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TMI Blog1961 (1) TMI 5X X X X Extracts X X X X X X X X Extracts X X X X ..... e four appellants, made a declaration of trust in favour of his wife, a portion of which may be quoted here : " I, Tulsidas Kilachand .... hereby declare that I hold 244 shares of Kesar Corporation Ltd. and 120 shares of Kilachand Devchand & Co. Ltd ...... upon trust to pay the income thereof to my wife Vimla for a period of seven years from the date hereof or her death (whichever event may be earlier) and I hereby declare that this trust shall not be revocable." In the year of account a sum of Rs. 30,404 was received as dividend income on those shares, and the assessee contended that this income, after being grossed up, was not liable to be included in his total income, in view of the third proviso to section 16(1)(c) of the Indian Inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ruction of the deed of declaration of trust dated 5th March, 1951, the net dividend income of Rs. 30,404 on 120 shares of Kilachand Devchand & Co. Ltd. and 244 shares of Kesar Corporation Ltd. held under trust by the assessee for the benefit of his wife was income liable to be included in the total income of the assessee ?" The High Court came to the conclusion that, though section 16(1)(c) was not satisfied in view of the third proviso, section 16(3)(b) was applicable to the case and answered the question in the affirmative. In the appeal before us, the case for the Department was based both on section 16(3)(a)(iii) and section 16(3)(b), while the appellants contended that this disposition fell within the third proviso to section 16(1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome of any person or association of persons as arises from assets transferred otherwise than for adequate consideration to the person or association by such individual for the benefit of his wife or a minor child or both." The object of framing section 16 can almost be taken from the observations of Lord Macmillan in Chamberlain v. Inland Revenue Commissioners, where he stated as follows : "This legislation .... (is) designed to overtake and circumvent a growing tendency on the part of taxpayers to endeavour to avoid or reduce tax liability by means of settlements. Stated quite generally, the method consisted in the disposal by the taxpayer of part of his property in such a way that the income should no longer be receivable by him, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... own income and not assignment of the source from which the income was derived, which alone saved the income from tax, subject however, to provisions like section 16(1)(c) and section 16(3). The deed in favour of the wife in that case gave only a right to the dividends, and not being a transfer of an existing property of the assessee, section 16(1)(c) and the third proviso were not attracted. That case thus has no application to the facts of the present case, where the disposition is differently made. The disposition here is for a period of seven years or the life of the settlee, whichever is shorter. During that period or the life of the settlee, Mr. Tulsidas Kilachand has bound himself upon trust to pay the dividends to his wife and not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, if there was one. The contention of the assessee is that there was no transfer of any assets at all. It is contended that the ownership of shares involves a bundle of rights, and that they are, generally speaking, (a) right to vote, (b) right to participate in the distribution of assets on dissolution, and (c) right to participate in the profits, e.g., dividends which might be declared. It is pointed out that none of these rights was transferred to the wife, because transfer of assets connotes a creation of a right in the assets in praesenti. It is urged that there was no transfer of assets either to the wife or to aniy person for the benefit of the wife but merely a creation of a trust in respect of the shares, the dividends from which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e husband, when he transfers property to himself in another capacity. The change of capacity makes him answer the description " any person ". In our opinion, this deed must be regarded as involving a transfer by the husband to a trustee, and, even though the husband is the same individual, in his capacity as a trustee he must be regarded as a person distinct from the transferor. In our opinion, section 16(3)(b) covers the case. It remains to consider whether there was adequate consideration for the transfer. Reliance has been placed only upon love and affection. The words " adequate consideration " denote consideration other than mere love and affection, which, in the case of a wife, may be presumed. When the law insists that there should ..... X X X X Extracts X X X X X X X X Extracts X X X X
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