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Philip John Plasket Thomas Vs. Commissioner of Income Tax Calcutta - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtSupreme Court of India
Decided On
Judge
Reported in[1963]49ITR97(SC); [1964]2SCR480
ActsIndian Income-Tax Act, 1922 - Sections 16(1), 16(3), 34 and 66-A(2)
AppellantPhilip John Plasket Thomas
RespondentCommissioner of Income Tax Calcutta
Cases ReferredCommissioners of Inland Revenue v. Gaunt
Excerpt:
.....of partnership, in a firm in which such individual is a partner. 16makes it quite clear that all income enjoyed by the wife is not to be includedin the income of the husband and only such of the wife's income as comes withinthe sub-section is to be included in the income of the husband......ofassets should take place. he then observed : 'it appears to me that as the addition of thewife's income to the husband's income under this sub-section is made, therelevant time of the relationship between husband and wife which has to beconsidered by the taxing authorities is the time of computing of the totalincome of the individual for the purpose of assessment. that is how i read theopening words of section 16(3) of the act : 'in computing the total income ofany individual for the purpose of assessment'.' 11. bose j. expressed a slightly different view. he said that the materialconsideration under s. 16(3)(a)(iii) was whether the transferee was actuallythe wife of the assessee during the relevant accounting period when the incomefrom the assets transferred to her accrued. in.....
Judgment:

S.K. Das, J.

1. These are four appeals on certificates granted by the High Court ofCalcutta under s. 66-A(2) of the Indian Income-tax Act, 1922. The appeals arefrom the decision of the High Court dated February 28, 1961 in Income-taxReference No. 49 of 1956.

2. We may first state the relevant facts. One P. J. P. Thomas is theappellant before us. He was the assessee before the taxing authorities. He held750 'A' shares in J. Thomas & Co., Ltd., of 8 Mission Row, Calcutta. Theassessee entered into an engagement to marry one Mrs. Judith Knight, stated tobe a divorcee, and the engagement was announced in certain newspapers onSeptember 3, 1947. on December 10, 1947 the assessee and Mrs. Knight presentedto the Company an application to transfer the said 750 'A' shares to Mrs.Judith Knight. A transfer deed of that date stated :

'I, Philip John Plasket Thomas of 8, Mission Row,Calcutta, in consideration of my forthcoming marriage with Judith Knight of 35,Ridgeway, Kingsbury, London (hereinafter called the said transferee) do herebytransfer to the said transferee the 750 'A' shares numbered 1-750 standing inmy name in the books of J. Thomas & Co., Ltd., to hold to the saidtransferee...... Executors, administrators and assigns, subject to the severalconditions on which I hold the same at the time of the execution thereof. And I,the said transferee, do hereby agree to take the said shares subject to thesame conditions.'

3. On December 15, 1947 the Company transferred the shares to Mrs. JudithKnight and registered her as the owner of the shares. On December 18, 1947 themarriage was solemnised. On January 26, 1948 the fact of marriage wascommunicated to the Company and the name of the shareholder was changed in thebooks of the company to Mrs. Judith Thomas. It is undisputed that during therelevant periods the shares stood registered in the name of the assessee's wifeand when the income in question arose to her she was the wife of the assessee.The four accounting years with which the assessments were concerned were thoseending respectively on April 30, 1948, April 30, 1949, April 30, 1950 and April30, 1951. The four assessment years were 1949-1950, 1950-1951, 1951-1952 and1952-1953. It appears that for the years 1949-1950 and 1950-1951 assessments ofP. J. P. Thomas which had by then been already completed were reopened under s.34 of the Indian Income-tax Act, 1922 and the dividends of Rs. 97,091/- and Rs.78,272/- as grossed up and paid to Mrs. Judith Thomas during the accountingyears ending April 30, 1948 and April 30, 1949 were re-assessed in the hands ofP. J. P. Thomas. For the assessment years 1951-1952 and 1952-1953, thedividends paid by the company to Mrs. Judith Thomas during the accountingperiods ending April 30, 1950 and April 30, 1951 were held by the Income-taxOfficer to be includible in the total income of P. J. P. Thomas under s.16(3)(b) of the Act and accordingly orders were passed including the sums ofRs. 1,00,000/- and Rs. 16,385/- being the grossed up dividends for the twoyears respectively in the total income of P. J. P. Thomas.

4. Against the said assessment orders the assessee preferred appeals to theAppellate Assistant Commissioner. By a common order dated May 11, 1955 theAppellate Assistant Commissioner confirmed the orders of the Income-tax Officerholding that not only the provisions of s. 16(3)(b) but also the provisions ofs. 16(3)(a)(iii) of the Act applied in these cases. Against the order of theAppellate Assistant Commissioner the assessee preferred four appeals to theAppellate Tribunal and contended (1) that he transferred the shares to Mrs.Judith Knight when she was not his wife, (2) that the transfer of shares wasabsolute at the time when it was made and no condition was attached to thetransfer, and (3) that the transfer was for adequate consideration. On thesegrounds the assessee contended that the provisions of s. 16(3) of the Act werenot attracted to the cases in question. The Appellate Tribunal by aconsolidated order dated April 4, 1956 disagreed with the view of theIncome-tax Officer and the Appellate Assistant Commissioner that the provisionsof s. 16(3)(b) applied, but it held that the cases fell within s. 16(3)(a)(iii)of the Act, because the transfer became effective only after the marriage. Itfurther held that the transfer could also be construed as a revokable transferwithin the meaning of s. 16(1)(c) of the Act. Therefore the Appellate Tribunaldismissed the four appeals.

5. The assessee then made four applications for referring two questions oflaw arising out of the Tribunal's order to the High Court. These questions were:

1. In the facts and circumstancesof these cases, whether the dividends paid by J. Thomas & Co. Ltd., to Mrs.Judith Thomas, grossed up to the sums of Rs. 97,091/-, Rs. 78,272/-, Rs.1,00,000/- and Rs. 16,385/- respectively for the four years in question couldbe included in the income of Mr. P. J. P. Thomas and be taxed in his handsunder the provisions of section 16(3)(a)(iii) of the Indian Income-tax Act

2. In the facts and circumstancesof these cases, whether the dividends referred to above could be included inthe total income of Mr. P. J. P. Thomas under the provisions of section16(1)(c) of the Indian Income-tax Act

6. The Tribunal accepted these applications and referred the aforesaid twoquestions to the High Court. By its decision dated February 28, 1961 the HighCourt answered the first question against the assessee and the second questionin his favour. The assessee then moved the High Court for a certificate offitness under s. 66-A(2) of the Act and having obtained such certificate haspreferred the present appeals to this court. The appeals relate only to thecorrectness or otherwise of the answer given by the High Court to the firstquestion. As the Department has filed no appeal as to the answer given by theHigh Court to the second question, it is unnecessary for us to consider thecorrectness or otherwise of that answer.

7. The answer to the first question depends on the determination of twopoints : (1) what on its proper interpretation is the true scope and effect of s.16(3)(a)(iii) of the Act, and (2) whether the transfer made by the assessee infavour of Mrs. Knight took effect only from the date of the marriage betweenthe assessee and Mrs. Knight. A third point as to adequate consideration forthe transfer was also gone into by the High Court, but in the view which wehave taken of the first two points involved in the question it is unnecessaryto decide the point of adequate consideration.

8. Before we proceed to a consideration of the question, it is necessary toset out the relevant provisions of law. Section 16 so far as it is relevantreads :

'16. Exemptions andexclusions in determining the total income -

(1) XX XX XX

(2) XX XX XX

(3) In computing the totalincome of any individual for the purpose of assessment, there shall be included-

(a) so much of the income of awife or minor child of such individual as arises directly or indirectly -

(i) from the membership of thewife in a firm of which her husband is a partner;

(ii) from the admission of theminor to the benefits of partnership in a firm of which such individual is apartner;

(iii) from assets transferreddirectly or indirectly to the wife by the husband otherwise than for adequateconsideration or in connection with an agreement to live apart; or

(iv) from assets transferreddirectly or indirectly to the minor child, not being a married daughter, bysuch individual (otherwise than for adequate consideration);

(b) XX XX XX XX XX'.

9. Sub-s. (3) of s. 16 of the Act was introduced in 1937. For the purpose ofits application it is immaterial whether the partnership was formed before orafter 1937 and whether the transfer was effected before or after that date.However, the sub-section deals only with income arising after its introduction.It clearly aims at foiling an individual's attempt to avoid or reduce theincidence of tax by transfering his assets to his wife or minor child, oradmitting his wife as a partner or admitting his minor child to the benefits ofpartnership, in a firm in which such individual is a partner. It creates anartificial income and must be strictly construed [see Bhogilal Laherchand v.Commissioner of Income-tax : [1954]25ITR523(Bom) . Clauses (a)(i) and (a)(ii)of the sub-section provide that in computing the total income of an individualthere should be included the income arising directly or indirectly to his wifefrom her share as a partner or to his minor child from the admission to thebenefits of partnership, in a firm of which such individual is a partner. Weare not directly concerned with cls. (a)(i) and (a)(ii). We are concerned withclause (a)(iii). Under that clause the income arising from assets transferredby an individual to his wife has to be included in the transferor's totalincome. There are two exceptions to this rule, viz., (1) where the transfer isfor adequate consideration, or (2) where it is in connection with an agreementto live apart. The second exception has no bearing on the cases before us.

10. The first and principal point which has been urged before us on behalfof the appellant is this. It is pointed out that at the time the transfer ofshares was made by the assessee to Mrs. Judith Knight the latter was not thewife of the former and therefore clause (a)(iii) which talks of 'assetstransferred directly or indirectly to the wife by the husband' has noapplication, apart altogether from any question of adequate consideration. Thisargument on behalf of the appellant was advanced before the High Court also.The High Court sought to meet it in the following way. Mukharji J. who gave theleading judgment said that in order to determine whether a particular case cameunder clause (a)(iii) or not, the relevant point of time was the time ofcomputation of the total income of the individual for the purpose of assessmentand the section did not limit any particular time as to when the transfer ofassets should take place. He then observed :

'It appears to me that as the addition of thewife's income to the husband's income under this sub-section is made, therelevant time of the relationship between husband and wife which has to beconsidered by the taxing authorities is the time of computing of the totalincome of the individual for the purpose of assessment. That is how I read theopening words of section 16(3) of the Act : 'In computing the total income ofany individual for the purpose of assessment'.'

11. Bose J. expressed a slightly different view. He said that the materialconsideration under s. 16(3)(a)(iii) was whether the transferee was actuallythe wife of the assessee during the relevant accounting period when the incomefrom the assets transferred to her accrued. In effect both the learned Judgesheld that for the application of clause (a)(iii) it was not necessary that therelationship of husband and wife must subsist at the time when the transfer ofthe assets in made; according to Mukharji J. the crucial date to determine therelationship is the date when the taxing authorities are computing the totalincome of the husband and according to Bose J. the crucial time is the timewhen the income accrues to the wife. It must also be stated in fairness toMukharji J. that he did not accept the view that the words 'husband' and 'wife'in clause (a)(iii) included prospective husband and prospective wife. Heaccepted the view that the words 'husband' and 'wife' mustmean legal husband and legal wife. Even so he expressed the view that on a trueconstruction of s. 16(3)(a)(iii) the time when the relationship has to beconstrued is the time when the computation of the total income of the husbandis made.

12. Learned counsel for the appellant has very strongly contended before usthat the view expressed by the learned Judges of the High Court as to theproper interpretation of clause (a)(iii) is not correct. On a plain reading ofsub-s. (3) of s. 16 it seems clear to us that at the time when the incomeaccrues, it must be the income of the wife of that individual whose total incomeis to be computed for the purpose of assessment : this seems to follow clearlyfrom clause (a) of sub-s. (3). Therefore, in a sense it is right to say thatthe relationship of husband and wife must subsist at the time of the accrual ofthe income : otherwise the income will not be the income of the wife, for theword 'wife' predicates a marital relationship. The matter does not, however endthere. When we go to sub-clause (iii) we find that only so much of the incomeof the wife as arises directly or indirectly from assets transferred directlyor indirectly to the wife by the husband shall be included in the total incomeof the husband. Therefore, sub-clause (iii) predicates a further condition, thecondition being that the income must be from such assets as have beentransferred directly or indirectly to the wife by the husband. This conditionmust be fulfilled before sub-clause (iii) is attracted to a case. It is clearthat all income of the wife from all her assets is not includible in the incomeof the husband. Thus on a proper reading of s. 16(3)(a)(iii) it seems clearenough that the relationship of husband and wife must also subsist when thetransfer of assets is made in order of fulfil the condition that the transferis 'directly or indirectly to the wife by the husband'.

13. Learned counsel for the respondent has contended before us that thetransfer mentioned in s. 16(3)(a)(iii) need not necessarily be post-nuptial andhe has argued that the main object of the provision is the principle of aggregation,that is, the inclusion of the income of the wife in the income of the husband,because of the influence which the husband exercises over the wife. He has alsopointed out that sub-clause (i) which refers to the membership of the wife in afirm of which her husband is a partner is indicative of the object of theprovision because it does not talk of any assets being brought into the firm bythe wife. He has further argued that in sub-clause (iii) the word 'wife' ismerely descriptive and means the women referred to in clause (a), and the word'husband' has reference merely to the individual whose total income is to becomputed for the purpose of assessment. In support of this argument he hasrelied on the expression 'such individual' occurring in sub-s.(3)(a). We are unable to accept these arguments as correct. It is indeed truethat all the four sub-clauses of clause (a) must be harmoniously read as thiscourt observed in Commissioner of Income-tax v. Sodra Devi : [1954]25ITR523(Bom) ; but we see no disharmony between sub-clause (i) and sub-clause(iii) on the interpretation which we are putting. Sub-clause (i) talks only ofthe membership of the wife in a firm of which her husband is a partner; it hasno reference to assets at all. Sub-clause (iii) however talks of assets andqualifies the word 'assets' by the adjectival clause'transferred directly or indirectly to the wife by the husband'. Wefail to see how any disharmony results from giving full effect to theadjectival clause in sub-clause (iii). Nor do we see why the words 'husband'and 'wife' should be taken in the archaic sense contended for by the learnedcounsel for the respondent. In re Smalley, Smalley v. Scotton [1979] 2 Ch.112., a decision on which learned counsel for the respondent relies, the factswere these. A testator by his will gave all his property to 'my wifeE.A.S'. The testator left a lawful wife M.A.S. and children by her andcontributed to their support, but about five years before his death hadcontracted a bigamous marriage with a widow E.A.M. who lived with him and wasknown as E.A.S., and believed she was and was reputed to be his wife. The willwas produced by E.A.M. It was held that the will taken in connection with thesurrounding circumstances, indicated that the testator intended to benefitE.A.M., she being in a secondary sense and by repute his wife. The rules ofconstruction which were followed in that case were those laid down by LordAbinger in Doe v. Hiscocks (1839) 5 M. & W. 263. Lord Abinger said:

'The object in all cases is to discover theintention of the testator. The first and most obvious mode of doing this is toread his will as he has written it, and collect his intention from his words.But as his words refer to facts and circumstances respecting his property andhis family, and others whom he names or describes in his will, it is evidentthat the meaning and application of his words cannot be ascertained, withoutevidence of all those facts and circumstances. To understand the meaning of anywriter, we must first be appraised of the persons and circumstances that arethe subjects of his allusions or statements : x x x All the facts andcircumstances, therefore, respecting persions or property to which the willrelates, are undoubtedly legitimate, and often necessary evidence, to enable usto understand the meaning and application of his words.'

14. We are dealing here with a statute and the statute must be construed ina matter which carries out the intention of the legislature. The intention ofthe legislature must be gathered from the words of the statute itself. If thewords are unambiguous or plain, they will indicate the intention with which thestatute was passed and the object to be obtained by it. There is nothing insub-s. (3) of s. 16 which would indicate that the word 'wife' of the word'husband' must not be taken in their primary sense which is clearly indicativeof a marital relationship. Nor are we satisfied that the object of thelegislature is just the principle of aggregation. We have said earlier thatsub-s. (3) of s. 16 clearly aims at foiling an individual's attempt to avoid orreduce the incidence of tax by transferring his assets to the wife or minorchild or admitting his wife as a partner or admitting his minor child to thebenefits of partnership, in a firm in which such individual is a partner. Thisobject does not require that the word 'wife' or the word 'husband' should beinterpreted in an archaic or secondary sense.

15. Learned counsel for the respondent has drawn our attention to certainEnglish decisions, particularly the decision of the House of Lords in LordVestey's Executors and Vestey v. Commissioners of Inland Revenue (1949) 31T.C. 1. One of the questions which was considered in that decision was whetherfor the purpose of either s. 18 of the Finance Act, 1936 (in England), or s. 38of the Finance Act, 1938 (in England) 'wife' included a'widow'. Their Lordships had to consider the earlier decision of theCourt of Appeal in Commissioners of Inland Revenue v. Gaunt (1941) 24 T.C. 69, which held that the one word included the other. Their Lordshipsultimately held, over-ruling the decision in Gaunt's case (1941) 24 T.C. 69.,that the word 'wife' did not include a 'widow.' The Englishdecisions proceeded on the footing that in England it is a principle of IncomeTax law, embodied in rule 16 of the General Rules, that for Income Tax purposeshusband and wife living together are one. Lord Morton said :

'I think that the treatment of husband and wife by theLegislature for Income Tax purposes rests on the view that any income enjoyedby one spouse is a benefit to the other spouse. It is not surprising,therefore, that in the Sections now under consideration a benefit to the wifeof the settlor is treated as being a benefit to the settlor, but it seems to meunlikely that this principle is being extended by these Sections to the widowof the settlor.'

16. Now, it is quite clear to us that the treatment of husband and wife inthe Indian Income-tax Act, 1922 does not rest on the view that any incomeenjoyed by one spouse is a benefit to the other spouse; for sub-s. (3) of s. 16makes it quite clear that all income enjoyed by the wife is not to be includedin the income of the husband and only such of the wife's income as comes withinthe sub-section is to be included in the income of the husband. We thereforethink that the English decisions are not in point and there are no reasons whythe word 'wife' or the word 'husband' should not be given its true naturalmeaning.

17. This brings us to the second question, namely, whether the transfer ofshares made by the assessee in favour of Mrs. Judith Knight of December 10,1947 was to take effect only from the date of their marriage. It is admittedthat on December 10, 1947 the assessee and Mrs. Knight were not married. It isalso admitted that they were engaged to be married and the engagement wasannounced on September 3, 1947. The transfer deed which we have earlier quotedcontained no words of postponement. On the contrary, it contained words whichindicated that the transfer took effect immediately. Learned counsel for therespondent has rightly pointed out that the expression in the transfer deed'in consideration of my forthcoming marriage' can have every littlemeaning as a real consideration, because on September 3, 1947 the parties hadmutually promised to marry each other; therefore the promise to marry had beenmade earlier than December 10, 1947. Learned counsel for the respondent hasargued before us that the transfer of shares was really a gift made to Ms.Knight in contemplation of the forthcoming marriage and the gift was subject toa condition subsequent, namely, that of marriage which if not performed wouldput an end to the gift. This does not however advance the case of therespondent in any way. A gift may be made subject to conditions, eitherprecedent or subsequent. A condition precedent is one to be performed beforethe gift takes effect; a condition subsequent is one to be performed after the gifthad taken effect, and if the condition is unfulfilled that will put an end tothe gift. But if the gift had already taken effect on December 10, 1947 and thecondition subsequent has been later fulfilled, then the gift is effective asfrom December 10, 1947 when the assessee and Mrs. Knight were not husband andwife. That being the position, sub-clause (iii) of s. 16(3)(a) will not beattracted to the case as the transfer of the shares was not made by the husbandto his wife.

18. We were also addressed on the question as to the circumstances in whicha gift to an intended wife or husband may be recovered when the marriage doesnot take place through the fault of either of the two parties. We do not thinkthat that question falls for decision in the present case. From whatever pointof view we look at the transfer of shares in the present case, whether it be inconsideration of a promise to marry or be a gift subject to the subsequentcondition of marriage, the transfer takes effect immediately and is not postponedto the date of marriage. If that be the true position, as we hold it to be,then sub-clause (iii) of s. 16(3)(a) is not attracted to these cases, apartaltogether from any question as to whether there was adequate consideration forthe transfer within the meaning of that sub-clause.

19. For the reasons given above we allow the appeals and answer the questionreferred to the High Court in favour of the assessee. The appellant will beentitled to his costs in this court as also in the High Court; there will beone hearing fee.

20. Appeals allowed.


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