TMI Blog1961 (2) TMI 89X X X X Extracts X X X X X X X X Extracts X X X X ..... nstrued to be a revocable one within the meaning of section 16(1)(c) of the Act. The facts giving rise to these questions of law may be briefly stated. The assessee is P.J.P. Thomas who held 750 A shares in J. Thomas and Co. Ltd., Calcutta. He entered into an engagement to marry one Mrs. Judith Knight. The engagement was announced on the 3rd September, 1947. The assessee and Mrs. Judith Knight on the 10th December, 1947 presented to the company an application to transfer the said shares to Mrs. Judith Knight. The company transferred those shares to Mrs. Knight and registered the same in the name of Mrs. Knight on its books on the 15th December, 1947. Marriage took place between the assessee and Mrs. Judith Knight, within three days after the registration, on the 18th December, 1947. The fact of the marriage was communicated to the company on the 26th January, 1948, and the name of Mrs. Judith Knight was rectified as Mrs. Judith Thomas in the books of the company. It is undisputed that during the relevant period the shares stood registered in the name of the assessee's wife and the income in question arose to her as the wife of the assessee. The four accounting years wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would be in a position to recall the shares from Mrs. Judith Knight and all or such dividends as she might have withdrawn between the date of the deed and the failure of consideration of the marriage. Now comes section 16(3)(a)( iii) of the Income-tax Act. Section 16 deals with exemptions and exclusions in determining the total income. Sub-section (3) of section 16 was added to the statute book by section 2 of the Indian Income-tax (Amendment) Act, 1937 (IV of 1937). It reads 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... as arises directly or indirectly-... (iii) From assets transferred directly or indirectly to the wife by the husband otherwise than for adequate consideration or in connection with an agreement to live apart;... This is the relevant portion of section 16(3)(a)( iii) with which we are concerned. On an examination of the language of this section, it is clear (1) that it relates to the computation of the total income of any individual for the purpose of assessment and (2) that the income of a wife of such individu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ividual for the purpose of assessment. That is how I read the opening words of section 16(3) of the Act: In computing the total income of any individual for the purpose of assessment. The argument, therefore, of the assessee that because Mrs. Judith Knight was not the wife of the assessee at the time of the deed of transfer, hence section 16(3)(a)(iii ) of the Act could never apply to the assessee is, in my view, wrong, first, because the crucial date to determine the relationship between the husband and wife is the date when the taxing authorities are computing the total income of the husband in which time they had become husband and wife in this case and secondly, because the nature of the document in this case is such that the transfer or the disposition or the settlement of these shares can only be construed as a transfer to a person as wife and in no other capacity. The whole object and purport and purpose of this transfer of shares was by a husband to a wife. Interesting arguments were advanced to us whether the words husband or wife in section 16(3)(a)(iii ) of the Act could mean prospective husbands and prospective wives. It was the assessee's contention that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the judgment of the full bench delivered by Harries C.J. at pages 147 to 149 and in the observations of Manoharlal J. at pages 151 to 154 of the Patna report which I have already quoted. The next case is one of the Lahore High Court, In re Sardarni Narayan Kaur [1943] ITR 448, where the Lahore High Court took the same view of interpretation of the expression adequate consideration in section 16(3)(a)(iii ) at pages 452-53 of the report. The next case is Tulsidas Kilachand v . Commissioner of Income-tax [1958] 33 ITR 383, where the Bombay High Court took the same view that the words adequate consideration in section 16(3)(b) did not include within their scope natural love and affection. Prima facie all these cases are against the assessee. But what is contended on behalf of the assessee is that these cases are distinguishable on the ground that they all related to cases of husbands and wives and not one of them related to a case of a prospective husband and a prospective wife, as in the instant case before us. Therefore, it was contended on behalf of the assessee that while natural love and affection might not be included in the words adequate consideration under sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is case that marriage was a part of the financial and valuable consideration for which the transfer of these shares was made to the prospective wife. From that point of view, the facts in this case may answer the question of valuable consideration and the decisions quoted above are not an obstacle in the way of the assessee. But the assessee's difficulties arise when the adequacy of that consideration is considered. Even if marriage can be a valuable consideration for a transfer of assets, even then in order to avoid the addition, the husband has to show that the consideration was adequate. Now, in this case apart from the facts, the question would arise; can marriage, even considered as a valuable consideration which will support transfer of assets, ever be judged on that basis? It is unquestioned that section 16(3)(a)( iii) of the Act exempts the husband from the wife's income if it arises from transfer of assets made by the husband to the wife on adequate consideration. Could marriage by itself be ever an adequate consideration? The word, adequate in this context appears to exclude marriage itself as a valuable consideration because there can be no objective measure fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed because there marriage itself is not the consideration but the consideration will be measured by the market standards of the assets, and price at the date of transfer and there is no difficulty in evaluating such a consideration. It may be an unusual instance for which this sub-section provides because such a case of transfer between husband and wife for adequate consideration may not be frequent and will perhaps be few and far between for the simple reason that as between husband and wife during coverture certain transfers are not made as between ordinary contracting parties, but even then when they do take place, the taxing authorities or the Income-tax Tribunal or the courts will always have enough materials to judge of the adequacy of such a consideration. But this argument is not available where marriage itself is put forward as a consideration ; for then marriage is an immeasurable consideration even though a valuable one and being immeasurable its adequacy cannot be justiciable by objective tests. Hence taking a proper view and interpretation of the expression adequate consideration , I am of the opinion that in the context of section 16(3)(a)(iii ) of the Act, marriage ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ectly by the assessee for such purpose out of his income, he could not claim any allowance. If this reasoning be applied, then in this case the assessee does not succeed. The decision in Cohen v. Sellar [1926] 1 KB 536 lays down the proposition that if a man who had promised to marry a woman and had given to her an engagement ring in contemplation of marriage and then refused without legal justification to carry out his promise, he could not demand the return of the engagement ring but if a woman who had received an engagement ring in contemplation of marriage refused to fulfil the conditions of the gift and to carry out her promise, she must return the ring. This, if anything, bears on the nature of the contract and the condition of the gift. The principle is clear that where, as in the case before us, the whole transfer is said to be for the consideration of the forthcoming marriage then if the marriage did not take place, the consideration would have failed and there would be no doubt that the assets and dividends would be returnable to the party who transferred them provided the failure of the marriage was not due to his fault. The same principle is discernible from the othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the harassed husband, the income-tax relief value of a wife comes to only about ₹ 10 or ₹ 12 a month on an analysis of the great advantages of taxation which a married man is supposed to enjoy over his unmarried fellowman in India. I shall rest content in this reference by holding the very old traditional orthodox and unfashionable view that a wife under section 16(3)(a )(iii) means a legally wedded wife and no one else, although the customs of such legal wedding may liberally vary as being sanctified either in the church or on the marriage register or before some ancient fire. For these reasons, I answer the first question in the affirmative and hold that the dividends mentioned therein can be included in the income of Mr. Thomas and taxed in his hands under section 16(3)(a)( iii) of the Indian Income-tax Act. The next question relates to the application and interpretation of section 16(1)(c) of the Income-tax Act. Section 16(1) was introduced by section 18 of the Income-tax (Amendment) Act, 1939 (VII of 1939). The relevant portion with which we are concerned reads as follows: In computing the total income of an assessee... all income arising to any person b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a settlement or disposition and although it may be revocable or not revocable, the acid test is that the assets remain the property of the settlor or disponer notwithstanding such settlement or disposition. Therefore it is said that income arising to a person by such settlement or disposition shall be deemed to be the income of the settlor or disponer. Now, this particular part of section 16(1)(c) has no application because here the assets, namely, the 750 shares did not remain the property of Mr. Thomas. The next part of section 16(1)(c) is concerned with a revocable transfer. It is there that the issue is joined. The second part of section 16(1)(c) of the Act uses the words all income arising to any person by virtue of a revocable transfer of assets shall be deemed to be the income of the transferor. The governing words or the governing tests is revocable transfer. When there is a revocable transfer of assets then income arising to a person by such transfer shall be deemed to be the income of the transferor. In other words two apparent things are made to conform to the real nature of the transaction under this sub-section. The first apparent thing of a transfer while the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re wide enough even to cover a provision for a retransfer which was contingent in its nature. This case again did not actually decide the point which was put forward in this reference before us, namely, whether this provision could be an implied provision or an inference from or as a legal effect of the deed. The other cases to which our attention was drawn on behalf of the assessee was Inland Revenue Commissioners v. Wolfson [1949] 1 All ER 865. This was a House of Lords decision construing the English Finance Act of 1938 and its section 38(1). It was held there that the power referred to in section 38(1)(a) of the English Finance Act of 1938 must be found in the terms of settlement and not aliunde and as there was no such power conferred by the deed of covenant, the annual payments made there under should not be treated as income of the taxpayer. That case again has no application to the facts of this case. There the circumstances which were intended to influence the construction of the deed were the surrounding circumstances of (1) that the settlor as the holder of the shares was in a position to determine how much of the profits of the company should at all be distributed in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny way. Tendolkar J. did not express himself on this point and observed at page 311 of the report dealing with the first proviso to section 16(1)(c) of the Act: That proviso deals with cases where a trust is not, in fact, revocable but is deemed to be revocable by reason of certain provisions contained therein. That is not the present case before us, and what ever may be the correct view of the first proviso, since it does not arise in the determination of the reference before us, I do not wish to express any opinion with regard to it. The correct interpretation of that proviso, to my mind, is not necessarily a guide to the correct interpretation of the substantive section 16(1)(c) which deals with the question as to whether a trust is or is not, in fact, a revocable transfer. Finally, on behalf of the assessee our attention was drawn to the third proviso in section 16(1)(c) of the Act to suggest that such provisions as for a period not exceeding six years or during the lifetime of the person contained in the third proviso would seem to exclude any implied effect or legal effect or inference under the first proviso because they are by their nature explicit and the th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mination of two questions of law turning on the interpretation of the provisions of section 16(3)(a)( iii) and section 16(1)(c ) of the Indian Income-tax Act. It has been argued that, in order that section 16(3)(a )(iii) of the Act may be attracted, the transfer has to be by the husband to a person who is actually the married wife of the transferor, at the time of the execution of the transfer and not merely a fiancee or the prospective wife, and as Mrs. Judith Knight was not married to Mr. Thomas at the date of the execution of the transfer, the provisions in question are not attracted. Now, it is true that the relation of husband and wife is a condition precedent to the applicability of the section. But it appears to me that if the object of the transfer is to benefit the person who answers or will answer the description of wife or who fulfils or will fulfil the character of wife, it is immaterial that the transferee was not married to the transferor at the time, of the execution of the transfer. The transferee in the present case does not acquire any absolute right or title to the property transferred until she actually becomes the wife of the transferor. Until marriage she h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration for a settlement. There is a reference to a case in footnote (P) which is the case of Ex parte Marsh ( supra) which is cited along with several other cases in the said footnote of Halsbury at page 459. In this case of Ex parte Marsh ( supra), it is pointed out by the Lord Chancellor that all marriage agreements differ from other agreements, for these do not arise from the consideration of a portion only but on account of the marriage . It is further stated in this very paragraph of Halsbury that a marriage that takes place on the faith of a voluntary settlement may supply ex post facto consideration and the case of Prodger v. Langham [1663] 1 Sid. 133 is referred to in support of this proposition. The case of Prodger (supra ) has been explained by Kay J. in the case of Halifax Joint Stock Banking Company v. Gledhill [1891] 1 Ch. D. 31 in the following words: The actual decision in Prodgers s case (supra) was that a lease for the benefit of a daughter, if she married with her father's consent, being voluntary, would be void against a subsequent purchaser for value by virtue of 27 Eliz. c. 4, but that, although so void, it might be made effectual against such purchas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... marriage with another who offered to marry her on such condition. The alienation was challenged by a person who claimed to be the adopted son of the settlor inter alia on the ground that it was not supported by any consideration. Abdur Rahim J., who delivered the judgment of the Division Bench after referring to the definition of consideration as given in section 2(d) of the Contract Act, observed at page 159: If a person contracts a marriage in consideration of a promise, then it seems to us that the marriage is valuable consideration within the meaning of this definition. In this respect the law is the same in India as in England. In England a promise made in consideration of marriage is a binding and enforceable agreement. The definition of consideration as given in section 2 of the Contract Act seems to be general and wide enough to cover such cases. The court held that the alienation was for valuable consideration. Mr. Meyer has argued that it has not been proved that marriage took place on the faith of the offer or promise to transfer the shares- on the other hand, the document of transfer suggests that the marriage was already determined upon and arranged an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... depend on the social and financial status of the wife, (as for example, when the bride is a rich heiress) the extent of her needs and activities of life, her external appearance, her earning capacity, her educational qualifications, the sacrifice that she may have to make or any loss that she may have to suffer by reason of the marriage, the value of the property transferred and such other factors. But as these considerations for determining the adequacy are likely to vary from case to case and no fixed objective standard can be laid down for the purpose, it is reasonable to hold that such a kind of consideration was not intended to be comprehended within the section. But assuming it is permissible or legitimate to enter into an inquiry of this nature for determining the adequacy of such a consideration, it is to be pointed out that there are no materials before us which will enable us to determine this question of adequacy. The assessee has not adduced any evidence on this point before the income-tax department. The other point raised is whether section 16(1)(c) is applicable to the facts of the case. It appears to me that here the Tribunal has gone wrong. As pointed out alrea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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