1960 (9) TMI 115 - HC - Income Tax

High Court: Dividend income from shares to trust not taxable.

S. Raghbir Singh Versus Commissioner of Income-tax

The Punjab & Haryana High Court ruled that the dividend income from shares transferred to a trust by the assessee was not taxable as the assessee's ... - Issues:1. Whether the dividend income of the 300 shares of Simbhaoli Sugar Mills Private Ltd. transferred to the trust by the assessee is the income of the assessee liable to tax.2. Any other related issue.Analysis:The judgment by the Punjab & Haryana High Court involved a reference by the Income-tax Appellate Tribunal regarding the taxability of dividend income from shares transferred to a trust. The case revolved around the disruption of a joint Hindu family, where the assessee, Sardar Raghbir Singh, received 400 shares of a company as part of the partition. He later transferred 300 shares to a trust to pay off a debt and provide for his children and grandchildren. The key question was whether the income from these shares should be deemed as the assessee's income or the trust's income.The Income-tax Officer initially included the income from the shares in the assessee's income, citing Section 16(1)(c) of the Income-tax Act, which deals with revocable transfers of assets. The Appellate Assistant Commissioner and the Income-tax Appellate Tribunal also upheld this decision, stating that the income indirectly benefited the assessee, making it taxable as his income. However, the High Court analyzed the provisions of Section 16(1)(c) and its first proviso in detail.The court clarified that for a transfer to be deemed irrevocable, it must not allow for the re-transfer of income to the transferor or give the transferor power over the income or assets. In this case, the trust deed did not provide for any retransfer of income to the assessee or grant him power over the income. The trustees were tasked with managing the shares and income for specific purposes outlined in the trust deed, including debt repayment and charitable activities. The court emphasized that the trust was not a colorable transaction and that the trustees, though relatives, had a legal duty to fulfill the trust's objectives.The court referenced previous cases to support its decision, highlighting that as long as the transferor does not retain control over the income or assets, the transfer should be considered irrevocable. The judgment concluded that since there was no retransfer of income to the assessee and no provision for him to reassume power over the income, the income from the shares belonged to the trust and not the assessee. Therefore, the dividend income from the shares transferred to the trust was not taxable as the assessee's income.In conclusion, the High Court answered the first question in the negative, stating that the dividend income from the shares was not the assessee's income liable to tax. The second question did not arise for consideration. The judgment was delivered by the Chief Justice and Justice Mahajan, concurring with the decision.