TMI Blog1971 (7) TMI 24X X X X Extracts X X X X X X X X Extracts X X X X ..... 958, 1959, 1960 and 1961, respectively. Some of the reference applications which were filed before the Tribunal arose under section 66(1) of the Indian Income-tax Act, 1922, while others arose under section 254 of the Income-tax Act, 1961. Since the facts involved in the appeals of both the assessees were similar and the same questions of law arose out of the orders of the Tribunal, a common statement of case was drawn up by the Tribunal and referred originally to the High Court of Judicature at Chandigarh. After the coming into force of the Delhi High Court Act, 1966, the statement of case is now before us. The questions of law are as follows : " (1) Whether, on the facts and in the circumstances of the case, renunciation of the 'right' to apply for shares amounted to transfer of an asset ? (2) If the answer to the above question is in the affirmative, whether, on the facts and in the circumstances of the case 75% of the dividend income could be included in the total income of the aforementioned assessees under section 16(3)(a)(iv) of the Indian Income-tax Act, 1922, and section 64 of the Income-tax Act, 1961 ? " The assessees in this case are shareholders in a company kno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs was from dividends, whose source was the shares held in the company, for which they had paid Rs. 10 per share, which belonged to them absolutely. In these circumstances, it was pleaded that there was no justification for the revenue to bring to tax 75% of the dividends in question in the hands of the assessees, under section 16(3)(a)(iv). The contention was rejected, and the decision of the Income-tax Officer was upheld. The assessees then took up the matter in appeals to the Income-tax Appellate Tribunal. The original argument about the " right " not being an asset was given up and it was contended on their behalf that it was only a case of renunciation and not transfer and that it was in the case of transfer only that the provisions of section 16(3)(a)(iv) of the Indian Income-tax Act, 1922, and section 64 of the Income-tax Act, 1961, applied. It was next contended that the dividends in question were earned on account of the investment made by the said minor daughters and not by virtue of the renunciation. The Tribunal held that the renunciation amounted to a transfer. The Tribunal also held against the assessees on the second contention and said that, since the minor daught ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one party only. By the act of renunciation, the assessee transferred his right to acquire the new shares to his minor daughter. In these circumstances, it cannot be said that, in the present case, it was a case of renunciation and not of transfer. The provisions relating to further issue of capital are contained in section 81 of the Companies Act, 1956. Under that section, after the expiry of the period mentioned therein, whenever it is proposed to increase the subscribed capital of the company by allotment of further shares, then such (further) shares are offered to the persons who, at the date of the offer, are holders of the equity shares of the company, in proportion, as nearly as circumstances admit, to the capital paid up on those shares at that date. The offer aforesaid has to be made by notice specifying the number of shares offered and limiting a time not being less than fifteen days from the date of the offer within which the offer, if not accepted, will be deemed to have been declined. The section further provides that, unless the articles of the company otherwise provide, the offer aforesaid shall be deemed to include a right exercisable by the person concerned to ren ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the properties allotted to the wife and minor son to warrant the application of section 16(3)(a)(iii) and (iv) of the Indian Income-tax Act, 1922. Their Lordships held that there was no transfer of assets, direct or indirect, within the meaning of section 16(3)(a)(iii) or (iv) to the wife or minor son. The word " transfer " was used in section 16(3)(a)(iii) and (iv) in the strict sense and not in the sense of including every means by which property may be passed from one to another. The partition of joint Hindu family property was not a transfer in that strict sense. No such question arises in the present case. Here, the new shares which are admittedly movable property and are also transferable have been transferred by the company to the minor daughters of the assessees at the instance of the assessees themselves. The renunciation is the method by which the said transfer has been effected. Instead of acquiring those shares themselves they have asked the company to transfer those shares in the names of their daughters. Learned counsel for the revenue, on the other hand, drew our attention to a decision of the Madras High Court in S. R. Chockalingam Cheitiar v. Commissioner of Gift ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns were minors. There was a reconstitution of the firm the next day after the assessee retired from the firm. The three minor sons were admitted to the benefits of partnership in the firm while the major son became a partner. The question was whether the income arising to the minors by virtue of their admission to the benefits of partnership in the firm could be included in the total income of the assessee under section 16(3)(a)(iv). The Tribunal found that the capital invested by the minors in the firm came from the gift made in their favour by their father, the assessee. It was held by the Supreme Court that the connection between the gifts made by the assessee and the income of the minors from the firm was a remote one and it could not be said that that income arose directly or indirectly from the transfer of the assets. Relying upon this case, learned counsel for the assessees urged that just as a gift made by the assessee in favour of his minor children could not render the income derived by the minors as the income of the assessee under section 16(3)(a)(iv), the renunciation made by the assessees in the present case could not make the income from the new shares as the incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... remium with an option of either taking the shares, or renouncing them, wholly or partly, in favour of others. The appellant renounced her right to the new shares and realised Rs. 45,262.50. When this amount was sought to be wholly taxed as a capital gain, the appellant claimed that on the issue of new shares, the value of her old shares depreciated and that as a result of that depreciation, she suffered a capital loss in the old shares to the extent of Rs. 37,630 which she was entitled to set off against the capital gain of Rs. 45,262.50. It was held that the appellant was entitled to deduct from the sum of Rs. 45,262.50, the loss suffered by way of depreciation in the old shares. In the present case no material has been placed on record that there was any loss in the value of the old shares. It was conceded before the Tribunal that the value of the new shares was Rs. 40 in the market and they were acquired only for Rs. 10. There is also no question of levy of any capital gain in the present case nor did the assessee realise any money from the minors for the transfer of new shares to them. As seventy-five per cent. of the dividend income, which arose on account of the shares tr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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