TMI Blog1971 (3) TMI 27X X X X Extracts X X X X X X X X Extracts X X X X ..... spectively ? These questions arise upon the following facts : K. K. Porbunderwalla, the assessee, has been assessed for the two years in question in the status of an individual. He owned four immovable properties. In September, 1947, he gifted these four properties to his wife, Khatijabai. From that time Khatijabai became the absolute owner of these properties, but the income from these properties was being assessed in the bands of the assessee by the application of the provisions of section 16(3)(a)(iii) of the Indian Income-tax Act, 1922. On 30th March, 1957, Khatijabai made a gift of two out of those four properties, described as the Colaba property and the Jail Road property, to her six sons by the assessee. Three of these sons were at that time minors and it is in connection with their share of the income from the properties that the two questions arise. Their share of the income from the two properties amounted to Rs. 13,918 for the year ended 31st March, 1958, relevant to the assessment year 1958-59 and 14,586 for the year ended 31st March, 1959, relevant to the assessment year 1959-60. The department claimed that this income should be held to be the income of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r indirectly" in both the clauses of the sub-section and appears to have taken the view that the moment there is a transfer by the husband or father at one end and the property is transferred to the wife or minor child at the other end, there would arise an indirect transfer. In other words, the moment the property belonging to the husband or the father is found to belong to the wife or the minor child at any time and though it may have come to them after any length of time and through any number of intermediary transfers, still the case would be covered by the word "indirectly". Off the other hand, it has been contended on behalf of the assessee that the connection between the transfer by the father and the ultimate transfer to the children as in the present case must be established in order to hold that the father transferred to the minor children even indirectly. This is a section which creates a legal fiction and by means of a legal fiction attributes the income of the wife or the minor child to the husband or the father, as the case may be, because assets are transferred directly or indirectly otherwise than for adequate consideration. Leaving apart cases of direct transfers w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cted that they cannot but be regarded as parts of a single transaction. It has not been successfully explained why the father-in-law made such a big gift to his daughter-in-law on the occasion of Diwali and why the son made a belated gift, equally big, to his mother on the occasion of her birthday which took place several months before. These two gifts match each other as regards the amount......An intimate connection between the two transactions, which were prima facie separate, is thus clearly established and they attract the words of the section, namely, 'transferred directly or indirectly to the wife'." In Commissioner of Income-tax v. Keshavji Morarji, the Supreme Court reiterated the principle of Kothari's case , and proceeded to state the law thus : " Therefore if the transfers are interconnected and are parts of the same transaction in such a way that it can be said that the circuitous method was adopted as a device to evade the implications of the section, the case will fall within the section. In C. M. Kothari's case , the court was interpreting section 16(3)(a)(iii), but the same considerations are relevant in the application of section 16(3)(a)(iv) .... What is ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the income of the assessee as there was nothing on record to suggest that there was any scheme by which both the transfers were inseparable parts. These findings of the Tribunal were confirmed by this court. As regards the construction of sub-clause (iii) of sub-section (3)(a) of section 16, this court held (see page 287) : " Whilst enacting the sub-clause (iii), it was not intended to prevent transfers to-'Wife and/or child for adequate consideration. On the contrary, the intention was that income of properties transferred for adequate consideration should never be computed in the total income of the husband and/or the father. In other words, the purpose of the sub-clause (iii) was to include the income of the transferred assets in the computation of the total income, of the husband and/or father only to the extent that the consideration was found inadequate ... Under section 16(3)(iv), the income from assets transferred even indirectly to the minor child otherwise than for adequate consideration is directed to be included in the income of the father in computing his total income. The burden on the revenue for acting under the provisions of this sub-clause (iv) would be to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f partnership. The question was whether the income arising to the minors by virtue of their admission to the benefits of the partnership, could be included in the total income of the assessee by virtue of section 16(3)(a)(iv). A finding had been given in that case by the Tribunal that the capital invested by the minors in the firm came from the gift made in their favour by their father, the assessee. Notwithstanding that finding the Supreme Court held at page 30 : " There is no dispute that the assessee had transferred to each of his minor sons, a sum of Rs. 75,000. It may also be that the amount contributed by those minors as their share in the firm came from those amounts. But, the question still remains whether it can be said that the income with which we are concerned in this case arises directly or indirectly from the assets transferred by the assessee to those minors. The connection between the gifts mentioned earlier and the income in question is a remote one. The income of the minors arose as a result of their admission to the benefits of the partnership. It is true that they were admitted to the benefits of the partnership because of the contribution made by them. But th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decide whether there was an indirect transfer by the father to the minor sons." In our opinion, these were relevant considerations which ought to have been taken into account as shown by Patwardhan's case and the other cases to which we have referred above, but the more important error in the judgment of the Tribunal is an error of law apparent from their pronouncement contained in the following passage : " In our opinion, there would be an indirect transfer of an asset to a minor child if that asset could ultimately be traced to his father. In other words, if father F makes a gift to X (not his wife) and X makes gift to Y (neither wife nor his minor son) and Y makes gift to W (wife of F), there would be an indirect transfer from F to W." This passage gives the impression that the Tribunal construed the provisions of section 16(3)(a)(iii) and (iv) to mean that so long as the father is traced as the source of asset in the hands of a minor child, there would in every case result an indirect transfer. That position is incorrect in law and contrary to the very decisions to which we have referred above, particularly to the remarks of the Supreme Court in Prem Bhai Parekh's case t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there is no warrant for this construction of section 16(3)(a) nor is it justified upon the view taken by the highest authority to which we shall presently refer. In the opening words of clause (a) two cases are contemplated : The case of income of a wife and the case of income of a minor child of the assessee, but sub-clause (iii) speaks of "from assets transferred directly or indirectly to the wife" and sub-clause (iv) says "from assets transferred directly or indirectly to the minor child". Therefore, though two cases of a wife and a minor child are contemplated in the opening clause, there is a separate and distinct provision made as regards assets transferred directly or indirectly to the wife and as regards asset's transferred directly or indirectly to the minor child and these separate provisions indicate that each clause will apply to the respective cases of a wife or a minor child and that either clause cannot apply to the other category. This construction of the sub-section is supported by a decision of the Supreme Court in Commissioner of Income-tax v. Sodra Devi 1. Analysing the provisions of sub-clause (a) of section 16(3) the Supreme Court interpreted it as follows (vi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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