TMI Blog1940 (11) TMI 29X X X X Extracts X X X X X X X X Extracts X X X X ..... mode of assessment on various grounds. He contended that his status was not that of an individual but the Karta of a joint Hindu family and, therefore, he could not be assessed as an individual under the said Section 16 (3) of the Act as had been done in this case. The Income-tax authorities, however, found as a fact that the assessee was not the Karta of a joint Hindu family and was properly assessable as an individual, and that finding has been accepted and need not be further referred to. The assessee further contended that the income of his wife had been improperly included in computing his total income on the ground that Section 16(3) could have no application to transfers made to a wife before the terms of that sub-section were enacted in the year 1937. In any event, the assessee claimed that the transfers in favour of his wife were made for adequate consideration and, therefore, the provisions of the said section had no application to the case. On appeal the Assistant Commissioner of Income-tax eventually rejected these contentions, and his decision was upheld by the Commissioner. The latter was asked to state a case upon the question, Whether the income of ₹ 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is wife as arises from assets transferred to the association by such individual . Section 5 of this Amending Act expressly provides that this addition of sub-section (3) to Section 16 of the Indian Income-tax Act shall not have effect in respect of any income chargeable to income-tax for any year ending before the 1st day of April, 1937 . In other words, the method of computing the total income of any individual as laid down in the new sub-section (3) to Section 16 of the Act, shall not be applied to the computation of any income chargeable to income-tax for any year ending before the 1st day of April, 1937. It is to be observed that in the present case the method of computation was applied to income chargeable to income-tax for the assessment year 1937-38, that is for the year ending the 1st of April, 1938. It was strenuously argued by Mr. P.R. Das on behalf of the assessee that sub-section (3) of Section 16, Indian Income-tax Act, is directed at transactions and that it, in effect, renders transfers made otherwise than for adequate consideration by a husband to his wife invalid for the purpose of Income-tax law. As the sub- section was directed against transactions, he ur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not only income from assets transferred by a husband to his wife after the passing of the Act but also income arising from such assets transferred before the passing of the Act. In support of the argument that this sub-section has no application to a wife's income arising from assets transferred before the passing of the Act, reliance was placed upon sub-section (8) of Section 44D, Income-tax Act. Section 44D is the first section in Chapter VB which is entitled Special provisions relating to avoidance of liability to income-tax and super-tax and the marginal note to Section 440 is avoidance of income- tax by transactions resulting in the transfer of income to persons resident or ordinarily resident abroad . This section provides that in certain cases of transfers of assets to persons resident or ordinarily resident abroad, the income therefrom shall be deemed to be the income of the assessee for the purposes of the Act. In short, for the purposes of income-tax, income which is in name the income of a person not assessable is deemed to be the income of the person assessed. In short, the transfers at least for the purposes of income-tax are avoided. Sub-section (8) to Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or indirectly to the wife by the husband otherwise than for adequate consideration or in connection with an agreement to live apart. Admittedly the assessee and his wife are living together; but it is urged that the transfers in this case were made for adequate consideration, and that being so, the income arising therefrom should not be added to the husband's income in computing the latter's total assessable income. The Income-tax authorities have found that the wife gave no monetary consideration for any of these transfers and that they were all made on account of natural love and affection between the parties. Mr. Das admits this but contends that a transfer by a husband to a wife on account of natural love and affection is a transfer for adequate consideration. Further, it was urged that the word consideration in this sub-section is not used in its legal sense but means reason or motive. In short, the sub- section it is said, has no application in cases where the husband has made a gift to his wife for a good reason or motive such as love or affection. In my judgment the word consideration appearing in this sub-section is used in its legal sense as it is used in c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here is good and legal consideration. Adequacy of consideration may be material when a court is considering whether a transfer has been made voluntarily and with a full understanding of its effect. Inadequacy of consideration may, in circumstances, suggest fraud, coercion, mistake and such like Once, however, a Court is satisfied that a person has entered into an agreement freely and with full knowledge of its purport and effect, then such agreement will be held valid if it is supported by consideration whether such is regarded by the Court as adequate or not. In short, the law draws a clear distinction between good consideration and adequate consideration. A transaction may well be valid, though the consideration in the view of an independent tribunal might be wholly inadequate. Even assuming, therefore, that natural love and affection might amount to good consideration, which in my view, it does not, that would not be sufficient. The wife's income will only be assessed in her hands if it arises from assets transferred for adequate consideration, that is consideration which is sufficient or reasonable having regard to the value of what is transferred. It must be equal or nearl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the wife by the husband otherwise than for adequate consideration . The assessee admitted before the Income-tax Officer that the bulk of the investments in his wife's name producing the income in question were from the money of his earnings . The Assistant Commissioner, as stated in his order dated the 14th February, 1938, in paragraphs 8 and 10 also held that although the income earned by the wife was derived from deposits, interest on securities and house properties but as it was admitted that the necessary fund to secure the sources was originally supplied by the assessee out of his own savings, they bad to be aggregated for a joint assessment under Section 16(3) of the Income-tax Act . The Commissioner of Income-tax by order dated the 10th September, 1938, when dealing with the combined application of the assessee under Sections 33 and 66(2) of the Act set aside these orders and remanded the case for reconsideration after determining the status of the assessee. The Assistant Commissioner accordingly re-heard the appeal and came to the conclusion that the assessee was rightly assessed with the status 'individual'. It appears to have been argued before the Assist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the word used is not consideration or good consideration but adequate consideration. What then is the meaning of the words adequate consideration ? In the Imperial Dictionary the word adequate is stated to mean equal, proportionate, exactly correspondent, fully sufficient. In the case of Curlewis v. Clark [1849] 18 L.J. Ex. 144 , the Court was dealing with the validity of the plea taken by the defendant that the plaintiff agreed to take a paper, capable, by the insertion of a drawer, of being made into a negotiable instrument, as a satisfaction for 64. 4s. 6d. if the bill should be paid at maturity, if not, then the defendant should be liable to the payment of 10 Pollock, C.B., and the other learned Barons, held that this plea was good. Parke, B., made these observations; after narrating the facts which I have stated above: The question is whether that affords a good answer. I think it does. It is a different question whether the plaintiff may or may not have made a bad bargain: at all events, he takes something which is capable of being made of value. If a good consideration exists, the Court cannot enter into the question of the adequacy of the value. In the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd upon a person giving pretium affectionis, from any peculiar motive, beyond what any other man would give, the reasonable price. But, further, unless the inadequacy of price is such as shocks the conscience, and amounts, it is not conclusive and decisive evidence of fraud in the transaction, it is not itself a sufficient ground for refusing a specific performance: (Western v. Russell, 3 Ves. Bea. 187, and the notes 193; and 8 Ves. 137). How upon these circumstances is there such inadequacy of price as to cut down the bargain, or authorise the court not to complete it? It seems to me from a consideration of these high authorities that the Courts have always held that adequacy of consideration means something different from good consideration. A transaction such as a transfer by one person to another will be held to be good even though the consideration for it is not equal to the real value of the property, although the Courts will consider whether the consideration is not adequate or grossly inadequate but only in order to decide whether the transfer was not imposed upon. (See for instance the illustration to Section 25 of the Indian Contract Act (IX of 1872), which deals wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r with the question of the inadequacy of sale price fetched at auction sales held under the Code of Civil Procedure while dealing with applications under Order 21, Rule 90. Many sales are confirmed even though the price fetched is wholly inadequate if the applicant has been unable to satisfy the other requirements of law. For these reasons I agree that the answer to this question should be as suggested by the Commissioner. It was then argued that the provisions of Section 16(3)(a)(iii) are not retrospective. But Section 5 of the Amending Act, IV of 1937, has made it clear that the amendment made in the Indian Income-tax Act by this provision shall not have effect in respect of any income chargeable to Income-tax for any year ending before the 1st day of April 1937 . This provision is very clear. Mr. Mazumdar who followed Mr. Das drew attention to the provisions of Section 44D (8) and submitted that where the legislature wanted to bring into taxation the assets transferred before or after an amendment they have specifically said so. The obvious answer is afforded by sub-clause (1) by which alone the income from such transfers are to be deemed to be the income of the transfero ..... X X X X Extracts X X X X X X X X Extracts X X X X
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