A. Sambasiva Rao, Actg. C.J.
1. An interesting problem has come up to us through this reference. The question on which our opinion is sought is :
' Whether, on the facts and in the circumstances of the case, the sums of Rs. 3,944 and Rs. 8,127 were ineludible in the hands of the assessee for the assessment years 1966-67 and 1967-68, under Section 64(iii) of the Income-tax Act '
2. This is a reference at the instance of the assessee. The material facts are : The assessee, who is an old gentleman doing business, did not have any male children. He wanted to take his younger brother's son in adoption. Since this was after the Hindu Adoptions and Maintenance Act of 1956, his wife's consent became necessary. The lady, however, was not willing to give her consent except under certain conditions. In her letter dated December 1, 1964, she expressed apprehension that the proposedadoption would curtail her prospective rights to inherit all the properties by one-half and also for the reason that the adopted son and she might not be able to live together amicably. So, in order to avoid all such troubles in future and to safeguard her own interests, and to ensure a comfortable living for herself consistent with her status, she was willing to give her consent to such an adoption subject to certain conditions specified in that letter itself. A sum of Rs. 50,000 should be settled on her in cash with absolute rights. She will have the liberty to invest that amount in her own account in her husband's business at an agreed rate of interest. He should also settle a newly constructed house on her with absolute rights; If these conditions are complied with, she would be willing to agree to the adoption.
3. The husband acceded to these demands and transferred Rs. 50,000 on January 20, 1965, to her name and executed a deed of transfer in respect of a house on March 5, 1965. These amounts, which are referred to in the question under reference, are the incomes derived from these properties. The revenue wanted to include these items in the income of the husband who is the assessee. But he resisted that inclusion saying that these amounts are not taxable in his hands and the provisions of Section 64(iii) of the Income-tax Act of 1961 are not applicable as he had made the settlement for adequate consideration, viz., obtained the consent of his wife for adoption.
4. The Income-tax Officer held that the transfer of property said to have been made for obtaining the consent of his wife for taking the boy in adoption was not adequate consideration within the meaning of Section 64(iii). Further, he was also of the opinion that the transaction of transfer was not genuine. In appeal, the Appellate Assistant Commissioner was riot prepared to agree with the Income-tax Officer's view that the transaction was not genuine. However, he felt that the assessee's contention cannot be accepted because under Section 17 of the Hindu Adoptions and Maintenance Act of 1956, no person shall receive or agree to receive any payment or other reward in consideration of the adoption of any person, and no person shall make or give or agree to make or give to any person any payment or reward, the receipt of which is prohibited by that section. Since the words used in Section 17, viz., ' no person', are very wide in their ambit, the wife, who gave her consent to the adoption on taking some property, should also be covered by the expression. Therefore, in the opinion of the Appellate Assistant Commissioner, the consideration given is entirely invalid and the Income-tax Officer will be justified in treating the payment as mere gift. In that view, the addition of these items in the assessee's income was sustained. The Income-tax Appellate Tribunal felt that the provisions of Section 17 of the Hindu Adoptions andMaintenance Act would not apply to the facts of the case. However, following the decision of this court in Potti Veerayya Sresty v. Commissioner of Income-tax : 85ITR194(AP) it rejected the assessee's contention that these two items are not includible in his income. Thereafter, it referred the question to this court at the request of the assessee.
5. We do not think that it is necessary to consider the question whether the decision of this court in Potti Veerayya Sresty v. Commissioner of Income-tax : 85ITR194(AP) needs reconsideration as indicated by the Tribunal and suggested by Sri Anjaneyulu during the course of his arguments before us. The question is capable of easy answer, reading Section 64(iii) of the Income-tax Act with Section 17 of the Hindu Adoptions and Maintenance Act. We have already noted that the assessee's positive contention before the income-tax authorities was that he made the settlement for adequate consideration, viz., for obtaining the consent of his wife for adoption. If such is the position, Section 17 prohibits payment of consideration for obtaining consent for adoption. Section 17(1) says :
' No person shall receive or agree to receive any payment or other reward in consideration of the adoption of any person, and no person shall make or give or agree to make or give to any other person any payment or reward, the receipt of which is prohibited by this section. '
6. What is prohibited is receiving or giving any reward in consideration of the adoption. That prohibition is against all persons. The assessee's wife would be a party to the adoption because she along with her husband must receive the boy at the time of adoption ceremony. Not only that, subsequent to the adoption, she would be the adoptive mother and the adopted son would be her adopted son as well, getting all legal rights. When she asked for some properties in consideration of giving her consent to adoption, that would necessarily result in asking for consideration for taking the boy in adoption. The words ' no person' occurring in Section 17(1) are very wide and take in adoptive mothers as well.
7. If, on the other hand, what has been given to the assessee's wife is considered not as consideration for her consent for the adoption but as a provision for her future security, then the assessee's act is' against Section 64(iii). He can escape from the assessment of these items only if it is shown that the assets transferred to his wife were for adequate consideration or in connection with an agreement to live apart. It is nobody's case that these were properties transferred to the wife in pursuance of an agreement to live apart. The only attempt is that the assets were transferred for adequate consideration. If the properties are understood to have been transferred to the wife only for her future security and maintenance, by no stretch of imagination, could they be considered as being for adequate consideration. In this view, the excluding provisionsof Section 64(iii) are not satisfied so as to entitle the assessee to claimbenefit thereunder. In either view, the assessee cannot escape inclusion of these incomesfrom the assets transferred to his wife, in h'is own income. The firmanswer to the question referred in this case is that, on the facts and in thecircumstances of the case, these two sums of Rs. 3,944 and Rs. 8,127 wereincludible in the hands of the assessee for the two assessment years 1966-67 and 1967-68, under Section 64(iii) of the Income-tax Act. Thus, thereference is answered against the assessee and in favour of the revenue.The revenue will have its costs from the assessee. Advocate's fee is Rs. 250.