Law: Income Tax Act, 1922

Section: 16(3)(a)(iii)

JUDGMENT V.S. Desai, J.-The assessee is one Maneklal Sheth, who having died on 22nd April, 1959, has been represented in the present assessment proceedings, which relate to the assessment years 1957-58, 1958-59 and 1959-60, by his son, the present applicant before us. In the year 1951, the assessee Maneklal had made a gift of 1,184 ordinary and 155 preference shares of Changdeo Sugar Mills Ltd. to his wife, Bai Laxmibai. The total value of these transferred shares on the date of the transfer was Rs. 69,730. Subsequent to the transfer of these shares by Maneklal to his wife, the preference shares were converted by the company into ordinary shares giving the shareholders 8 ordinary shares for one preference share, with the result that by the end of the year 1954 Bai Laxmibai possessed 2,424 ordinary shares of the mills. On the 1st of August, 1956, Bai Laxmibai sold 2,400 out of the said shares possessed by her for a total price of Rs. 1,54,800 resulting in a capital gain of Rs. 70,860 as computed under section 12B of the Income-tax Act. The whole amount realised by the sale of the shares was deposited by Bai Laxmibai with M/s. A.H. Bhivandiwalla & Co., in which Maneklal as well as his son, the present applicant, happened to be partners. The amount deposited by Bai Laxmibai fetched a yearly interest of Rs. 9,288. In the assessment of Maneklal for the assessment year 1957-58 the Income-tax Offcer included the amount of Rs. 70,860, which was the profit made by Bai Laxmibai on the sale of the shares, as income of Maneklal under section 16(3)(a)( iii) of the Indian Income-tax Act. Similarly,in the assessment of Maneklal for the assessment years 1958-59 and 1959-60 he included in each year the amount of Rs. 9,288 which was the interest earned by Bai Laxmibai on the deposit of the sale proceeds with M/s. Bhivandiwalla & Co. as the income of Maneklal under section 16(3)(a)(iii ). According to the Income-tax Officer the gain, which had resulted from the sale of the shares was the income of the wife of the assessee, which arose directly or indirectly from the assets transferred by the assessee to his wife otherwise than for adequate consideration or in connection…

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