TMI Blog1978 (8) TMI 20X X X X Extracts X X X X X X X X Extracts X X X X ..... pany Private Ltd. (hereinafter referred to as " Ashok ") and Modern Construction Company Private Ltd. (hereinafter referred to as " Modern "). In para. 3 of the statement of case, the Tribunal has given the shareholdings in Ashok at the relevant period and has concluded that the assessee had a controlling interest in the said concern. Similarly, in para. 4 of the statement of case, the Tribunal has extracted the shareholdings in Modern and has concluded that the assessee's brother C. S. Patel and K. H. Patel and R. H. Patel together held a controlling interest in the said concern. On 21st September, 1955, a series of gifts of the shares of Modern were made as under : --------------------------------------------------------------------------------------------------------------------------------------------------- Donor Donee No. of Amount shares Rs. --------------------------------------------------------------------------------------------------------------------------------------------------- C. S. Pate l A. U. Patel (Major son Rs. 750 paid up 60,000 of U. S. Patel) 40 per share Vikram U. Patel (minor son of U. S. Patel) 40 ----- 80 ------ K. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsfer of the shares of the respective companies by way of these gifts as noted did not materially affect the controlling interest of the assessee in Ashok and of C. S. Patel, K. H. Patel and R. H. Patel in Modern. In the course of the assessment for the year 1957-58, the ITO found that although the assessee had previously shown dividend income in respect of 282 shares of Ashok, the dividend income disclosed by him in the year under consideration was only for 107 shares of the said company. The difference came to 175 shares. On inquiry, it was learnt that the assessee had gifted 175 shares of the said company to various persons on 11th February, 1956. The ITO pursued the matter further and then found that a little earlier, i.e., on 21st September, 1955, there had been gifts of shares of the other company, viz., Modern by C. S. Patel, K. H. Patel and R. H. Patel and that the donees were the assessee's wife and children. The ITO asked the assessee to explain the circumstances under which such gifts had been made by the respective donors ; the assessee was further asked as to why, in the circumstances, the gifts should not be considered as mutual, thereby attracting the provisions o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee that the shares gifted by the assessee and the shares gifted to the assessee's wife and children were not identical and, therefore, the provisions of s. 16(3)(a)(iii) or (iv) could not be applied. This argument was also rejected by the Tribunal. The learned counsel, on behalf of the assessee, referred us to the provisions of s. 16(3)(a)(iii) and (iv) and drew our attention to certain authorities of the Supreme Court and of this High Court in which the statutory provisions had come up for consideration. The first of these decisions is CIT v. C. M. Kothari [1963] 49 ITR (SC) 107. In that case, the facts were as follows : C and his two sons, D and H, were the three partners of a firm. In October, 1947, the firm entered into an agreement for the purchase of a house and paid an advance of Rs. 5,000. This sum was debited in its books to the personal accounts of the partners. The transaction was completed in that very month and the sale deed was taken in the names of Mrs. C and Mrs. D and H. The balance of the consideration, viz., Rs. 85,000 was also paid to the vendors by the firm. To make up this amount, He was debited with a sum of Rs. 28,333-5-4 in the firm's books, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n if chain transactions be included, then, unless there is consideration for the transfer by the husband, each transfer must be regarded as independent, and in the present case, the department has not proved that the transfers by the son to the mother and by the father-in-law to his daughter-in-law were made as consideration for each other. We do not agree. It is not necessary that there should be consideration in the technical sense. If the two transfers are inter-connected and are parts of the same transaction in such a way that it can be said that the circuitous method has been adopted as a device to evade implications of this section, the case will fall within the section. In this case, the device is palpable and the two transfers are so intimately connected 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 occassion 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. The High Court overlooked the clear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to avoid the application of the section. The earlier decision of the court in. C. M. Kothari's case [1958] 34 ITR 317 (Mad) was referred to. It may be mentioned, at this juncture, that the wider interpretation put by the Supreme Court in the above decisions, in our opinion, brings the facts of the case before us entirely within the principles indicated and the question would be required to be answered in favour of the revenue. We were, however, referred to two decisions of our High Court, Which, according to the learned counsel for the assessee, have laid down principles in favour of the assessee and which, if applied, would require the question to be answered in favour of the assessee. We may now refer to these decisions. The first of these decisions and one on which very strong reliance was placed on behalf of the assessee was H. N. Patwardhan v. CIT [1970] 76 ITR 279 (Bom). The facts before the Division Bench of this court were : On 8th February, 1957, the assessee gave 55 shares of M Bank to his sister and 60 shares of the same bank to his maternal uncle. These two donees gifted these very 55 and 60 shares on 22nd June, 1957, that is, about four months and fourteen days lat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e gifts made by these two parties on June 22, 1957, were inter-connected transactions and/or parts of the same transaction. On the contrary, we find it extremely difficult to reject the finding of the Tribunal that there is nothing whatsoever on record to suggest that there was any diabolical scheme of which both the transfers were inseparable parts. It should have been possible for the revenue to make inquiries regarding how the shares in question were dealt with during the interval of 4 months and 14 days whilst the assessee's sister and maternal uncle were the absolute owners of the shares in question. It is clear that these two parties as owners could have disposed of these shares in such manner as they desired during this interval. We cannot avoid noticing this important fact that these two donee were the absolute owners of these shares during the above period. This fact is sufficient to totally destroy the argument of Mr. Joshi that these transfers (gifts) were interconnected and parts of the same transaction or that they were a circuitous method adopted as a device to evade the implications of the provisions of sub,clause (iv) The question of inter-connection and/or being ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transferred and subsequently retransferred by the donees to the assessee's wife or children if there is sufficient time interval between the two transfers unless there is some positive proof of agreement or a scheme (what the learned judge calls a " diabolical scheme " ) of the nature required by the court. The nature and impact of the transaction or transactions if there are more than one--and there would be more than one in case of cross transfers--has to be understood and the proper inference is required to be deduced from all the facts on record. The question which a tribunal or a court is required to pose before itself is : whether these are normal transactions made in the ordinary course of behaviour, commercial or personal by the persons concerned, or is the pattern so clear and so illuminating that only one inference is possible, viz., that these were originally conceived with the idea of ultimately conveying, directly or indirectly, certain assets to the assessee's wife or children. It would appear that this would be the real and the proper approach rather than a somewhat artificial approach which seems to be indicated in the passage above extracted from the decision in P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsfer by the assessee to the six sons. We have already earlier indicated the correct approach to be adopted by the court in considering the question such as the one which is posed before us in this reference. Even after conceding the time interval and discrepancies both in the matter of amounts and the donees, the conclusion appears to be inescapable that the consideration for the gift of the shares of Ashok was the earlier gift of the shares of Modern. In other words, these were cross-transfers, each one being made in consideration or expectation of the other set of gifts. If that is so, in our opinion, it becomes necessary to apply the provisions of s. 16(3)(a)(iii) and (iv) to the transactions,under consideration ; if this is not done, the very purpose and the object of the law would be defeated. It appears to as unnecessary that the revenue should prove something more and adduce affirmative evidence, suggestive of an agreement or a scheme of cross transfers. That is not required. If a proper inference can be drawn from the facts found, then the Tribunal and the court would be justified in applying s. 16(3)(a)(iii) and (iv) to the same. In the result, it must be held that th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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