1960 (12) TMI 8 - SC - Income Tax

Whether on the facts and in the circumstances of the case the payment of dividend income to the assessee s wife Ena Mitter under the covenant in the deed of assignment dated January 19 1953 was merely a case of application of the assessee s income ? Held that - The true position is that if a person longer his alienated or assigned the source of his income so that it is no longer his he may not be taxed upon the income arising after the assignment of the source apart from special statutory provisions like section 16(1)(c) or 16(3) which artificially deem it to be the assignor s income. But if the assessee merely applies the income so that it passes through him and goes on to an ultimate purpose even though he may have entered into a legal obligation to apply it in that way it remains his income. This is exactly what has happened in the present case. High court correctly answered the third question against the assessee. Appeal dismissed.

Summary

Issues:
- Interpretation of a deed assigning dividends to a beneficiary.
- Application of income tax provisions regarding assignment of dividends.
- Validity of an unregistered instrument for transferring dividend income.

Interpretation of Deed Assigning Dividends:
The case involved an appeal regarding the assignment of dividend income from shares to the appellant's wife through a written instrument. The appellant contended that the assignment was for the lifetime of his wife, thus exempt from being deemed his income. The court analyzed the terms of the instrument, emphasizing that the shares remained the property of the appellant, and only the income from them was assigned to his wife. The court concluded that the assignment was an application of income, not a transfer of property, and therefore assessable in the hands of the appellant.

Application of Income Tax Provisions:
The appellant argued that the third proviso to section 16(1)(c) applied, exempting the dividend received by his wife from being deemed his income. The court examined whether the income was assessable in the hands of the appellant under section 16(1)(c) and 16(3) of the Income-tax Act. It was determined that the income continued to accrue to the appellant and was subsequently paid to his wife under the terms of the contract, making it assessable in his hands despite the assignment.

Validity of Unregistered Instrument for Dividend Transfer:
A new contention raised was the validity of the deed transferring dividend income, as it was an unregistered instrument. The Tribunal held that the deed did not operate as a valid transfer of income to the appellant's wife. This issue was considered alongside the interpretation of the deed and the application of income tax provisions. The court upheld the Tribunal's decision on this matter, further supporting the assessability of the income in the hands of the appellant.

Conclusion:
The High Court answered questions related to the deed assignment in favor of the appellant on some aspects but against on the application of income tax provisions. The Supreme Court upheld the High Court's decision, concluding that the assignment of dividend income was an application of income, assessable in the hands of the appellant. The appeal was dismissed, affirming the correctness of the High Court's interpretation and decision on the issues raised in the case.