D.S. Tewatia, J.
1. In these seven Income-tax References, ITR No. 65 of 1974, at the instance of the assessee, Shri S. P. Jaiswal, under Section 256(2) of the I.T. Act, 1961, hereinafter referred to as 'the Act' and ITRs Nos. 98, 99 and 100 to 103 of 1977, at the instance of the Commissioner of Income-tax, Haryana and Chandigarh, Rohtak, hereinafter referred to as 'the revenue', under Section 256(2) of the Act, an identical question as to whether in law, on the facts and circumstances of the given cases, as found by the Income-tax Appellate Tribunal, the varying interest amounts earned by the two sons, a daughter and the wife of the assessee in the respective assessment years on the amounts advanced to them by the assessee are or are not to be taxed in the hands of the assessee, has been posed for the opinion of this court.
2. The backdrop of the facts against which the opinion on the question posed is to be formulated can be stated thus : The assessee is the managing director of the Karnal Distillery Company Ltd., Karnal, hereinafter referred to as the company. The assessee had a deposit with the said company of a sum of Rs. 1,74,639 as reflected in the credit balance to his account in the account books of the said company. On the instructions of the assessee, the said company in its books of account on April 3, 1962,showed the said amount to the credit of a partnership firm of M/s. Modern Property Dealers, Karnal, hereinafter referred to as the 'firm', which comprised of only three partners, namely, Sudhir Kumar Jaiswal and Arun Kumar Jaiswal, sons of the assessee, and Smt. Mina Jaiswal, daughter of the assessee, who were to share in equal share, that is, one-third each, the profits and losses of the said firm. In the books of account of the said firm, the said amount was shown to the credit of the said three partners in equal shares. The said amount was also shown in the account books of the company to the debit of the assessee and no interest had, in fact, been received by the assessee from the company during the assessment years in question on the amount in question which had been so advanced by him.
3. In the assessment year 1963-64, the assessee in his estimate of advance tax filed on September 4, 1962, had shown Rs. 19,000 as interest income. In his first return for the assessment year 1963-64, filed on August 16, 1963, the assessee had shown the interest income of Rs. 15,717 which he deleted from the revised return. The ITO, with the following observations, held that the interest income in question was to be taxed in the hands of the assessee :
'If the assessees had advanced the amount of loan on 4th March,1962, there was no occasion for showing this amount in the estimate ofincome and in the return of income filed on 16th August, 1963, Even onmerits this income has to be assessed in the hands of the assessee. Nogenuine loans have been advanced and only book entries have been madeto reduce the tax liability. The definition of the loan (according to theChambers' Twentieth Century Dictionary) is : 'Anything lent especiallymoney at interest and permission to use.' In this case, no interest hadbeen charged and no actual handing and taking over of the money has takenplace. The scrutiny of the accounts also reveals that during the year noteven a single pie was withdrawn for the use of business. The company haspaid Rs. 15,814 as interest to the partners. This amount in fact belongsto Shri S.P. Jaiswal and is taken in his hands.'
4. The said decision of the ITO was upheld right up to the Income-tax Appellate Tribunal. The Tribunal declined to refer the matter to the 'High Court, whereupon the assessee had the matter referred to the High Court under Section 256(2) of the Act.
5. When the taxing of the interest earned by the sons and daughter of the assessee again cropped up for the assessment year 1964-65, the ITO and the AAC taxed the said amount in the hands of the assessee, but the Tribunal, on appeal, reversed that decision and held that, in law; the advancing of the amount by the assessee in question to his said major children amounted to a loan and, therefore, interest so accrued to themcould not be taxed in the hands of the assessee. According to the Tribunal, the said transaction could neither be construed to be a benami one nor the interest income in the hands of the assessee's said children would tantamount to interest income of the assessee on the amount that he had advanced to them as no interest had, in fact, been received by him and he could not, in law, be forced to earn interest on that amount.
6. The Tribunal distinguished its earlier decision pertaining to the assessment year 1963-64 on the ground that in that year the assessee had himself indicated his interest income first in the estimate of advance tax and later on in the first return that he filed and, therefore, the claim in the revised return that he earned no interest was considered an after-thought and for that reason that interest amount in question was taxed in his hands,
7. In the later years, the ITO and the AAC remained consistent and continued to tax the interest income of the kind in the hands of the assessee, while the Tribunal on its part continued to follow the ratio of its decision rendered in regard to the assessment year 1964-65, from which had arisen I.T.R. No. 98 of 1977. The Tribunal, however, in regard to all the assessment years starting from 1964-65, referred the matter for the opinion of this court under Section 256(1) of the Act, posing the identical question, as already mentioned.
8. Before embarking upon the consideration of the question referred for our opinion, one additional fact pertaining to the interest income in the hands of the wife of the assessee may be noticed. The assessee had shares in the Khasa Distillery. He sold those shares and advanced the proceeds thereof amounting to Rs. 30,000 to his wife, which she deposited with the company and earned interest thereon. The amount of interest so earned was sought to be taxed in the hands of the assessee.
9. The question that primarily arises for consideration is as to whether the amount so advanced by the assessee to his three major children and his wife, in the eye of law, partook the character of the application of income by the assessee or it was in the nature of a loan or a transaction of the kind which fell within the provisions of Section 61 of the Act.
10. Obviously, it was not a case of transfer or application of income, asenvisaged by Section 60 of the Act (which is in the following terms), as theasset which had yielded the interest income itself stood transferred tothem from the assessee :
'60. All income arising to any person by virtue of a transferwhether revocable or not and whether effected before or after the commencement of this Act shall, where there is no transfer of the assets from whichthe income arises, be chargeable to income-tax as the income of the transferor and shall be included in his total income.'
11. The application of the income arises when the income is transferred after it had accrued to the transferor-assessee. In the present case, it cannot be said that the interest income had first accrued to the assessee and then it had been transferred to his three major children and wife, as the assessee had parted with the assets, that is, a sum of Rs, 1,74,639, on which the interest had been earned. The transaction cannot be termed benami either as there is no proof of the fact that income accrued on the said asset had in fact been received by the assessee instead of his said family members.
12. Now, coming to the core of the controversy, that is, whether the advancing of the amount by the assessee was in the nature of a loan, it may be observed that the discussion before the Tribunal remained bogged down within the constraints imposed by the fact as to whether, for an advance of money to qualify as a loan, it is or is not necessary that the sum so advanced should carry interest. The parties quoted the meaning of the word 'loan' from the dictionaries. The revenue quoted the Chambers' Twentieth Century Dictionary and the assessee quoted its meaning from Shorter Oxford English Dictionary. In the Chambers' Twentieth Century Dictionary, the word 'loan' means anything lent, especially money at interest; the act of lending, the condition of being lent ; an arrangement for lending; permission to use'. In the Shorter Oxford English Dictionary the word 'loan' means a gift or grant from a superior ; a thing lent; especially a sum of money lent for a time, to be returned in money or money's worth and usually at interest......'
13. In my opinion, the factum of advance carrying or not carrying any interest is not decisive of the fact as to whether the advance in question qualified to be called a loan or not. What is decisive is the circumstance as to whether the advance was made to meet some genuine need for a loan such as (without being exhaustive of the contingencies) to square up a genuine antecedent debt, to float a genuine business adventure, or to meet genuinely felt need for food, shelter and clothing or to discharge social obligations such as performing of marriage, etc.
14. Testing on the touchstone of the above requirements, the advance in question cannot be considered to be a genuine loan in that out of the money so advanced not a penny had been spent by the alleged loanees. The entire amount, which was advanced to them, remained deposited with the company, on which they earned interest. In my opinion, the case clearly falls within the provisions of Section 61 of the Act which is in the following terms :
'61. All income arising to any person by virtue of a revocable transfer of assets shall be chargeable to income-tax as the income of the transferor and shall be-included in his total income.'
15. The assessee appearing in person argued that the provisions of Section 61 of the Act are not attracted to the facts of the present case in that there has not been any transfer of assets, revocable or otherwise, for the word 'transfer' envisages, according to him, the transfer of ownership.
16. This contention, in my opinion, utterly lacks in merit, in that the provision itself, in terms, envisages the continuation of the ownership of the assets with the assessee. For the purpose of Sections 60, 61 and 62 of the Act, the word 'transfer' has been denned in Section 63(b) of the Act in the following terms :
'63(b). 'Transfer' includes any settlement, trust, covenant, agreement or arrangement.'
17. Hence, for the purpose of construing the word 'transfer' occurring in these sections, one is not limited to its connotation and meaning as given in the Transfer of Property Act or other Acts. The expression 'arrangement' would, in my opinion, clearly cover the transaction of the kind entered into between the assessee and his family members. The word 'arrangement' has not been used here as a term of art, but has been used in the business sense. The factum of the assessee transferring the sum of Rs. 1,74,639, on which he was himself earning interest (as would be clear from para. 4 of the order dated July 6, 1974, of the Tribunal--ITR No. 65 of 1974) and another sum representing the value of the shares which carried dividends in order to enable his family members to earn what he himself was earning from the said assets, clearly amounted to an arrangement construed in the business sense and, therefore, the said assets underwent a transfer. Since the amount so transferred by the assessee has been paid back to the assessee, no further proof is needed that the transfer of the assets in question was a revocable one. In view of the above, the case would squarely fall within the four corners of Section 61 of the Act which envisages that all income arising to any person by virtue of a revocable transfer of assets shall be chargeable to income-tax as the income of the transferor and shall be included in his total income.
18. The learned Tribunal appeared to be greatly vexed by the fact that the revenue had accepted the wealth-tax return of the assessee showing the said amount as part of his wealth and the wealth-tax returns .of the loanees who claimed deduction to the extent of the said credits advanced to them by the assessee, and also further by the circumstance that the revenue had already taxed the said interest income in the hands of the said major children and the wife of the assessee. In my opinion, there was no cause for getting worked up on account of the aforesaid reasons, for, the orders of the taxing, authorities cannot be labelled as inconsistent. Since the assessee retained, ownership in the assets in question, obviously he was justified to show the said assets as part of his own property andsimilarly, his family members were also justified in showing in their wealth-tax returns that the amount in question did not belong t0 them.
19. As for the taxing of the interest amount in the hands of the family members of the assessee, it may be observed that if an assessee shows certain income, the revenue may accept it on its face value or if the authorities harbour any suspicion that the income is shown as less than the real income, then it may enter upon an enquiry. So, where an assessee shows certain income, the revenue does not act inconsistently if it accepts the return of the said assessee on its face value and, at the same time, tax the said income in the hands in which it ought really to be taxed.
20. In the present case, therefore, the Tribunal, in so far as the assessment year 1963-64 is concerned (I.T.R. No. 65 of 1974), apart from the reason that it had given in its order for taxing the interest income of that year in the hands of the assessee, to my mind, was right in so taxing the said amount, also on account of the larger principle that the advance in question was not a genuine loan but was in the nature of an arrangement read with Sections 61 and 63(b) of the Act and, therefore, liable to be taxed in view of Section 61 of the Act in the hands of the assessee ; but when the Tribunal did not tax the interest amount in the Hands of the assessee in the subsequent assessment years covered by I.T. Rs. Nos. 98, 99, 100, 101, 102 and 103 of 1977, in my opinion, it acted contrary to law and, therefore, its said orders suffer from an error of law.
21. In the result, I answer I.T.R. No. 65 of 1974 in the affirmative, in favour of the revenue and against the assessee, and the questions referred to in I.T.Rs. Nos. 98, 99, 100, 101, 102 and 103 of 1977 are answered by me in the negative, against the assessee and in favour of the revenue, with costs in all the cases.
Ajit Singh Bains , J.
22. I agree.