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PETITIONER: COMMISSIONER OF INCOME-TAX, CULCUTTA

       Vs.

RESPONDENT: KESHAVLAL LALLUBHAI PATEL

DATE OF JUDGMENT: 09/11/1964

BENCH: HIDAYATULLAH, M. BENCH: HIDAYATULLAH, M. GAJENDRAGADKAR, P.B. (CJ) WANCHOO, K.N.

CITATION:  1965 AIR 1392            1965 SCR  (2) 139  CITATOR INFO :  RF         1972 SC2178  (16)  RF         1983 SC 109  (8,12)

ACT: Income  Tax Act, 1922 (11 of  1922)--self-acquired  property thrown into H.U.F. Hotchpotch-Thereafter partition  effected amongst members H.U.F.-Whether property transferred to  wife and  minor  son  amounted  to  indirect  transfers  under’s. 16(3)(a) (iiiq and (iv).

HEADNOTE: Until the assessment year 1952-53, the assessee was assessed as an individual.  On April 18, 1951, he swore an  affidavit to  the  effect that he was throwing all  his  self-acquired properties into the common hotchpotch of the Hindu undivided family  consisting of himself and his two sons, one a  major and the other a minor.  On June 12, 1951, an oral  partition was  effected between the several members of this  undivided family,  and  as  a  result  some  of  the  properties  were transferred to the assessecc’s wife and his minor son. For  the assessment year 1952-53, the assessee claimed  that assessment should be made taking into account the conversion of his self-acquired property  into  joint  family property  and  the  subsequent partition.   The Appellate Tribunal confirmed the orders  of the   Income-tax   Officer  and  the   Assistant   Appellate Commissioner  disallowing the claim of the assessee  on  the ground that throwing into the hotchpotch one’s self-acquired property and a subsequent partition among the members of the Hindu undivided family was an indirect transfer of  property within the meaning of s. 16(3) of the Income-tax Act,  1922. However, upon a reference made to it, the High Court was  of the  view  that the above transactions did not amount  to  a direct or indirect transfer within the meaning of s. 1  6(3) (a) (iii) and (iv)  of the Act. HELD:The  two conditions that must be satisfied  before s. 16(3) (a) (iii)or (iv) can apply are- (i)  Assets  must be transferred by the husband to the  wife or the minor child; and (ii) They must be transferred directly or indirectly. Only the word ’transfer’ occurs in s. 16(3)(a)(iii) and (iv)

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and a comparison with the language of s. 16(3)(c) shows that here  it  has been used in the strict sense and not  in  the sense  of ’including every mean-, by which property  may  be passed from one to another’. [103 D-G] Philip  John  Plasket Thomas v. C.I.T.  Calcutta,  [1964]  2 S.C.R. 480 referred to. Although the expression ’directly or indirectly’ is intended to  take  in  indirect  transfers, there  must  still  be  a transfer  and  the word ’indirectly’ does  not  destroy  the significance  of  the word ’transfer’.  Even if the  act  of throwing  self-acquired  property  into  the  hotchpotch  is regarded as a transfer, the partition of Joint Hindu  family property  is  not  a transfer in the strict  sense  and  the provisions of s. 16(3) (a) (iii) and (iv) are there:fore not attracted.  [104  A, G; 105 C-D) C.I.T. v.  C.  M.  Kothari, [1964] 2 S.C.R. 531. distinguished.                             101 Gutta Radhakristnayya v. Gutta Sarasamma, I.L.R. (1951) Mad. 607, M. K. Streman v. C.1.T. Madras, 41 I.T.R. 297 and Jagan Nath v. State of Punjab, (1962) 64 P.L.R. 22, approved. Potts’ Executors v. Commissioners of Inland Revenue, 32 T.C. 211, referred to.

JUDGMENT: CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1022 of 1963. Appeal  from the judgment and order dated April 28, 1961  of the Gujarat High Court in Income-tax Reference No. 16 of K.   N.  Rajagopala  Sastri  and R.  N.  Sachthey,  for  the appellant. A.   V.   Viswanatha   Sastri,   J.  P.    Pandit,   T.   A. Ramachandran,  J. B. Dadachanji, O. C. Mathur  and  Ravinder Narain, for the respondent. The Judgment of the Court was delivered by Sikri,  J. This is an appeal on certificate granted  by  the Gujarat High Court under S. 66A(2) of the Indian Income  Tax Act,  1922,  hereinafter  referred  to  a,,,  the  Act,  and involves  the  interpretation of s. 16(3) (a) (iii)  and  S. 16(3) (a) (iv) of the Act.  The facts are not in dispute and it is not necessary to record the findings of the Income Tax officer  and  the Assistant Appellate Commissioner.   It  is sufficient  to extract the relevant facts from the order  of the Appellate Tribunal. The  respondent.   Keshavlal  Lallubhai  Patel,  hereinafter referred to as the assessee was assessed till the assessment year  1952-53 (Accounting vear ending March 31, 1952) as  an individual,  On April 18, 1951 he swore an affidavit  before the  Deputy Nazir, District Court, Ahmedabad,  throwing  all his  self  acquired properties mentioned in  the  affidavit, into  the common hotchpotch of the Hindu  undivided  family, consisting  of himself and his two sons. The assessee had  a wife  and  two  sons,  one major  and  the  other  a  minor. However,  no entries in the books were passed.  On June  12, 1951,  an  oral partition was affected between  the  several member  of the Hindu undivided family, and  consistent  with this  partition,  entries in the books were made.   A  joint declaration was made by the assessee, his wife and the major son  on  June 26,1951 before the District Court.   Later,  a joint  statement  was made on December 5, 1951.  before  the Revenue  Court.  Properties were transferred  thereafter  in accordance with this arrangement to the names of the several members of the family. 102

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For  the assessment year 1952-53, the assessee claimed  that assessment  should  be made taking  into  consideration  the conversion  of the self-acquired into joint family  property and  the  subsequent  partition.   The  Appellate   Tribunal confirmed the orders of the Income Tax Officer and Assistant Appellate Commissioner disallowing the claim of the assessee on the ground that "throwing into the hotchpotch one’s self- acquired  property, and a subsequent partition  amongst  the members  of  the  Hindu  undivided  family  is  an  indirect transfer  of the property within the meaning of S. 16(3)  of the  Act."  The Appellate Tribunal, at the instance  of  the assessee, referred the following question to the High Court               "Whether  on  the facts and  circumstances  of               this case the throwing into the hotchpotch  of               the applicant’s self acquired property and the               subsequent partition among the members of  the               Hindu undivided family is an indirect transfer               of  property so far as the wife and minor  son               are  concerned, within the meaning of  Section               16(3) (a) (iii) and (iv) of the Income Tax Act               ?" The High Court answered the above question in favour of  the assesses.  As stated above, it granted a certificate under S.   66A(2) of the Act. Mr. Rajagopala Sastri, the learned counsel for the Revenue, urges before us that it is a clear case of indirect transfer by  the assessee, within s. 16 (3) (a) (iii) and S.  16  (3) (a) (iv) of the Act.  He does not dispute the genuineness of the transactions.  He says : Look at the position antecedent to  the  affidavit dated April 18, 1951.   The  property  in dispute belonged to the assessee.  Then look at the position after the partition.  The properties come to ’be held by the wife and the minor son.  These two facts, according to  him, show  that  there  was a transfer, and it  was  an  indirect transfer  because the joint Hindu family had  been  utilised only  as  a  conduit  pipe  by  the  assessee  to   transfer properties to the wife and the minor son.               Section  16  (3) (a) (iii) and  (iv)  read  as               follows               "16(3)-In  computing the total income  of  any               individual  for  the  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-               (iii)from  assets  transferred  directly   or               indirectly   to  the  wife  by   the   husband               otherwise than for adequate                                    103               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;." Mr. Viswanatha Sastri, the learned counsel for the assessee, contends  that  in  this case there is no  transfer  in  the strict sense, and as it is a taxing statute, the  provisions should  be construed strictly. He says that neither the  act of throwing the self-acquired property into the  hotchpotch, nor  the partition of joint family property was  a  transfer within  the meaning of s. 16(3) (a) (iii) or s. 16  (3)  (a) (iv).   If the legislature wanted to rope in these acts,  it could have used another word, such as ’arrangement. Apart  from authority, looking at the language of  s.  16(3) (a) (iii), following two conditions must be satisfied before

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the said provision can be applied : (1)Assets must be transferred by the husband to the wife; (2)The assets must be transferred directly or indirectly. Two  questions  arise : Is the word ’transfer’ used  in  the technical  sense  or in the popular sense ?  And,  secondly, what is comprehended in the word ’indirectly’? Some  assistance is derived in ascertaining the  meaning  of the word ’transfer’ by looking at the language of s. 1 6 ( 1 )  (c).   In  that clause, the legislature  uses  the  words ’settlement’,  ’disposition’  and  ’transfer’,  and  in  the expression  ’settlement  or disposition’  is  included  ’any disposition, trust, covenant, agreement or arrangement’.  In this  clause,  the word ’transfer’ is clearly  used  in  the strict sense.  If the legislature were minded to include  an arrangement  or agreement, not amounting to transfer, in  s. 16(3)(a) (iii), it could have used these words.  It seems to us that the word ’transfer has been used in the strict sense and not in the sense of ’including every means by which  the property   may  be  passed  from  one  to  another’.    This conclusion  is  reinforced  by the  consideration  that,  as observed  by  this Court in Philip John  Plasket  Thomas  v. Commissioner  of Income-Tax, Calcutta(1), s. 16(3)  "creates an artificial income and must be construed strictly." (1)[1964] 2 S.C.R. 480. 104 Coming now to the expression ’directly or indirectly’  there does not seem to be any doubt that the legislature meant  to rope  in  indirect transfers.  One example is  furnished  by Commissioner of Income Tax v.C.  M. Kothari(1).  But  there must  still be a transfer of assets. The  word  ’indirectly’ does not destroy the significance of the word transfer’. Mr.  Rajagopala  Sastri relies strongly on the  decision  of this   Court  in  Commissioner  of  Income  Tax  v.  C.   M. Kothari(1).   But  in  our  opinion  that  case  is  clearly distinguishable  and  does not assist us in this  case.   In that case, C. M. Kothari and his sons were both desirous  of putting  Rs.  30,000 in the hands of their wives  to  enable them to buy a share in a house.  Instead of directly gifting the  amount,  they  hit upon the following device  :  C.  M. Kothari would gift Rs. 30,000 to the daughter-in-law and the "on  would gift Rs. 30,000 to the mother.  This  Court  held that it was a palpable device and a trick and the two  cross transactions  amounted to an ’indirect transfer’  within  s. 16(3) (a) (iii).  In effect, this Court held that the father used  his son as a conduit pipe and the son used his  father as  a  conduit  pipe to gift Rs. 30,000  each.   Mr.  Sastri relies   on   the  words  "chain  of  transfers"   used   by Hidayatullah, J., in the following sentence :               "A chain of transfers, if not comprehended  by               the word ’indirectly’ would easily defeat  the               object  of the law which is to tax the  income               of  the wife in the hands of the  husband,  if               the  income  of the wife arises  to  her  from               assets transferred by the husband." But in the context they refer to the cross gifts, if we  may so  call  the  two  gifts  of  Rs.30,000  each.   These  are transfers  in the strict sense of the term. In  the  present case there are no cross-gifts. We have, on the otherhand, in this case, a throwing of property into the hotchpotch and  a partition  of  the  JHF property.  As will  be  pointed  out later, the latter at any rate is not a transfer at all. This  takes us to the facts of this case, and  the  question arises whether there is any transfer of assets in the strict sense.  There is some difference of opinion whether the  act of  throwing selfacquired property into the hotchpotch is  a

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transfer  or  not.  We need not settle this  controversy  in this case.  Let us assume that It  is.  But, is a  partition of  joint  Hindu family property a transfer  in  the  strict sense ? We, arc of the opinion that it is not.  This  Was so held  in Gutta Radhadristnayya v. Gutta Saravamma.(2)  Subba Rao, J., then a Judge of the Madras High Court, after (1) [1964] 2 S.C.R. 531, (2)1,1,.R. [1951] Maci. -67. 105 examining  several authorities, came to the conclusion  that "partition  is  really  a process in and by  which  a  joint enjoyment  is  transformed into an enjoyment  in  severalty. Each  one  of  the  sharers  had  an  antecedent  title  and therefore  no  conveyance is involved in the  process  as  a conferment of a new title is not necessary." The Madras High Court  again  examined  the question in M.  K.  Stremann  v. Commissioner  of Income Tax, Madras(1) with reference to  s. 16  (3 ) (a) (iv).  It observed that "obviously no  question of  transfer  of assets can arise when all that  happens  is separation in status, though the result of such severance in status is that the property hitherto held by the coparcenary is  held thereafter by the separated members as  tenants-in- common.  Subsequent partition between the divided members of the  family does not amount either to a transfer  of  assets from  that  body of the tenants-in-common to  each  of  such tenants-in-common". The  Punjab High Court came to the same conclusion in  Jagan Nath v. The State of Punjab (2) . Agreeing with these autho- rities,  we hold that when the joint Hindu  family  property was  partitioned, there was no transfer of assets within  s. 16(3) (a) (iii) and (iv) to the wife or the minor son. Mr. Rajagopala Sastri finally contended that we must look at the  substance  of the transaction.  But as pointed  out  by Lord Normand in Potts’ Executors v. Commissioners of  Inland Revenue(")  "the Court is not entitled to say that  for  the purposes  of  taxation  the  actual  transaction  is  to  be disregarded  as  "machinery"  and  that  the  substance   or equivalent financial results are the relevant consideration. It  may  indeed be said that if these  loose  principles  of construction had been liberally applied, they would in  many instances  have been adequate to deal with tax  evasion  and there   would  have  been  less  frequent  cause   for   the intervention of Parliament." In the result the appeal fails and is dismissed with costs. Appeal dismissed. (1)  (1961) 41 I.T.R. 297. (2) (1962) 64 P.L.R. 22. (3) 32 T.C. 21 1. 3Sup./65-8 106