Law:

Section:

Section 64 of the Income-tax Act, 1961 [corresponding to section 16(3) of the Indian Income-tax Act, 1922] - Transfer of assets - For benefit of spouse etc., - Assessment year 1952-53 - Assessee made a declaration of trust wherein he held certain shares of two companies upon said irrevocable trust to pay income thereof to his wife for a period of 7 years or her death (whichever was earlier) - Assessee claimed that dividend income received on said shares was not liable to be included in his income in view of third proviso to section 16(1)(c) of 1922 Act - Whether after declaration of trust, shares were held by assessee not in his personal capacity but as a trustee, and therefore, there was transfer of assets to husband - trustee for benefit of wife, attracting provisions of section 16(3)(b) of 1922 Act and not section 16(1)(c) of 1922 Act - Held, yes - Whether, consequently, dividend income arising on shares in question was rightly included in assessee's total income - Held, yes FACTS The assessee made a declaration of trust wherein he held certain shares of two companies upon trust to pay the income thereof to his wife for a period of 7 years or her death whichever was earlier. The said trust was a revocable trust. During the relevant assessment year a sum was received as dividend income on those shares. The assessee claimed that the income after being grossed up was not liable to be included in his total income in view of the third proviso to section 16(1) of 1922 Act. The ITO did not accept his claim on the ground that the income had accrued to or had arisen in the hands of assessee and had been paid by him to his wife. On appeal, the AAC held that the case was governed by section 16(3)( b) of 1922 act and need not be considered under the third proviso to section 16(1)(c) of 1922 Act. On further appeal, the Tribunal came to the conclusion that the case was covered either by section 16(3)(a)( iii) or by section 16(3)(b) of 1922 Act, and that the income from the shares was, therefore, liable to be included in the income of the assessee. On reference, the High Court held though section 16(1)(c ) of 1922 Act was not satisfied in view of the third proviso, section…

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