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"This Deed Witnesseth that for effecting the said desire and in consideration of the natural love and affection of the Settlor for the Beneficiary, the Settlor, as the beneficial owner, assigns unto the Beneficiary the right, title and interest to every dividend and sum of money which may be declared or become due and payable on account of or in respect of the said shares (not being the price or value thereof) and further hereby covenants with the Beneficiary to hand over and/or endorse over to the Beneficiary any dividend Warrant or any other document of title to such dividend or sum of money as aforesaid and to instruct the said Company to pay any such dividend or such sum of money to the Beneficiary to hold the same unto the Beneficiary absolutely during the term of her natural life."

10. To proceed now to the third question, it is unfortunate that it should have received no attention from the Tribunal in their appellate order, because, to my mind, it is this question which raises the crucial point in the case. The Department's case is that the transfer in the present case was merely an application of the assessee's income to the purpose mentioned in the deed, whereas the assessee contends that if the third proviso to Section 16 (1) (c) applies, as in his submission it does, then the income cannot be deemed to be his income by reason of the express direction of the Statute to the contrary. In order to appreciate these rival contentions, it is necessary, to my mind, to see first what the scheme of Section 16 (1) (c) is and what it actually provides. It appears to me that Section 19 (1) (c) has not always been approached from the correct stand-point and the confusion which has, at times, arisen was caused, because an approach was made to the section from a wrong angle. It is first to be seen who is the person whom the section contemplates. Clearly, it is the person who has received some income and it is equally clear that what the section is doing is to lay down certain principles which should be applied in computing the total income received by him. To come at once to the terms of the section, it begins by speaking of "all income arising to any person". The person contemplated by these words is the person to whom some income has arisen and who has received it. When one remembers that the section is concerned with laying down the principles which will have to be applied in computing the total income of a particular person to whom some income has arisen, one will at once understand that what Section 16 (1) (c) is concerned with is the exclusion of the income from the -total income of that person at least as much as the inclusion of it in the total income of the person who has made the settlement or the disposition or the transfer. The section provides that certain income which has arisen to a certain person by virtue of a settlement or disposition shall not be included in his total income in certain circumstances, but shall be included in the income of the settlor or the disponer. It is quite clear that but for this provision, the income would have to be included in the total income of the person to whom it has arisen. It is equally clear that under the general few the income concerned is not the income of the settlor or disponer in the case contemplated, because had it been so, it would be entirely unnecessary and entirely inappropriate to provide that in the circumstances stated in the section, the income shall be 'deemed to be' his income. Nothing which is somebody's own income requires to be deemed to be so. It is his income already in truth and in law. Section 16 (1) (c), therefore, clearly contemplates a case where some income has been assigned by means of a settlement or disposition in such a way that it has ceased to be the income of the settlor or disponer and has become the income of the beneficiary or the transferee, so that, but for the provisions of this section, it would be rightly assessable in the hands of the latter. To my mind, a settlement or disposition or transfer of income which is of such a character that the income remains the income of the settlor or disponer and there is only an obligation cast upon him to pay it to the beneficiary is not and cannot be within the contemplation of Section 16 (1) (c) at all. The reason is clear. In such a case the income is, under the general law, the income of the settlor or disponer having remained his despite the settlement or disposition and, therefore, it need not or could not be "deemed" to be his income. It is not very easy to conceive a form of settlement or disposition which, in the absence of the transfer of the assets, will make the income, the moment it arises, the income of the beneficiary. But this much is clear that unless the settlement or disposition is of that kind, Section 16(1) (c) will not apply at all. One may perhaps conceive of a case where a particular annuity or income from a particular property is payable by A to B and if B wishes to settle that income on C so as to make it his income, a tripartite agreement between A, B and C may be concluded whereby A will be required to pay the annuity or income to C as soon as it becomes payable and C will be entitled to claim it directly from A in his own right and B will have no right whatsoever to chum it from A in any circumstances. If, on the other hand, the income has to pass through B in going to C, it remains, in law, the income of B and, therefore, I cannot see what room there can be of Section 16 (1) (c) to apply in such a case. To put it briefly, Section 16 (1) (c), to my mind, can be given an intelligible meaning only if it is read as contemplating a settlement or disposition under which the income transferred becomes the income of the beneficiary without being required to be paid by the settlor or disponer under an obligation imposed by him on himself. If the income first arises to the settlor or disponer and is then to be paid by him to the beneficiary under a covenant which he has created for himself, the case is not within Section 18 (1) (c) at all because in such a case there can be no sense in saying that the income shall be deemed in certain circumstances to be the income of the settlor or disponer or transferor, it being in fact his.

12. Turning now to the settlement in the present case, I have already said that for the purposes of the third question, it is not open to us or to any party to consider whether any valid transfer was effected by it. Cases seem to lay down that a claim to a dividend which has been declared is a chose in action under the English law and would probably be an actionable claim under the Indian law. See Ann Dalton v. The Midland Counties Railway Company, (1853) 18 CB 474 and Widgery v. Tepper, (1878) 7 Ch D 423). Still, however, claims to dividends which may fall due in future may not be choses in action, but we need not tarry over that question and shall proceed on the footing that the deed is a valid deed. Even so, what does it provide? It assigns to the wife the right, title and interest to every dividend and sum of money which may be declared or become due or payable on account of the shares. How is this assignment to take effect? It is important to remember that the income transferred is dividend income and the company paying the dividend will and can pay it only to the registered share-holder. This seems to have been recognised, because the deed proceeds to say that the settlor covenants with the beneficiary to hand over and/or endorse over to the beneficiary any dividend warrant or any other document of title to such dividend or such of money as aforesaid and to instruct the company to pay such dividend or sum of money to the beneficiary. It is thus quite clear that what is contemplated is that dividend warrants will be issued in the name of the settlor, as they were bound to be, because he continued to be the owner of the shares and after the dividend warrants had been issued in his name and so after the dividend income had accrued to him, he would endorse the warrant that is to say, would transfer the money to the beneficiary or instruct the company to pay the money to her. It is clear that if the wife had become the owner of the money independently of the husband, there could be no question of his instructing the company to pay the money over to her, because she could claim from the company in her own right. But it is obvious that the income being dividend income will remain to accrue to the settlor in the first instance and the deed quite clearly contemplates that the income will be transferred to the beneficiary by the settlor after the settlor his received it and this will, be done each time a dividend is declared and each time a dividend warrant is issued. If that is the effect of the deed, and I can view it in no other light, it seems to me that Section 16 (1) (c) of the Income-tax Act cannot apply at all to the income sought to be transferred by it, because the income remained the income' of the settlor or rather remained to accrue to him first in spite of the assignment. If so, the income is clearly assessable in his hands.

15. The true scope of the first part of Section 18 (1) (c) being, in my view, what I have explained above, I cannot, with respect, follow the whole of the reasoning in A.R. Rangachari v. Commissioner of Income-tax, Madras , though with much that was said in that case I find myself in agreement. The learned Judges who decided that case say that the only effect of the third proviso to Section 16 (1) (c), where it is attracted, is that "this clause", i. e., the main clause of Section 16(1) (c), containing a special rule, shall not apply. That, if I may say so with espect, is entirely correct. But the learned Judges go on to say that where the application of the main clause of Section 16 (1) (c) is excluded by the operation of the third proviso, it docs not necessarily follow that the income will not be assessable in the hands of the settlor or disponer and that it will be assessable in the hands of the beneficiary or of the settlor or disponer according as there has been a diversion of the income or a mere application of it by the settlement or disposition, for which the facts of each case will have to be considered. I am unable to agree with this conclusion and the reasoning on which it is based. In my view, the question whether the third proviso will operate in a particular case or not pan arise only after the main clause of Section 16 (1) (c) has initially and prima facie been attracted, for, the function of the proviso is to take out of the main clause certain cases which, so far as the language of the clause goes, would be within terms. The main clause of Section 16 (1) (c) is intended to apply and can apply, as I have tried to show, only in cases where by virtue of the settlement or disposition the income has ceased to be income of the settlor or disponer. It follows that there can be room for the application of the third proviso only in such cases and, therefore, where the requirements of the proviso are satisfied and it applies and where, in consequence, the operation of the main clause of Section 16 (1) (c) and the special rule contained therein is excluded, the result will be that the general law will apply and the income, having become under the settlement or disposition the income of the beneficiary and being no longer the income of the settlor or disponer, will be assassable in the hands of the former. There can no longer be any debatable question in such a case as to whether there has been a diversion of the income by the settlement or disposition or there is only a provision for its application, because unless the first were the case, Section 16 (1) (c) would not have been attracted even initially and consequently the third proviso could not have had any room for its application. By the fact that a case comes initially and prima facie under the main clause of Section 16 (1) (c) and is then taken out of the clause by the operation of the third proviso, it stands determined that the case is one of settlement or disposition of the income in such terms that they make it cease to be the income of the settlor or disponer and make it accrue directly to the beneficiary from the assets as his income. If that question already stands determined, there can be- no need of or scope for any further enquiry.