Revocable transfer of assets: dividend income deemed transferors' income, and refund denied to the assessees.

Dividend income was treated as arising from a revocable transfer where the share transfer arrangements allowed retransfer on default or bankruptcy and enabled the transferor to reassume control over the income or management, even if those rights were contingent. On that construction of section 16(1)(c) of the Indian Income-tax Act, 1922, the dividend was deemed to be the transferors' income. The assessees were therefore not entitled to refund under section 48, because refund was available only to the person whose total income included the relevant income; grossing-up and deemed payment did not alter that statutory restriction.

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Issues: (i) Whether the dividend income received on the shares arose by virtue of revocable transfers of assets within the meaning of section 16(1)(c) of the Indian Income-tax Act, 1922; (ii) whether the assessees were entitled to refund under section 48 of the Indian Income-tax Act, 1922.

Issue (i): Whether the dividend income received on the shares arose by virtue of revocable transfers of assets within the meaning of section 16(1)(c) of the Indian Income-tax Act, 1922.

Analysis: The transfer arrangements did not amount to an absolute and unqualified divestment of the vendors' control. The agreements contained provisions for retransfer of the shares on default or bankruptcy, together with powers enabling the seller to reassume control over the income and the management of the company. Section 16(1)(c) and its proviso treated a transfer as revocable if it contained a provision for retransferring the income or assets to the transferor or gave the transferor a right to reassume power directly or indirectly over them. The contingencies attached to the seller's rights did not take the case outside that definition.

Conclusion: Yes. The transfers were revocable transfers and the dividend income was deemed to be the income of the transferors.

Issue (ii): Whether the assessees were entitled to refund under section 48 of the Indian Income-tax Act, 1922.

Analysis: Section 48(3) allowed a refund only to the person in whose total income the relevant income was included under the Act. Since the dividend income was includible under section 16(1)(c) in the transferors' income, the assessees could not claim refund of the tax attributable to that dividend income. The reference to grossing up and deemed payment did not assist the assessees, because the statutory scheme denied refund to the recipient where the income was includible in another person's total income.

Conclusion: No. The assessees were not entitled to the refund claimed.

Final Conclusion: The dividend income was held to be assessable in the hands of the transferors as income arising from revocable transfers, and the assessees had no right to refund in respect of that income.

Ratio Decidendi: A transfer is revocable for the purposes of section 16(1)(c) when the transaction contains any provision enabling retransfers of the assets or allowing the transferor to reassume power over the income or assets, even if that right is contingent; where the income is includible in another person's total income, the recipient is excluded from refund under section 48(3).

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