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PHILIP JOHN PLASKET THOMAS V. C.I.T., AIR 1964 SC 587

PHILIP JOHN PLASKET THOMAS V. C.I.T., AIR 1964 SC 587

FACTS

  • Philip John Plasket Thomas (P.J.P. Thomas), the assessee, held 750 'A' shares in J. Thomas & Co. Ltd.
  • On December 10, 1947, Thomas transferred the shares to Mrs. Knight before their marriage.
  • The marriage between Thomas and Mrs. Knight was solemnized on December 18, 1947.
  • The company transferred the shares to Mrs. Judith Knight on December 15, 1947.
  • IT department while assessing the assessee included the dividend paid to Mrs. Judith (wife).
  • Appellate Assistant commissioner confirmed application of Sec 16(3)(b) and also included sec 16(3)(a)(iii).
  • The Appellate Tribunal Rejected the contention of applicability Sec 16(3)(b) and upheld the application of Sec 16(3)(a)(iii). (i.e., Included the dividend income in the assessment.)
  • The High Court held against assessee stating that the income from the dividend is assessable u/s 16(3)(a)(iii). As wife’s income.

ISSUE

  • Whether the dividends paid to Mrs. Judith Knight, after the transfer of shares but before the marriage, should be included in the income of P.J.P. Thomas for tax assessment purposes under Section 16(3)(a)(iii) of the Indian Income Tax Act,1922.

RULE

  • SEC 16. Exemptions and exclusions in determining the total income. – 

(3) In computing the total income of any individual for this purpose of assessment, there shall be included. 

(a) so much of the income of a wife or minor child of such individual as arises directly or indirectly…. 

(i) from the membership of the wife in a firm of which her husband is a partner; 

(ii) from the admission of the minor to the benefits of partnership in a firm of which such individual is a partner; 

(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; or 

(iv) from assets transferred directly or indirectly to the minor child, not being a married daughter, by such individual (otherwise than for adequate consideration).

  • Dividend paid before marriage will not fall u/s 16(3)(a)(iii).

 

HELD

  • Bhogilal Laherchand v. CIT, 25 ITR 523, The court underscored the need to prevent individuals from avoiding or reducing tax liabilities by transferring assets to their spouses or minor children. It stated that Section 16(3)(a)(iii) aims to thwart such attempts and create an artificial income stream that must be included in the transferor's total income.
  • In Commissioners of Inland Revenue v. Gaunt [24 Tax Cases 69]: This case overruled Lord Vestey’s Executors, previously held that the term "wife" included a "widow" for income tax purposes.
  • From whatever point of view, we look at the transfer of shares in the present case, whether it be in consideration of a promise to marry or be a gift subject to the subsequent condition of marriage, the transfer takes effect immediately and is not postponed to the date of marriage.
  • The Court clarified, that sub-clause (iii) of Section l6(3)(a) is not attracted to the present case, apart altogether from any question as to whether there was adequate consideration for the transfer within the meaning of that sub-clause.
  • The dividends paid to Mrs. Judith Knight before the marriage cannot be included in the income of P.J.P. Thomas.
  • The appeals were allowed in favour of the assessee.

COMMENTARIES RATIO/NOTE

  • SECTION 64(1)(iv) of ACT,1961

Note. -If A makes a gift to his fiancée (would be wife), the amount of such gifts if it exceeds150,000 shall be taxable in the hands of the fiancée under the head income from other source as per section 56 (2)(x).