D.K. Kapur, J.
1. The income-tax reference under consideration is concerned with the assessment year 1961-62 for which the relevant previous year was the year ending 30th September, 1960. Although a number of questions have been referred to us, basically most of the questions relate to the compulsory acquisition of the Lahore Electric Supply Co. Ltd., which took place before the partition of the country. These questions are related to the interpretation of s. 2 (6A) of the Indian I. T. Act, 1922, because the basic question for determination is whether a loan taken from M/s. South Asia Industries (P.) Ltd., by the assessed can be deemed to be a dividend for the purpose of computing the income of the assessed. This question forms the subject-matter of the first six questions referred to us. The remaining questions are concerned with the disallowance of certain interest income and the inclusion of some income arising in favor of the wives of the assessed in his total income under s. 16 (3) of the Act.
2. Before referring to the essential facts of the case, it may be useful here to set out the question which have been referred to us. They are :
'1. Whether, on the facts and in the circumstances of the case, the compulsory acquisition of the Lahore Electric Supply Undertaking under the Indian Electricity Act, 1910, resulted in a transfer of capital assets within the meaning of section 12B of the Indian Income-tax Act, 1922
2. If the answer to question No, 1 is in the affirmative, whether, on the facts and in the circumstances of the case, the transfer of the capital asset represented by the undertaking belonging to the company took place any time in the period from April 1, 1946, to March 31, 1948
3. If the answer to question No. 2 is in the affirmative, whether, on the facts and in the circumstances of the case, capital gains amounting to Rs. 2,05,58,423 arose to the company any time during the period from April 1, 1946, to March 31, 1948
4. If the answer to question No. 3 is in the affirmative, whether, on the facts and in the circumstances of the case, the amount of Rs. 2,05,58,423 or any part thereof formed part of the accumulated profits possessed by the company in the accounting period relevant to the assessment year 1961-62
5. If the answer to question No. 4 is in the affirmative, whether, on the facts and in the circumstances of the case, an amount of Rs. 45 lakhs or a part thereof was paid by the company to the assessed by way of advance or loan or was paid on behalf of or for the benefit of the assessed
6. Whether, on the facts and in the circumstances of the case, the amount of Rs. 45 lakhs debited to the account of the assessed in the books of the company should be treated as dividend under the provisions of section 2(6A) (e)
7. Whether, on the facts and in the circumstances of the case, the amount of Rs. 2,15,250 out of the interest claimed was rightly disallowed in computing the assessed's income
8, Whether, the Tribunal was justified in law in including an income of Rs. 10,501 arising to the wives of the assessed in the total income of the assessed by invoking the provisions of section 16 (3) of the Act ?'
3. The assessed is an individual, who is a shareholder of M/s. South Asia Industries (P.) Ltd. Originally this company was the Lahore Electric Supply Co. Ltd. On 28th September, 1960, the debit in the assessed's account with the company was Rs. 45 lakhs. At that time, the definition of dividend in s. 2 (6A) of the Act included a payment by a company of any sum by way of advance or loan to a shareholder or any payment made by a company on behalf of or for the benefit of a shareholder to the extent to which the company possessed accumulated profits. In other words, if a loan or advance was made to a shareholder to the extent to which, the company possessed accumulated profits, it would be dividend, and, hence, taxable in his hands. Similarly, a payment made on behalf of a shareholder or for his benefit would also be a dividend. The case of the department was that the company, M/s. South Asia Industries (P.) Ltd., did have accumulated profits and, hence, the loan of Rs. 45 lakhs standing to the debit of the assessed was a dividend, which had been received by the assessed. This question has been found against the assessed by the ITO, the AAC as well as the Tribunal. The conclusion has been that a sum of Rs. 2,08,92,023 appeared in the accounts of M/s. South Asia Industries (P.) Ltd., as a capital reserve. This included an amount of Rs. 2,05,58,422 which was described as being 'difference in Pakistan claims and block assets transferred'. On the other side of the balance-sheet, there was a debit of Rs. 1,39,87,072 due from the Govt. of West Pakistan. There was a note that the company was declared an evacuee by the Custodian of Evacuee Properties of Lahore in which an appeal had been filed. Shortly put, this entry is really a reflection of the acquisition of the company's assets in Lahore by the Govt. of Punjab. The difference of Rs. 2,05,58,422 just mentioned was on account of the difference between the book value of the assets taken over and the compensation computed to be payable to the company in question. If that money had been received by the company, probably there will be no problem in this case. In fact, the company did receive some amount, but not all the amount. It had still to get Rs. 1,39,87,072, which was vested in the Custodian of Evacuee Properties at Lahore. The other amounts had been received by the company under an agreement dated 2nd June, 1945. The history of how this sum came to be paid will be detailed a little later, but the dates have become important because there is a proviso to s. 12B (1) of the Indian I. T. Act, 1922, which has to be analysed by us for the purpose of this case. The case of the department, as just mentioned, has been that the company did have accumulated profits on the date when the loan of Rs. 45 lakhs had been given to the assessed. These accumulated profits, even on the department's case, are capital against arising from the taking over of the under taking. The question to be considered is whether these accumulated profits arising from a capital gain are also to be taken into consideration for the purpose of s. 2 (6A). Section 2 (6A) was different on different dates; so it will be useful to first set out the provision as is applicable to the present case. The operative portion of the definition is :
'(6A) 'Dividend' includes -...
(e) any payment by a company, not being a company in which the public are substantially interested within the meaning of section 23A, of any sum (whether as representing a part of the assets of the company or otherwise) by way of advance or loan to a shareholder or any payment by any such company on behalf or for the individual benefit of a shareholder, to the extent to which the company in either case possesses accumulated profits; but 'dividend' does not include--...
Explanationn. - The expression 'accumulated profits', wherever it occurs in this clause, shall not include capital gains arising before the 1st day of April, 1946, or after the 31st day of March, 1948, and before the 1st day of April, 1956.'
4. As just mentioned earlier, the company received a sum of rupees one crore in 1945 and the balance it has not received even up-to-date. So, the question for consideration is whether it did have accumulated profits in its balance-sheet as it existed on 31st March, 1960, when the entry showing the capital reserves appears. The ITO and other authorities have concluded that there was an accumulated profit on the assumption that the under taking was taken over by the Govt. of Punjab on 2nd September, 1946, and, thereforee, the amount paid to the assessed by way of loan is a dividend as the profits form the taking over of the undertaking arose during the period mentioned in the Explanationn.
5. It is important to note that capital gains are to be included in the 'accumulated profits'only if they arose in the period 1st April, 1946, to 31st March, 1948, or if they arose after 1st April, 1956. If there are other capital gains, which the company had or are to be deemed to have, arisen either before 1st April, 1946, or between the period 31st March, 1948, and 1st April, 1956, then they are not to be included in the term 'accumulated profits'. The interpretation of this section has led the ITO, the AAC and the Tribunal to analyze this question while dealing with the assessed's case.
6. We have been of the view that the question whether the accumulated profits include capital gains is really inter-connected with the definition of 'capital gains' in s. 12B of the Indian I. T. Act, 1922. The definition of 'capital gains' has also been undergoing a change. There were no capital gains chargeable before s. 12B was enacted The section was first inserted by the Income-tax and Excess Profits Tax (Amendment) Act, 1947, which taxed capital gains arising after 31st March, 1946. In 1949, the Indian Finance Act provided that capital gains could not be charged except when they arose before 1st April, 1948. The result was that capital gains arising between 31st March, 1946, and 1st April, 1948, were chargeable to tax. If they were chargeable to tax, then the company in question, M/s. South Asia Industries (P.) Ltd. should have been charged to capital gains for the alleged capital gains arising in that period. After that, the law was again amended by the Finance (No.3)Act,1956, and capital gains were re-defined to mean profits or gains arising from the sale, exchange or transfer of capital assets made after 31st March, 1956. The only question is whether they arose after 1st April, 1946, and before 31st March, 1948.
7. In dealing with the assessed's case, all the authorities acting in this case have come to the conclusion that the capital gains did arise in this period in the case of M/s. South Asia Industries (P.) Ltd., and they have proceeded to hold that in fact Rs. 2,05,58,422 was accumulated profits in the hands of the company in question. Reasoning from this point, they have come to the conclusion that the dividend income did arise to the assessed by means of the loan in question.
8. On a careful consideration of the circumstances, we find that the I. T. authorities were not justified in finding out if M/s. South Asia Industries (p.) Ltd. were chargeable to capital gains tax between the period 1st April, 1946, to 31st March, 1948, because this is a conclusion relating to M/s. South Asia Industries (P.) Ltd., which was not the assessed before the authorities. There is not an iota of evidence to show that M/s South Asia Industries (p.) Ltd. was ever taxed for the alleged capital gains. We fail to understand how the question of taxability of that company could be decided in the assessed's case. This basic error has resulted in a great deal of discussion in the assessed's case. This basic error has resulted in a great deal of discussion in the assessed's case whether there were capital gains for the period 1st April, 1946, to 31st March, 1948. A number of documents executed between the Lahore Electric Supply Company and the Govt. of Punjab have been analysed. It has been concluded that the result of these agreements was that the transfer took place on 2nd September, 1946. We may reproduce the reasoning for the purpose of convenience. M/s. Lahore Electric Supply Co. Ltd. was running an electric supply undertaking at Lahore under the Indian Electricity Act of 1910. There was a license which was to expire on 25th November. 1942. The Government had the option to purchase the undertaking on giving a two years' notice. If they had not given the notice, then the license would be renewed up to 1962. Notice were actually given to terminate that license some time in 1942. The company contended that the notices were ineffective as they had not been served and they filed a suit in the court. The Government then issued a requisition order under the defense of India Rules. The suit filed by the company was transferred to the Lahore High Court and in that court the requisition order under the defense of India Rules was also challenged. On 14th January, 1943, the Lahore High Court held that the acquisition order was ultra vires. An appeal was taken to the Federal Court, On 15th March, 1943, the Government issued an order under r. 81 (3) of the defense of India Rules taking over the control of the undertaking. On 17th April, 1944, the Lahore High Court decided the suit against the company and held that the notices issued by the Government were valid. The effect of these notices would be to terminate the license on 25th November, 1942. Then there were certain agreements between the Government and the company. On 2nd June, 1945, there was an agreement by which rupees one crore were paid to the company and it was further provided that there would be a valuation made which would ensure further payment being made according to the valuation. On 2nd September, 1946, there was a subsequent agreement by which it was provided that all the assets of the company would be deemed to be transferred to the Government. This was a supplementary agreement. There was yet another agreement on 5th August, 1947, for appointing valuers for valuation. Then, the last agreement was on 10th September, 1954, which provided that the final sum fixed was Rs. 1,38,85,237 which would be in full and final settlement of the outstanding claims.
9. The net result of all these facts would be that it would be indeed difficult, to find out the date of the capital gains. No doubt, there is an agreement dated 2nd September, 1946, which has the effect of transferring the assets of the Lahore Electric Supply Co. Ltd. to the Government. However, the license of that company had already been cancelled in 1942 and the valuation of the assets did not take place till 1954.
10. As we would presently see, the question of capital gains is inter-related with a quantification of the amounts. If there are gains they should be known. It seems plain, as at present, that the law is that you cannot file a return relating to capital gains till you actually know how much gains you have made. It has been urged by the learned counsel for the assessed that the Lahore Electric Supply Co, Ltd. made capital gains only on the date of the supplementary agreement, i.e., the last agreement when the price was fixed. The interpretation given to the final agreement is that on 10th September, 1954, the price was settled. It is from that price that you can determine the capital gains and from no other. It is also urged that nobody could have discovered the quantum of gains on 2nd September, 1946. No return could possibly be filed when it was not known whether there was a gain or no gain. Nor could the quantum of gains be determined. A number of cases have been cited at the Bar by the learned counsel in support of the proposition that the gains arose only after a determination and not earlier.
11. We are in complete agreement with the learned counsel for the assessed that the capital gains cannot arise at any earlier date. It was held by the Supreme Court in Faxilka Electric Supply Co. Ltd. v. CIT : 46ITR127(SC) , that the taking over of assets belonging to the electric supply company was a sale and in such a case the excess realised by the sale would be taxable under s. 10 (2) (vii). It would follow that this excess which is taxable could be determined only after the sale price had been determined. In the Bombay High Court decision in Akola Electric supply Co. P. Ltd. v. CIT : 113ITR265(Bom) , it was held that although the possession vested in the board at an earlier date, the transaction became a sale only when the price was settled because it was only then that it became due to the assessed. This judgment also relied on an earlier judgment of this court in P. C. Gulati, Voluntary Liquidator, Punipat Electric Supply Co. Ltd v. CIT : 86ITR501(Delhi) . In that case, the Government had acquired an electric supply undertaking and possession was taken in 1954. A suit for compensation was filed which resulted in a compromise in 1962. The question was whether the sale took place in 1954 or in 1962. It was held that the amount due to the assessed remained inchoate and unknown till it was ascertained as a result of the compromise. As soon as it was ascertained, it became payable and, thereforee, due. The amount became due only in the previous year relevant to the assessment year 1963-64 and the excess amount was taxable in that assessment year. This is a case in which the assessed had contended that the profit arose n 1954 and not in 1962, and yet the court, on the reasoning set out earlier, held that the excess amount became due only on computation.
12. These judgments are only illustrative of the question. An assessed has to file a return of his assessable income within the time prescribed by law. If the assessed before us was M/s. South Asia Industries (P.) Ltd., then we would have to consider whether such an assessed could file a return regarding its capital gains during the period, 1st April, 1946, to 31st March, 1948. If we put ourselves in the shoes of such an assessed, w e would have to fill in the return the quantum of the capital gains. By that time, the assessed had received a sum of rupees one crore in 1945, and it had still to receive or pay out of the sum of rupees one crore any excess or shortage as determined by a set of valuers. Eventually, the amount was settled by the agreement of 1954. If we were in such an assessed's position, we could not disclose the quantum of capital gains. thereforee, we are of the view that the capital gains have only to be included at the time they are ascertained. Capital gains cannot arise at any earlier date because they are not known. We are of the view that capital gains in this case arose only in 1954.
13. One word of caution is necessary in this respect, as we are dealing with the case of quite a different person. No doubt, the assessed was an important shareholder of the Lahore Electric Supply Co. Ltd. But, it is difficult for us to say that the ascertainment of the capital gains, and when the capital gains arose, should be decided in the case of the assessed and not in the case of the company itself. We would, thereforee, say that, as far as we can determine, there were no accumulated profits of that company, i.e., M/s. South Asia Industries (p.) Ltd., or the Lahore Electric Supply Co. Ltd., in the period 1st April, 1945, to 31st March, 1948, and the real proof of this is provided by the absence of any assessment order in respect of that company assessing capital gains arising during that period. The learned counsel for the department wished us to ask for a supplementary statement. We, however, find that there has been no attempt to place on record the assessments of any of the years of the Lahore Electric Supply Clause Ltd. The whole contention raised for the department has been based on the balance-sheet of the Lahore Electric Supply Co. Ltd. as it appears on 31st March, 1960.
14. Turning now to that balance-sheet, some interesting facts are disclosed. Although the reserves and surplus show an amount of Rs. 2,09,00,000 out of which a sum of Rs. 2,05,58,422.77 is the difference between the Pakistan claims and block assets, a sum of Rs. 1,39,87,072 is shown on the other side as being with the Custodian of Evacuee Properties, Lahore. The Tribunal and the authorities below have treated this as belonging to the company. We asked learned counsel for the department whether all the other displaced persons in India whose property had vested under the Custodian of Evacuee Properties in Pakistan were being treated as holding these assets which were held by the Custodian. We found that this was not being done in the case of any other assessed. As we have indicate, if this question had arisen in the case of M/s. South Asia Industries (P.) Ltd. itself, then it would have been determined as to whether this money was actually available with the company or not. As at present advised, it does not seem to us that the sum of Rs. 1,39,87,072 can be said to be possessed by the company. This means that we have to subtract this amount from Rs. 2,09,00,000 already mentioned. That would leave a balance of Rs. 69,00,000 approximately as being available. Even this would be sufficient if it was accumulated profits available with the company. However, there is yet another account to be taken into consideration. The balance-sheet shows a sum of Rs. 75,84,145.29 as the accumulated net loss of the company. So, out of its profit which has been accumulated, there is already a greater loss. Hence, there were no accumulated profits available with the company. There were only accumulated losses.
15. In this connection, it is interesting to note that s. 2 (6A) states that payments made by way of loan or advance to a shareholder or any payment made on behalf or for the benefit of a shareholder are to be treated as dividend in either case to the extent to which the company possesses accumulated profits. The emphasis in this connection must be on the word 'possesses.' If the company does not possess the amount, it cannot pay the same. We cannot say that the amount lying with the Custodian of Evacuee Properties in the West Pakistan can be considered to be lying with the company or available with the company. This is not an amount which the company possesses.
16. The purposes of s. 2 (6A) was a salutary one. Its intention was to tax a company for transferring its accumulated profits to its shareholders by merely giving them loans. Normally, these profits are distributed to the shareholders as dividend. The company could avoid the tax by merely showing the amount as loans to shareholders which could later be written off. To avoid this misuse of law, the Legislature provided that these loans were also to be taxed as dividend. However, this would only happen if the company possessed distributed profits, i.e., profits which had been accumulated and kept with itself for use in the company or for distribution to the shareholders. A company can be said to have profits or to be possessed of profits when it actually possesses the amount in its control or possession. A company cannot be said to possess profits if the Custodian of Evacuee Property in another country possesses an amount which is to be paid to the company. This does not appear to be possession in any sense of the word. thereforee, it clearly appears to us that the sum of Rs. 1,39,87,072 which the company possessed was not with it. It may also be mentioned that this sum of Rs. 1,39,87,072 was only ascertained in 1954. It could be shown in the balance-sheet for 1959-60 because 1954 was six years earlier, but certainly it could be difficult to say that this money had come to the company in 1946, because it was not even known at that time. The other sum of rupees one crore odd, the remainder of which appears on the left hand side of the balance-sheet as part of the sum of Rs. 2,09,00,000 odd was received by the company in 1945. This was before the capital gains tax was revived for the first time. At that time, i.e., when it was received, it could not be taxed as a capital gain. It could, thereforee, not form part of the accumulated profits. The question, thereforee, boils down to this, that the company did receive a sum of rupees one crore as compensation for the acquisition of its assets or transfer of the same. But, this was before the capital gains tax became leviable. It did not arise in the crucial period from 1st April, 1946, to 31st March, 1948. The remaining amount came to the company in 1954, but it did not come actually to the company because it was taken possession of by the Custodian of Evacuee Properties. thereforee, either this amount is to be excluded from the accumulated profits on account of the fact that it arose after 1946 and actually in 1954 or it has to be excluded because it is not possessed of by the company. In either event, the amount cannot be included in the taxable income on account of being capital gains.
17. If this is the position of the company, M/s. South Asia Industries (P.) Ltd., we cannot see how the said amount can be treated as being payment of accumulated profits by way of loan. The amount is not accumulated profits in the hands of M/s. South Asia Industries (P.) Ltd. as far as we can see. These words of caution are necessary because the relevant company is not the assessed in the present case. Hence, the amount cannot be treated as dividend.
18. One more point requires adjudication in this case in view of the first question referred to us. The question presupposes the compulsory acquisition of the Lahore Electric Supply, Co Ltd. The provision to s. 12B (1), as it stood at the relevant time, stated as follows :
'Provided further that any transfer of capital assets by reason of the compulsory acquisition thereof under any law for the time being in force relating to the compulsory acquisition of property for public purposes, shall not for the purposes of this section be treated as sale, exchange or transfer of the capital assets.'
19. As it happened, the assets of the Lahore Electric Supply Co. Ltd. could be compulsorily acquired under the option to purchase which was available to the Punjab Govt. on 25th November, 1942. This option had to be exercised by giving a two years' notice, otherwise the license was automatically extended up to 1962. Notices were given, but then a dispute arose as to the validity of the notices. The Lahore High Court held on 17th April, 1944, that the notices were valid. Afterwards, there was a compromise on 2nd June, 1945. This compromise covered, (a) the property which the company had before 27th November, 1942, and (b) the property which the company acquired after 25th November, 1942. The controversy between the parties was whether this was a compulsory acquisition or not. It was held by the Supreme Court in Fazilka Electric Supply Co. Ltd. v. CIT : 46ITR127(SC) , that an acquisition made under the conditions of the license was not a compulsory purchase but a sale under an agreement. That contention would also govern the present case. We would, thereforee, come to the conclusion that prima facie this is not a case of compulsory acquisition. However, as this decision is being recorded in the case of a shareholder and not of the company, it is subject to the reservation that the company might be able to establish that this was a case of compulsory acquisition dependent on certain facts and circumstances which are not now before us. For the purpose of this case, however, it must be held to be a voluntary sale, which in terms of the agreement would be effective from 25th November, 1942.
20. We would accordingly find that the questions framed relating to this matter have to be answered thus. We would hold on question No. 1 that the compulsory acquisition was not a compulsory acquisition and was, thereforee, a sale as held by the Supreme Court in the case of Fazilka Electric Supply Co. Ltd. : 46ITR127(SC) . However, as the acquisition took place in 1942 before s. 12B was enacted, it can be only a transfer of capital assets within the meaning of that section if it is held that the transfer took place between 1st April, 1946, and 31st March, 1948. We would hold in answer to question No. 2, that the transfer of capital assets did not take place in the period 1st April, 1946, to 31st March, 1948, and we would add a rider, that this question should have been ascertained in the assessment proceedings of the company concerned. We would hold in answer to question No. 3, that the capital gains did not arise to the company during the period 1st April, 1946, to 31st March, 1948. In answer to question No. 4, we hold that the sum of Rs. 2,05,58,428 is not part of the accumulated profits of the company. In answer to question No. 5, we would hold that the sum of Rs. 45 lakhs paid to the assessed as loan has been found as a fact to be a loan or advance and this is a question of fact, so we do not answer question No. 5. In answer to question No. 6, we would hold that the sum of Rs. 45 lakhs debited to the account of the assessed cannot be treated as dividend under s. 2 (6A) (e).
21. Now, we turn to question No. 7, which deals with the disallowance of payments of interest. In this connection, it may be said that the interest claimed by the assessed was Rs. 2,45,151. It appears that the ITO had disallowed this interest on account of the fact that the borrowing was not for business purposes and there had been a disallowance in the previous years. The AAC held that a sum of rS. 20,540 was to be deducted. The reasoning of the AAC is difficult to comprehend. When the Tribunal dealt with this matte, it came to the conclusion that further relief to the extent of Rs. 9,361 should be allowed to the assessed. The reasoning adopted was that the borrowings were in respect of the deficit in the profit and loss that the borrowings were in respect of the deficit in the profit and loss account which was referable to taxation liabilities and domestic expenditure. It was held that the question of deduction of interest had to be examined by reference to the position of loans, investments and unproductive expenditure at the beginning and the end of the year. It seems to us that all this is a question of fact and it is not possible to answer the question whether the sum of Rs. 2,15,250 had been rightly disallowed without making a detailed study of the personal balance-sheet of the assessed. Even a reference to annex.'N', which is the balance-sheet of the assessed, does not show how the loans amounting to Rs. 58 lakhs are to be divided amongst the assets. This point was also not raised in any great detail before us. So, we would answer the question referred to us in the affirmative, in favor of the department and against the assessed. Our answer, however, is based on the inadequacy of the material available to us for determining how the interest is to be spread over the business expenditure and the other expenditure of the assessed.
22. Turning now to 8th and the last question, which concerns the income of Rs. 10,501 arising to the wives of the assessed, the problem is whether this amount is to be included in the total income of the assessed by invoking s. 16 (3) of the Act. Section 16 (3) states that if income arises from assets directly or indirectly transferred to the wife by the husband otherwise than for adequate consideration, the income is to be included in the husband's income. The contention of the assessed was that the income received by the wives was out of savings effected from money given to them for household expenses. The income was Rs. 397 arising to Shrimati Dinesh Nandini and Rs. 10,104 arising to Shrimati Asha Devi. The Tribunal held that the assessed was bound to maintain his wife and there was no question of giving monies for domestic expenses to the wives. It also observed that in the case of Shrimati Asha Devi, the original transfer was of a residential house and subsequent investments were mere changes because of the sale proceeds of the house being transferred by the assessed. It seems that the Tribunal is not right in holding that the wife cannot make savings from household expenses paid to her. This cannot be deemed to be assets transferred to the wife. Similarly, in se savings are effected by minor child from monies given to him or to her it cannot be treated as being assets directly or indirectly transferred. In the case of Shrimati Dinesh Nandini, the sum of Rs. 397 earned by her cannot be deemed to be income which is earned from assets directly or indirectly transferred to her. The case of Shrimati Asha Devi may be different because the Tribunal found that a residential house had been transferred to her which had been converted by her into other investments. However, the Tribunal does not seem to have taken into consideration the fact which was brought to the notice of the AAC, namely, that Shrimati Asha Devi had also been assessed to this income in her personal assessment. It seems that the proper rule to be applied in such a case is that income has to be assessed either in the name of the husband or in the name of the wife. If it is assessed in the name of the wife, it cannot be assessed in the husband's income. There is no Rule which provides for double taxation in such cases. Moreover, it is only the income arising out of the originally assessed assets which can be assessed in the husband's name. Thus, it would have to be ascertained as to what was the value of the transferred property and only that element which can be attributed to that transfer can be taxed in the husband's name. This item was analysed in much greater detail by the ITO in the case of Shrimati Asha Devi. It had been admitted by her that a house had been gifted to her and the value of that house was Rs. 88,100. The house was sold on 9th January, 1947, for Rs. 90,000. Later on, a sum of rupees one lakh was invested by her in debentures of Dalmia Dadri Cement. From these investments apparently she derived an income of Rs. 10,104. The obvious result would be that the amount which could be included in the husband's income would be the income arising from the investment of Rs. 88,100, and the remaining amount could not be assessed in the hands of the present assessed. However, if the amount is assessed in the name of the wife also, it would mean the tax on the amount is being recovered from two persons which is opposed to the general rule for construing taxation statutes. Though there appears to be no direct case on the point, it seems apparent that in this case either Shrimati Asha Devi should not have been taxed at all or, if she was to be taxed, then the present assessed cannot be assessed for the same income which had already been taxed. Unfortunately, the provisions of s. 16 (3) are silent on the question of double taxation nor has this point been expressly referred to in the Tribunal's judgment. So, after having mentioned the point, we would say that out of the income of the wives, the income derived by Shrimati Dinesh Nandini has to be excluded from tax altogether in the hands of the assessed, and in the case of Shrimati Asha Devi, only the amount arising out of an investment of Rs. 88,100 is to be taxed; the remaining amount out of Rs. 10,501, which cannot be attributed to the original investment of Rs. 88,100, is to be excluded. We answer this question accordingly.
23. In view of our answers to the questions referred, we would award costs to the assesee. Counsel's fee Rs.550.