BANERJEE, J. - (1.) THIS is a reference under s. 66(1) of the Indian IT Act, 1922.
(2.) THE assessment year involved is the year 1960-61, corresponding to the previous year ended on September 30, 1959. The reference has been made in the circumstances hereinafter stated in brief. The assessee, Abhijit Sen, during the relevant period was a director of a private company known as M/s Sen and Pandit Private Ltd. He used to receive a sum of money by way of salary and a further sum by way of house allowance. The assessee himself, his brother, Sanjoy, and his father, Sudhir Kumar, were also sharesholders in the private company and used to receive dividends declared by the company on their respective shares. On February 5, 1958, Sudhir Kumar transferred, by way of gift, 10,000 shares in the private limited company to the wives of his two sons, namely, the assessee and Sanjoy, each getting 5,000 shares. On the same day, the assessee and Sanjoy each made a gift of 5,000 shares in the private company to their mother, wife of Sudhir Kumar. Also on the same day, the assessee and Sanjay each made a gift of 5,000 shares in the Private Company to the wife of the other brother and a further 5,000 shares in the same company to a married sister of theirs. Thus the wife of the assessee, the wife of his brother, Sanjoy, and the mother of the assessee and Sanjoy each came to possess 10,000 shares in the private limited company. We are not concerned, in this reference, with the transfer of shares made to the sister of the assessee and of Sanjoy. The transfer of shares were all registered, in the names of the transfers, in the share register of the private company. In the return filed for the asst. yr. 1960-61, the assessee excluded the dividened income derived from the 10,000 shares which he held transferred to his mother and brother's wife, namely, 5,000 shares to his mother and 5,000 shares to his brother's wife. The ITO, however, included the dividend income in the hands of the assessee with the following observations : "It was found that the assessee, by collateral and associated operation with his brother, Sri Abhijit Sen (mistake for Sanjoy Sen), and father, Sri S. K. Sen, gifted 10,000 shares of M/s Sen and Pandit Private Ltd. to his wife... The net result of the above transactions on 5th February, 1958, i.e., on the same date, was that 10,000 shares were transferred from Sarvasree S. K. Sen, Sanjoy Sen and Abhijit Sen to their wives, Mrs. Mira Sen, Mrs. Ratna Sen and Mrs. Amiya Sen.
(3.) SEC. 16(3) speaks not only of the direct transfer of assets to the wife but also speaks of indirect transfer and since these were done on the same date, this is obviously the case of indirect transfer of assets, which attracts the provisions of cl. (iii) of sub-s. (a) of s. 16(3) of the Indian IT Act. There is no question of agreement to live apart in this case and, in spite of specific opportunity given to the assessee, the assessee has not come forward with any consideration adequate or otherwise for which the transfer was made. It was, however, contended by the assessee that he gifted not only 10,000 shares but actually 15,000 shares, 5,000 of which were gifted of his sister. This does not, however, in any way change the position of law in so far as the transfer of 10,000 shares indirectly to the wife are concerned. The assessee appealed against the assessment order before the AAC. The AAC allowed the appeal, relying on a decision of the Madras High Court in C. M. Kothari vs. CIT (1958) 34 ITR 317. The reasons which weighed with the AAC are quoted hereinbelow : "The ITO has not attempted to establish that one transfer is the consideration for another in this case. He has not even bothered to ascertain what were the reasons for the gifts made and whether there was any understanding before the gifts were made. In response to my question, Sri Maitra submits that the motive for the gifts made by the assessee were natural love and affection and an intention to gift to his mother and other ladies income producing assets. It is also submitted that the same ITO has assessed the assessee to gift-tax on these gifts. If the ITO holds that the transfers were to his own wife, then under the GT Act gift to one's wife is exempt up to the extent of Rs. 1,00,000. It is verified that the GTO has not allowed this relief in the gift-tax assessment. All these facts go to show that the stand taken by the ITO in the present assessment cannot be sustained. There is no material whatsoever to hold that the assessee indirectly transferred his own shares to his wife. In this connection an additional factor to be noted is that the distinctive number of the shares gifted by the assessee to his mother and other ladies is different from the distinctive numbers of shares received by the assessee's wife. It is well-settled that in the case of shares the rights are attached to the particular shares. In this case the shares belonging to the assessee' were not as such transferred to the assessee's wife. Therefore, in this particular case it cannot be held that the assets have been transferred to the wife." The Revenue, thereupon, appealed before the Tribunal, which dismissed the appeal with the observation : "The only contention raised in this Departmental appeal is that the AAC is wrong in excluding from the total income of the assessee the dividend on 10,000 shares of Sen and Pandit (P.) Ltd., which the assessee had gifted away to his wife. We have decided an indentical point in the case of the assessee's father, Sri Sudhir Kumar Sen (deceased), being I. T. A. No. 5861 of 1961- 62 and following the same reasons we confirm the AAC's order and dismiss the Departmental appeal." ;