TMI Blog1963 (7) TMI 90X X X X Extracts X X X X X X X X Extracts X X X X ..... h he settled certain properties upon his first wife and certain other properties upon his second wife. The total extent of lands owned by him is Ac. 85-36 which is equivalent to standard Ac. 76-87 within the terminology of the Act. The deed purports to be an arrangement for the provision of maintenance to his two wives. But it is not pretended that there was any occasion for the petitioner to cause such a provision to be made even during his lifetime as admittedly the petitioner and his wives have all along been living together quite amicably. We shall refer to the terms of the deed a little later. The petitioner claimed that the properties settled upon his wives were no longer his properties, that they alone were entitled to enjoy the income arising therefrom, that the document cannot be said to be without adequate consideration and that there was no warrant for the wives 'income to be made part and parcel of his total agricultural income. The petitioner and his two wives filed separate applications before the Agricultural Income-tax Officer under section 34(1) of the Act for composition of their alleged respective agricultural income from the properties, As stated already, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the settlor his brother, N.K.R. Thiruvarangam Naidu, shall function as the trustee and manage the properties and pay the net realisation to individuals Nos. 1 and 2. After him the property shall be managed by such person whom my brother might deem fit and proper. After the lifetime of my wives, Hamsavalli and Sarojini, the properties in Schedule A shall be taken by individual No. 3, T.S. Narayana Kumar, absolutely in accordance with the conditions prescribed herein. The B Schedule properties shall be taken by individuals Nos. 4 and 5, P.K. Suryarao and P.K. Dharmarao, in equal shares with right of survivorship inter se. They shall also take the properties absolutely subject to the terms of this document..... The other portions of the document need not be referred to as they have no bearing on the question before us. A mere glance of the provisions in the document is sufficient to show that the petitioner divested himself of the properties described in Schedules A and B attached to the document in favour of his two wives who were to have a life interest in the properties. The remainder, after the termination of their lives, has been disposed of absolutely in favour of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome of the petitioner. The ingredients of this provision are: (1) There should be transfer of assets, directly or indirectly by the assessee (husband) to the wife; (2) The transfer should be otherwise than for adequate consideration , or, (3) In the alternative, it should be in connection with an agreement to live apart. We may omit from consideration the third limb of this section as admittedly there is no agreement between the petitioner and his wife to live apart. There is no difficulty in holding that there has been a transfer of assets by the petitioner (husband) to the wives. The petitioner is no doubt in possession and enjoyment of the properties. But such possession is not in his own right as the owner of the properties but as the trustee in management for and on behalf of his two wives. Virtually, therefore, the wives should be deemed to be in possession. The first ingredient of transfer of assets which is requisite for the application of the provision is clearly present. Whether the transfer is for adequate consideration is really the crux of the question before us. Learned counsel for the petitioner contends that the maintenance arrangement effected by a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Section 16(3) is word for word the same as section 9(2)(a)(iii) of the Madras Agricultural Income-tax Act. Dealing with the question of adequate consideration, his Lordship, Hidayatullah J., observed thus: It remains to consider whether there was adequate consideration for the transfer. Reliance has been placed only upon love and affection. The words 'adequate consideration' denote consideration other than mere love and affection which, in the case of a wife, may be presumed. When the law insists that there should be 'adequate consideration' and not 'good consideration', it excludes mere love and affection. They may be good consideration to support a contract; but adequate consideration to avoid tax is quite a different thing. There is no difficulty in holding that the settlement effected by the petitioner in favour of his wives is, as stated expressly in the instrument of settlement itself, a voluntary gift made by the petitioner in favour of his wives because of his love and affection for them. That is the essence of the transaction and it would not be possible to attribute a different complexion to it by reason only of the fact that the petiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsfer of assets within the second limb of section 9(1) would also cover cases of transfer of the corpus of the property wherefrom the income arises. So far as the first limb is concerned the section is quite specific, and it states that, where the incomeyielding property remains the property of the settlor, a settlement of disposition of the income alone, whether revocable or not, would not avoid the tax liability of the transferor in respect of such income. The third proviso to section 9(1) is an exception to section 9(1). What that provides is that any agricultural income arising to any person by virtue of a settlement or disposition which is not revocable for a period exceeding six years or during the lifetime of the transferee and from which agricultural income the settlor or disponer derives no direct or indirect benefit shall not be included in the agricultural income of the settlor or disponer. In the case of a transfer which is not revocable for a period exceeding six years or during the lifetime of the transferee, sub-section (1) will not operate though there is an element of revocability after the expiry of the six years or after the lifetime of the transferee. Section 9( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ertainly to put an end to avoidance of taxation by husbands effecting transfers in favour of their wives. The following observation of Lord Macmillan in Chamberlain v. Inland Revenue Commissioners [1943] 25 Tax Cas. 317, dealing with the provisions of English law corresponding to section 16 of the Indian Income-tax Act and to the provisions of the present Act, may be usefully referred to: This legislation forms part of a code of increasing complexity, beginning with the Finance Act, 1922, section 20, designed to overtake and circumvent a growing tendency on the part of taxpayers to endeavour to avoid or reduce tax liability by means of settlements. Stated quite generally, the method consisted in the disposal by the taxpayer of part of his property in such a way that the income should no longer be receivable by him, while at the same time he retained certain powers over, or interests in, the property or its income. The legislature's counter was to declare that the income of which the taxpayer had thus sought to disembarrass himself should, notwithstanding, be treated as still his income and taxed in his hands accordingly. In our opinion the third proviso to section 9(1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n provided the disponer derives no direct or indirect benefit, even though the assets remain his property. If it were only a question of the application of the proviso, this disposition would be exempt. Then his Lordship discusses the question as to whether the case would fall within sub-section (3). At page 5 the following observation occurs: The section goes on to deal with other situations and to provide for them specially. Sub-section (3) provides specially for assets transferred to the wife or minor child. Income from assets transferred to the wife is still to be included in the total income of the husband, (a) if the assets have been transferred directly or indirectly to the wife by the husband otherwise than for adequate consideration [vide sub-section (3)(a)(iii)]; or (b) so much of the income of any person or association of persons as arises from assets transferred otherwise than for adequate consideration to the person or association by such individual for the benefit of his wife [vide sub- section (3)(b)]. That was a case where even though their Lordships reached the conclusion that the third proviso to section 16(1)(c) would be applicable yet the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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