PROVAT KUMAR MITTER vs. COMMISSIONER OF INCOME TAX, WEST BENGAL

CIVIL APPEAL No. 366/1959Supreme Court[1961] 3 S.C.R. 3708 December 1960Bench: 3 JudgesAuthor: S.K. DAS, M. HIDAYATULLAH, J.C. SHAH S. C.R. SUPREME COURT REPORTS8 pages
AI SummaryDismissed

What did the Supreme Court hold?

The Supreme Court held that the deed dated January 19, 1953, was not a transfer of existing property (the shares) but a contract to transfer or make over in future every dividend and sum of money declared or due on the shares to the wife during her lifetime. The shares themselves remained the assessee's property, and he retained the right to participate in the company's profits. The Court reasoned that the company could only pay dividends to the registered shareholder or under their orders. Therefore, the income continued to accrue to the assessee, although it was subsequently applied towards payment to the wife as per the contract. Consequently, the income was assessable in the hands of the assessee. The Court distinguished the case from one involving diversion of income before accrual, stating this was a case of application of income after it accrued. The principle from Howrah Trading Co. Ltd. v. Commissioner of Income-tax, Calcutta was relied upon. The Court found it unnecessary to decide if the contract operated in praesenti or futuro, as in either case, income accrued to the settlor first. The appeal was dismissed.

What were the facts?

The assessee, Provat Kumar Mitter, a registered holder of 500 shares, executed a deed on January 19, 1953, assigning to his wife the right to all dividends and sums declared or due on these shares for her lifetime. For the accounting year ending March 31, 1953, the dividend amounted to Rs. 12,000. The Income-tax Officer included this sum in the assessee's income for assessment year 1953-54 under sections 16(1)(c) and 16(3) of the Indian Income-tax Act, 1922. The assessee contended that the third proviso to section 16(1)(c) applied, exempting the dividend received by his wife, and that section 16(3) was inapplicable as there was no transfer of shares. The Appellate Assistant Commissioner and the Income-tax Appellate Tribunal ruled against the assessee, with the Tribunal finding the deed invalid as an unregistered instrument for transferring dividend income. The High Court, on reference, answered the question regarding the application of dividend income to the wife in favour of the Revenue.

What were the issues?

1. Whether the deed dated January 19, 1953, assigning dividends on account of natural love and affection, is void for not being registered, under Section 16(1)(c) and Section 16(3) of the Indian Income-tax Act, 1922. 2. Whether the third proviso to Section 16(1)(c) is repugnant to the main clause and the general scheme of the Act, and should not be given effect to, under Section 16(1)(c) of the Indian Income-tax Act, 1922. 3. Whether, on the facts, the payment of dividend income to the assessee's wife under the deed was merely an application of the assessee's income, under Section 16(1)(c) and Section 16(3) of the Indian Income-tax Act, 1922. Assessee's arguments: The assessee argued that the third proviso to Section 16(1)(c) applied, meaning the dividend received by his wife should not be deemed his income. He also contended that Section 16(3) was not applicable as there was no transfer of the shares themselves, only the right to dividends. He relied on observations in Bacha F. Guzdar v. Commissioner of Income-tax, Bombay. Revenue's arguments: The Revenue argued that the third proviso to Section 16(1)(c) was repugnant to the main provisions and the Act's scheme. They also contended that since the shares remained in the assessee's name and dividends were declared in his name, the transfer of dividend was merely an application of income, making the assessee liable for tax. A further argument was that the deed, being unregistered, was invalid for transferring dividend income.

Which sections of the Income-tax Act were involved?

Section 16(1)(c), Section 16(3)

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3 S. C.R. SUPREME COURT REPORTS 37 PROVAT KUMAR MITTER v. COMMISSIONER OF INCOME TAX, WEST BENGAL (S. K. DAs, M. HrnAYATULLAH and J.C. SHAH, JJ.)

Income Tax-Assignment by shareholder of right lo dividend -Liability to lax of such share-holder-Indian Income-lax Act, I922 (II of 1922), SS. 16(r)(c), I6(3).

The appellant who was the registered holder of 500 shares of a company executed a deed dated January 19, 1953. by which he assigned to his wife the right, title and interest to all divi- dends 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. During the accounting year which ended on March 31, 1953, the dividend declared on the shares amount- ed to Rs. 12,000, and in assessing the appellant for the assess- ment year 1953-54 the Income-tax Officer included the said sum in his income under s. l6(1)(c) ands. 16(3) of the Indian Income- tax Act, 1922. The appellant claimed 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), and that s. 16

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