TMI Blog1960 (3) TMI 60X X X X Extracts X X X X X X X X Extracts X X X X ..... diately in cash by the lady, that amount having been obtained by her by selling her gold ornament (kasumalai), and for the balance of ₹ 20,000 she executed a promissory note in favour of Mr. Jackson, whereby she undertook to repay the balance of the sale price of ₹ 20,000 without interest before the end of 1949. There is no material on record to show whether the lady had on the date of purchase the wherewithal to pay the sum of ₹ 20,000. It was evidently anticipated that she would be able to get that money from out of the income from the dividends on the shares purchased. The stipulation in the promissory note that the balance of purchase money as to be paid by the end of 1949, would indicate that the parties to the transaction contemplated that the purchaser should pay the money from out of the dividends. Mr. Jackson had to leave India sometime between April and June, 1949. He evidently wanted to realise the money before leaving India, and Mr. Murthi paid him the entire amount of ₹ 20,000 in liquidation of the amount due on the following dates in the manner indicated. Rs. Paid on 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ether they were false receipts to support the case that Mrs. Murthi did, in fact, pay the consideration for the sale, is a matter in controversy. But a comparison of the dates of receipt of the dividends with those on which Mr. Jackson was paid would show, (1) that a substantial portion of the first installment of payment must have been of the dividend income and (2) that, although Mr. Murthi paid the second and third instalments, he recouped himself shortly thereafter. 6. The Income Tax Officer held that the dividend income received by Mrs. Murthi has to be included in the assessees total income under section 16(3), as the shares should be held to have been purchased by Mr. Murthi, the assessee, in his wife's name, the considerations for the purchase having been paid by him. On appeal, the Appellate Assistant Commissioner was the opinion that the purchase was made in pursuance of an ingenious plan to keep the transactions outside the mischief of section 16(3), and that the entire amount of dividends received would be assessable to tax. On a further appeal, the Appellate Tribunal held that, out of the total consideration for purchase, at least ₹ 20,000 should be held t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as stated in its order thus : It may well be that the assessee wanted to make a gift of these shares to his wife out of love and affection, but that will not take him out of the mischief of section 16(3)(iii) of the Act, nor from the clutches of the general law of benami. The transaction, it will be observed, has the air of unreality and artificially about it and the endorsements on the pronote only strengthen this view. Monies admittedly had already been received by Mr. Jackson but some endorsements were inserted on the pronote on dates divorced from realities, so as to give the impression that the payments were made as and when the lady happened to receive dividends from the company and thus to get over biggest hurdle that the admittedly had not the wherewithal to pay out ₹ 24,000. The assessee is a director and normally one would expect him to purchase the shares of his company. The consideration to the extent of ₹ 20,000 in the first instance certainly flowed from him. Furthermore, when Mr. Jackson was so meticulous and exacting as to take a pronote from his colleagues wife, there was no good and sufficient reason why, if the assessee was making large payments t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat on the date of the transfer of the shares, Mr. Murthi had no intention of even paying in the way he did not and that the parties contemplated payment after the receipt of the dividends. 9. The learned counsel for the Department sought to support the propriety of the assessment on either of the grounds, namely, (1) on the foot that section 16(3) would apply to the case, and (2) that the transaction was a benami one. 10. Section 16(3), so far as it is relevant for the present purpose, states : In computing the total income of any individual for the purpose of assessment, there shall be included - (a) so much of the income of a wife....... of such individual as arises directly or indirectly...... (iii) from assets transferred directly or indirectly to the wife by the husband otherwise than for adequate consideration or in connection with an agreement to live apart. 11. In the present case, there has been no transfer of the shares as such by Mr. Murthi to his wife. But it is not necessary that there should be a direct transfer of the shares by the husband. If the purchase money for the shares was paid by the husband, with a view to benefit the wife, to enable her to p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ases there was a loan by the husband to the wife or whether it was merely a camouflage to cover a case of transfer of assets is a question of fact. That question does not, however, arise in the present case, as the amounts advanced were repaid out of the dividends, and what was advanced could only be a loan. Even assuming that there was no material to show that Mr. Murthi did grant a loan to his wife, and that the payment of the wife's obligations to the vendor amounted to a transfer of assets to enable her to obtain the shares, such transfer should be held to be one for consideration as the monies were ultimately repaid presumably in pursuance of the original understanding between the parties. The provision of section 16(3) would not, therefore, apply to the case. 12. The mere fact that a property stands in the name of the wife cannot in the absence of evidence and proof show that she holds it benami for her husband. The question whether a purchase in the name of the wife by the husband out of the money provided by him is benami for his own benefit would depend on the intention of the parties at the time of purchase. For example, a husband may out of affection intend that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isputed that the sum of ₹ 4,000 paid on the date of the transfer of the share belonged to the wife. It is not the case of the Department that on the very day Mr. Murthi paid the balance or even had any intention to do so. All the persons concerned expected that the balance could be paid within two years by which time they hoped to obtain the dividends. The seller Mr. Jackson was content to rely on the personal security of the purchaser. There is no evidence that the assessee either agreed to pay the balance or even guaranteed payment by his wife. On the date of transfer of the shares, therefore, there was only the promise of Mrs. Murthi to pay the balance of sale price. There being no payment of any portion of the consideration on the date of sale by the assessee, the title to the shares would only vest in the ostensible purchaser. If on the date of purchase the assessee did not pay, no presumption can be raised in his favour and no kind of beneficial interest in the property will vest in him. It is found that subsequently a large portion of the consideration was paid by him. The case for the assessee is that all those monies were loans and that they have been repaid. Rejecti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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