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1962 (10) TMI 86

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..... Balakrishnan, who had declared his status as a Hindu undivided family with one minor son. The accounting year is the year ended 31st March, 1958, and the assessment year is 1958-59. In computing the assessable income the Additional Income-tax Officer, Coimbatore, included a sum of ₹ 933 as the assessees income but it was objected to by him. The Income-tax Officer claimed to include this amount, as in his view the income arose out of a transfer of assets by the assess which fell within the mischief of section 16(3)(a)(iv) of the Act. In the course of the scrutiny of the accounts of the firm of Messrs. L. G. Balakrishnan and Brothers, the Income-tax Officer found the following deposits : (1) ₹ 50,000 credited to Kumari Vanitha, mi .....

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..... 7; 933 to tax in the hands of Balakrishnan. This sum of ₹ 933 admittedly arose by way of income from the sum of ₹ 50,000, credited in the firms accounts in the name of Vijayakumar, the minor son of Balakrishnan. The assessee preferred an appeal to the Appellate Assistant Commissioner, Coimbatore. He affirmed the decision of the Income-tax Officer. He expressed his conclusion thus : "In my opinion, there was very strong grounds in the present case warranting the conclusion that the transfers are mutual and part and parcel of one pre-conceived arrangement. The amounts involved are exactly identical. The gifts have been made almost simultaneously. Again the gifts are cross gifts to the minor children. From the manner in which .....

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..... essee invoking the provisions of section 16(3)(a)(iv) is lega ?" We have already set out the relevant statutory provisions. The object of section 16(3)(a)(iv) is plain. The assessee would like to lessen the burden of taxation by transferring his assets to his minor children so that he may not pay tax in the income of those assets and yet at the same time retain the income in his hands ostensibly as the guardian of the minors. Such types of transactions caused leakage of the revenue and the legislature introduced this measure to curb them. If an individual assessee transfers assets to his minor children without consideration and the income therefrom enures to the benefit of the minors the sub-section operates and treats the income as th .....

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..... d be treated as the income of the assessee. Learned counsel for the assessee contends that the case is not covered by the section as the assessee did not transfer any assets to this minor son and that assuming his brother made a gift to his son because the assessee had made a gift to the minor son of his another brother, that cannot lead to the inference of a gift by the assessee to his son. The outward appearance of the transaction lends support to his contention. But this cannot conclude the question whether there was in substance a transfer by the assessee to his son. The decision in C. M. Kothari v. Commissioner of Income-tax has been very much relied upon by the assessees learned counsel. The facts of that case were as follows : K and .....

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..... fact that the gifts were simultaneous in point of time did not establish that each transfer constituted the consideration of the other, and that the transfers were mutual. It was further held that there was no material on record to justify the conclusion that the transfer of assets effected by K in favour of his daughter-in-law, Mrs. D. constituted an indirect transfer by D of his assets to his wife or that the transfer of his assets effected by D in favour of his mother constituted an indirect transfer by K to his wife, and that therefore the provisions of section 16(3)(a)(iii) did not apply. We do not think that the above case lays down any general principle of law that cross-gifts or mutual transactions are as a class outside the mischi .....

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..... . The finding of the department as well as of the Tribunal is that there was an indirect transfer of assets by L. G. Balakrishnan to his minor son, Vijayakumar. This is certainly based on the evidence on record and it seems to us that this finding is fully justified and warranted. As stated already, the decision of the Division Bench in C. M. Kothari v. Commissioner of Income-tax, is no authority for the proposition that in every case of gifts and mutual transactions, the assessee can repel the applicability of section 16(3)(a)(iv) merely on that ground. If such a contention were to be upheld, it would enable the assessee to defeat tax by merely resorting to devices and forms. In our opinion, the gifts of ₹ 50,000 in favour of minor V .....

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