in the bank account standing in her name and the amount was invested in the various firms in the name of the minor. In this connection, it would be necessary to refer to the facts as found by the ITO as well as the Tribunal. The ITO has further observed in the assessment year 1968-69 as follows: " Kumari Shobhana Birla is the minor daughter of Shri K. K. Birla. She had not attained the age of discretion during the relevant assessment year. She had a bank account of her name in her personal name and though she was below 14 was allowed to operate the account of the bank. During the year there was speculation in the shares of Orient Paper Mills Ltd. and M/s. Birla Jute Co. Ltd. through M/s. B. Newar & Co. On the point as to who issued instructions to enter into contract with the broker it was confirmed by the representative that it was Shri K.K. Birla who issued instructions. In the case of Kumari Shobhana Birla, the broker was summoned in the earlier year and he had confirmed that it was Shri K.K. Birla who issued instructions. Shri Newatia states that the facts of the case in the year are the same as in the earlier year. In the hands of minor, Kumari Shobhana Birla, the speculation income has not been accepted and it has been concluded therein that the speculation income disclosed actually is the income of Shri K. K. Birla by applying the following tests. It is not denied that the minor has received income as the amount is deposited in the bank account standing in her name and the amount has been invested in the various firms in the name of the minor. But the receipt alone of an amount by an individual does not establish that a particular income is his income be claimed so as a matter of right because he has earned it cither by applying his skill or capital or both. Only a man who has either employed his intelligence and/or labour and/ or capital in the earning of a particular income has got a claim over it. And this is the sole test to determine whether a particular income is of Mr. X or Mr. Y. By receipt of an amount one cannot say that because the amount has been received, so it is his income." The ITO was of the view that Sri K. K. Birla had utilized his skill in making this earning. Therefore, it was his income. It appears from the order of the AAC that it was established before him that the transactions were effected through various recognized stock brokers of the Calcutta Stock Exchange. The profits resulting from such transactions were received from the brokers by the account payee cheques drawn in the name of the minor and such cheques in all cases were directly credited in the savings bank account in the name of the minor with the United Commercial Bank, India Exchange Place, Calcutta. It is also recorded that the assessee did not at any point of time claim any right, title, interest or benefit of any such profits. It was also pointed out before the AAC that no fund belonging to the assessee was utilized in the speculative transactions. Indeed, it appears from the subsequent order of the Tribunal that the funds neither of the assessee nor of the minor were involved. In fact, no fund was involved in the speculative transactions. It was contended before the Tribunal that no part of the income from the speculation in shares earned for the benefit of the minor was enjoyed by Shri K.K. Birla as his income. The contracts were in the name of Kumari Shobhana Birla but the same were, however, entered into by the assessee as her guardian. From the orders of the ITO, the AAC and the Tribunal, the following facts emerge :--The speculation in shares of various well-known companies was entered into through registered stock brokers of Calcutta Stock Exchange and they have confirmed that the contract forms and all other documents relating to the speculative transactions were in the name of Kumari Shobhana Birla and they were signed by her father as guardian. It is common ground that no fund of the assessee was utilized in carrying on the speculation business.
(2.) Learned advocate for revenue urged that there was no positive evidence that any fund of Sri K. K. Birla was not utilized in carrying on speculation business. It would not be proper to say that it was common ground that no fund of Sri K. K. Birla was utilized in carrying on this speculation business. It might be strictly correct to say that it was not a common ground that no fund of the assessee was utilized in carrying on the speculation business. But, (1) there is no evidence either that any fund of Sri K. K. Birla was involved, (2) indeed it was stressed that in speculative transactions of this nature no fund was necessary or involved, (3) all the transactions involved on this aspect resulted in profit to the minor and there was no loss arising out of the transactions, (4) all the cheques in payment of the profits arising out of the speculation in shares were in the name of the minor, (5) evidence was produced to prove that these cheques were credited to the account of the minor in her savings bank account with the United Commercial Bank, India Exchange Place, Calcutta, and the assessee was authorised to operate the bank account even though she was aged about 14 years at the relevant time, and (6) it is also common ground that the amounts credited to her account were utilised for investment in her name and for her benefit and no part of the amounts received from speculation profits in the shares was enjoyed by her father, the assessee.
(3.) Upon these the Tribunal was of the view that these amounts arising out of the speculation shares could not be treated as the assessee's income. There was another aspect of the matter, namely, the addition of certain sums resulting from the dividends in respect of the shares of Birla Gwalior Pvt. Ltd., which was in the name of the wife. The question was whether these sums should be included in the income of the husband under Section 64(iii) of the I.T. Act, 1961. On this aspect, it appears that the assessee had acquired these shares prior to the years in question. Though, there is no evidence on record to show that these shares were acquired by the assessee, it was stated orally from the Bar that these shares were acquired by the assessee in the year 1959-60. For our present purpose, however, it is not relevant to proceed on that basis. The shares were transferred by the assessee to his wife during the assessment year 1960-61. It is also apparent that the shares were acquired by the assessee at a price of Rs. 4.12 for each share. These were transferred by the assessee during the assessment year 1960-61 at a price of Rs. 4.22 to his wife. It is also material in this connection to refer that the assessee was a director of a number of companies but after the coming into operation of the amendment of the Companies Act with effect from 20th of December, 1960, which put a ceiling upon the directorship of the companies for an individual, the assessee had to resign from the directorship of some of the companies. The assessee, therefore, wanted to unload his shareholding of M/s. Birla Gwalior Pvt. Ltd. of which he was a director. It also appears that under Section 43(a) of the articles of association of Birla Gwalior Pvt. Ltd., there were restrictions on the right of the transfer of the shares. Article 43 of the articles of association as well as Article 50 of the articles of association were as follows: " A share may be transferred by a member or other person entitled to transfer to any member selected by the transferor. Any share may be transferred by a member to any child or other issue, son-in-law, daughter-in-law, father, mother, brother, sister, nephew, niece, wife or husband of such member, and any share of a deceased member may be transferred by the executors or administrator to any child, or other issue, son-in-law, daughter-in-law, father, mother, brother, sister, nephew, niece, widow or widower of such deceased member and shares standing in the name of the trustee of the will of any deceased member may be transferred upon any change of trustees, to the trustees for the time being of such will. " In that view of the matter, the ITO was of the view that the shares were transferred to his wife for an inadequate consideration and, therefore, the profits of the dividends arising from such transfer should be includible under Section 64(iii) of the I.T. Act, 1961. The Tribunal was, however, unable to accept this conclusion. The Tribunal referred to the decision of the Supreme Court and observed that the fair market price of the share had to be determined on the basis of the break-up value of the shares on the date of transfer and the Tribunal was of the view that there were restrictions on the transfer of shares and, secondly, in the immediately preceding year, the company had not declared any dividend. The Tribunal also noted that the assessee himself had purchased the shares at Rs. 4.12 per share and transferred those shares at Rs. 4.22 per share. In the premises, the Tribunal was of the view that it could not be said that the shares were transferred for inadequate consideration and, therefore, the income arising out of the shares could not be includible under Section 64(1) of the I.T. Act, 1961.;