D. M. Chandrashekhar, C.J. - At the instance of the Revenue, the Income Tax Appellate Tribunal (hereinafter referred to as the Tribunal) had referred u/s. 256 of the Income Tax Act 1961, (hereinafter referred to as the Act), the following question of law :
'Whether on the facts and in the circumstances of the case the Tribunal was right in holding that the income from half share of the house property named Kiran Kunj could not be included in the income of the assessee under S. 64 of the Income Tax Act, 1961 ?'
The reference was heard by a Bench consisting of C. S. P. Singh and K. C. Agrawal, J. Since they differed from one another as to the answer to the above question, the reference was now come up before me under sub-sec. (2) of S. 259 of the Act.
2. At the outset Shri Ravi Dhavan, learned counsel for the assessee, submitted that the point on which the learned Judges of the Division Bench differed, was whether or not the transfer of a half portion of the house Kiran Kunj by the assessee, Smt. Laxmi Nigam, in favour of her minor children was supported by adequate consideration, that adequate of consideration is purely a question of fact and that since the Tribunal which is the final fact finding authority had held that there was adequate consideration for such transfer, no question of law survives for consideration in this reference.
3. On the other hand, the learned Senior Standing Counsel submitted that the learned Judges of the Division Bench have expressly stated that as there was divergence of opinion between them on the question referred to this Court, that question had to go before one or more of the other judges of this Court. He maintained that the entire question referred to this Court by the Tribunal and not merely the question of adequacy of consideration for the transfer by the assessee, has to be considered by me.
4. Both the learned Judges have considered only the question whether the transfer by the assessee in favour of her minor children was for adequate consideration. While K. C. Agarwal, J., took the view that there was no adequate consideration for such transfer, C. S. P. Singh, J., has held that there was adequate consideration for that transfer. Neither of the two learned Judges has considered whether the gift to the assessee by her husband, Shri C. M. Nigam, and the gift by the assessee to her minor children constituted a chain gifts by which the assessees husband had indirectly transferred to his minor children his property. This point, though not considered by the two learned Judges, does arise for consideration before me as it forms part of the question referred by the Tribunal to this Court, which question in turn has been referred by them to one or more other Judges of this Court.
5. Thus I am unable to accept the submission of Shri Dhavan that no question survives for consideration at this stage.
6. The facts out of which the question referred by the Tribunal arises have been fully set out in the opinions of the two learned Judges and it is unnecessary to repeat them here.
7. The learned Senior Standing Counsel submitted that the transfer of the house, Kalpana to the assessee by husband, Shri C. M. Nigam and transfer of a half portion of the house Kiran Kunj by the assessee to her minor children, formed, part of the same transaction, that this chain of transfers had, in substance, the effect of Shri C. M. Nigam transferring his asset to his minor children without adequate consideration and that hence the transfer of a half portion of the house Kiran Kunj by the assessee, Smt. Laxmi Nigam, which was a part of such chain of transfers, must also be regarded as being one without adequate consideration. He maintained that in the assessment of Shri C. M. Nigam the Income Tax Officer could have treated his transfer of the house Kalpana to his wife as part of the indirect transfer of his asset to his children and treated the income from the house Kalpana as part of his income and that the mere fact that the Income Tax Officer had wrongly excluded the income from the house Kalpana in the assessment of his income, did not come in the way of the Income Tax Officer treating the whole of the portion of the house Kiran Kunj transferred by the assessee to her children as continuing to be her income.
8. On the other hand, Shri Dhavan contended that the consideration for the transfer of a portion of the house Kiran Kunj by the assessee was the transfer of the house Kalpana to her by her husband, and that so far as the assessee, Smt. Laxmi Nigam was concerned there was no question of indirect transfer by her to her minor children without consideration to attract the application of clause of S. 64 of the Act.
9. In support of his contention the learned Senior Standing Counsel relied on the decisions of the Supreme Court in C.I.T. vs. C. M. Kothari and the C.I.T. vs. Keshavji Morarji.
10. Before considerating the applicability of these two decisions to the present case, it is useful to set out the relevant portions of S. 16 of the Income Tax Act, 1922, and S. 64 of the present Act.
Section 16(3)(a)(iii) & (iv) Section 64(1)(iv) & (v)
16(3) In computing the total '64(1) In computing the total income of any individual for the income of any individual, there purpose of assessment, there shall be included all such shall be included. income as arises directly or indirectly -
(a) so much of the income of a (i) ...................... wife or minor child of such (ii) ...................... individual as arises directly (iii) ...................... or indirectly -
(i) ......................... (ii) .........................
(iii) from assets transferred (iv) subject to the provisions directly or indirectly to the wife of (i) of S. 27, in a case by the husband otherwise than for not falling under clause (i) adequate consideration or in of this sub-section to the connection with an agreement to spouse of such individual live apart; or from assets transferred directly or indirectly to the spouse by such individual otherwise than for adequate consideration or in connection with an agreement to live apart.
(iv) from assets transferred (v) subject to the provisions directly or indirectly to the of clause (i) of S. 27, in a minor child, not being a married case not falling under daughter, by such individual sub-clause (iii) of this otherwise than for adequate sub-section, to a minor consideration.' child (not being a married daughter) of such individual, from assets transferred directly or indirectly to the minor child by such individual otherwise than for adequate consideration.'
10. In C.I.T. vs. C. M. Kothari two assessees were related as father and son. The son transferred two amounts to his mother by way of gifts. The father transferred to his daughter-in-law an amount equal to the total of those two amounts. The question that arose for consideration was whether the incomes arising to the mother and the daughter-in-law out of the assets transferred to them by the two assesses could be included in the two assessees incomes under S. 16(3)(a)(iii) of the Income Tax Act, 1922. It was argued that the first requisite of that provision was that the assets must be those of the husband and that each of the two assessees had not transferred any amount to his wife. Repelling that contention, Hidayathullah, J., (as he then was), who spoke for the court, said thus :
'It is true that the section says that the assets must be those of the husband, but it does not mean that the same assets should reach the wife. It may be that the assets, in the course of being transferred, may be changed deliberately into assets of a life value of another person, as his happened in the present case. A chain of transfers, if not comprehended by the word indirectly would easily defeat the object of the law which is to tax the income of the wife in the hands of the husband, if the income of the wife arises to her from assets transferred by the husband. The present case is an admirable instance of how indirect transfers can be made by substituting the assets of another person who has benefited to the same or nearly the same extent from assets transferred to him by the husband.
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 ..... .... .... ....
An intimate connection between the two transactions, which were prima facie separate, is thus clearly established and they attract the words of the section, namely, transferred directly indirectly to the wife.'
11. The aforesaid decision was followed by the Supreme Court in C.I.T. vs. Keshavji Morarji. There also two assesses were related as father and son. The son created in favour of his mother a trust to which he transferred certain sums. The father in turn settled on the same day certain sums on his minor rand children by his son. The question that arose for consideration was whether the provisions of S. 16(3)(iv) were applicable to the two trusts created by the father and the son. The Supreme Court said that what was material was whether those transfers were part of the same transaction adopted with a view to evade the implications of S. 16.
12. The aforesaid decisions of the Supreme Court are applicable to the present case since clauses (iii) and (iv) of S. 16(3) of the Income Tax, Act, 1922 are in pari material with clauses (iv) and (v) of S. 64(1) of the present Act. The transfer by Shri C. M. Nigam of his house Kalpana to his wife and the transfer by her of a half share of her house Kiran Kunj to her minor children were so inter-connected as to form part of the same transaction. The circutious method adopted by Shri Nigam in transferring his assets to his minor children, was clearly to evade the implications of S. 64(1)(iv) of Act. That the Income Tax Authorities did not include in his total income the income from the house transferred by him to his wife, can not be a bar for ascertaining the real of house two transactions for the purpose of assessment of Smt. Nigam.
13. Once it is held that Shri Nigam had transferred assets to his minor children indirectly, it follows that the transfer of the half share in Kiran Kunj by Smt. Nigam to her minor children was not an independent transaction and that the consideration for that transfer was illusory.
14. I am unable to accept the contention of Shri Dhavan that the transfer of the house Kalpana by Shri C. M. Nigam to his wife constituted the consideration for the gift of a half share of the house Kiran Kunj by her to her minor children or that her assurance to her husband that she would maintain her minor children constituted the consideration for that transfer. Nor can her love and affection for her minor children be regarded as adequate consideration for the transfer by her to her minor children. As pointed out by the Supreme Court in Tulsidas Kilachand vs. C.I.T. the expression adequate consideration denotes consideration other than more love and affection.
15. As a result of the foregoing discussion I answer the question in favour of the Revenue and against the assessee, though for reasons somewhat different from those given by K. C. Agarwal, J., for reaching the same conclusion. My answer to the question referred by the Tribunal is as follows :-
'On the facts and in the circumstances of the case, the Tribunal was not right in holding that the income from the half share of the house property named Kiran Kunj could not be included in the income of the assessee under S. 64 of the Income Tax Act, 1961.'
The Revenue shall get its costs from the assessee which is assessed at Rs. 200/-. The Advocates fee is also assessed at Rs. 200/-.