1. This is an appeal on certificate granted by the Gujarat High Court undersection 66A(2) of the Indian Income Tax Act, 1922, hereinafter referred to asthe Act, and involves the interpretation of section 16(3)(a)(iii) and section16(3)(a)(iv) of the Act. The facts are not in dispute and it is not necessaryto record the findings of the Income-tax Officer and the Assistant AppellateCommissioner. It is sufficient to extract the relevant facts from the order ofthe Appellate Tribunal.
2. The respondent, Keshavlal Lallubhai Patel, hereinafter referred to as theassessee, was assessed till the assessment year 1952-53 (Accounting year endingMarch 31, 1952) as an individual. On April 18, 1951, he swore an affidavitbefore the Deputy Nazir, District Court, Ahmedabad, throwing all hisself-acquired properties mentioned in the affidavit, into the common hotchpotchof the Hindu undivided family, consisting of himself and his two sons. Theassessee had a wife and two sons, one a major and the other a minor. However,no entries in the books were passed. On June 12, 1951, an oral partition waseffected between the several members of the Hindu undivided family, andconsistent with this partition, entries in the books were made. A jointdeclaration was made by the assessee, his wife and the major son on June 26,1951, before the District Court. Later, a joint statement was made on December5, 1951, before the Revenue Court. Properties were transferred thereafter inaccordance with this arrangement to the names of the several members of thefamily.
3. For the assessment year 1952-53, the assessee claimed that assessmentshould be made taking into consideration the conversion of the self-acquiredinto joint family property and the subsequent partition. The Appellate Tribunalconfirmed the orders of the Income-tax Officer and the Appellate AssistantCommissioner disallowing the claim of the assessee on the ground that'throwing into the hotchpotch one's self-acquired property, and asubsequent partition amongst the members of the Hindu undivided family is anindirect transfer of the property within the meaning of section 16(3) of theAct.' The Appellate Tribunal, at the instance of the assessee, referredthe following question to the High Court :
'Whether on the facts and circumstances of thiscase the throwing into the hotchpotch of the applicant's self-acquired propertyand the subsequent partition among the members of the Hindu undivided family isan indirect transfer of property so far as the wife and minor son areconcerned, within the meaning of section 16(3)(a)(iii) and (iv) of the IncomeTax Act ?'
4. The High Court answered the above question in favour of the assessee. Asstated above, it granted a certificate under section 66A(2) of the Act.
5. Mr. Rajagopala Sastri, the learned counsel for the Revenue, urges beforeus that it is a clear case of indirect transfer by the assessee, within section16(3)(a)(iii) and section 16(3)(a)(iv) of the Act. He does not dispute thegenuineness of the transactions. He says : Look at the position antecedent tothe affidavit dated April 18, 1951. The property in dispute belonged to theassessee. Then look at the position after the partition. The properties come tobe held by the wife and the minor son. These two facts, according to him, showthat there was a transfer, and it was an indirect transfer because the jointHindu family had been utilised only as a conduit pipe by the assessee totransfer properties to the wife and the minor son.
Section 16(3)(a)(iii) and (iv) read as follows :
'16(3) - In computing thetotal income of any individual for the purpose of assessment, there shall beincluded - (a) so much of the income of a wife or minor child of suchindividual as arises directly or indirectly -
. . . . . . . . . .
(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 the assets transferreddirectly or indirectly to the minor child, not being a married daughter, bysuch individual otherwise than for adequate consideration;........'
6. Mr. Viswanatha Sastri, the learned counsel for the assessee, contendsthat in this case there is no transfer in the strict sense, and as it is ataxing statute, the provisions should be construed strictly. He says thatneither the act of throwing the self-acquired property into the hotchpotch, northe partition of joint family property was a transfer within the meaning ofsection 16(3)(a)(iii) or section 16(3)(a)(iv). If the legislature wanted torope in these acts, it could have used another word, such as 'arrangement'.
7. Apart from authority, looking at the language of section 16(3)(a)(iii),following two conditions must be satisfied before the said provision can beapplied :
(1) Assets must be transferred bythe husband to the wife;
(2) The assets must betransferred directly or indirectly.
8. Two questions arise : Is the word 'transfer' used in the technical senseor in the popular sense And, secondly, what is comprehended in the word'indirectly'?
9. Some assistance is derived in ascertaining the meaning of the word'transfer' by looking at the language of section 16(1)(c). In that clause, thelegislature uses the words 'settlement', 'disposition' and 'transfer', and inthe expression 'settlement or disposition' is included 'any disposition, trust,covenant, agreement or arrangement'. In this clause, the word 'transfer' isclearly used in the strict sense. If the legislature were minded to include anarrangement or agreement, not amounting to transfer, in section 16(3)(a)(iii), itcould have used these words. It seems to us that the word 'transfer' has beenused in the strict sense and not in the sense of 'including every means bywhich the property may be passed from one to another'. This conclusion isreinforced by the consideration that, as observed by this court in Philip JohnPlasket Thomas v. Commissioner of Income-tax, Calcutta : 49ITR97(SC) ,section 16(3) 'creates an artificial income and must be construedstrictly.'
10. Coming now to the expression 'directly or indirectly' there does notseem to be any doubt that the legislature meant to rope in indirect transfers.One example is furnished by Commissioner of Income-tax v. C. M. Kothari : 49ITR107(SC) . But there must still be a transfer of assets. The word 'indirectly'does not destroy the significance of the word 'transfer'.
11. Mr. Rajagopala Sastri relies strongly on the decision of this court inCommissioner of Income-tax v. C. M. Kothari : 49ITR107(SC) . But in ouropinion that case is clearly distinguishable and does not assist us in thiscase. In that case, C. M. Kothari and his sons were both desirous of puttingRs. 30,000 in the hands of their wives to enable them to buy a share in ahouse. Instead of directly gifting the amount, they hit upon the followingdevice : C. M. Kothari would gift Rs. 30,000 to the daughter-in-law and the sonwould gift Rs. 30,000 to the mother. This Court held that it was a palpabledevice and a trick and the two cross transactions amounted to an 'indirecttransfer' within section 16(3)(a)(iii). In effect, this Court held that thefather used his son as a conduit pipe and the son used his father as a conduitpipe to gift Rs. 30,000 each. Mr. Sastri relies on the words 'chain oftransfers' used by Hidayatullah, J., in the following sentence :
'A chain of transfers, if not comprehended by theword 'indirectly' would easily defeat the object of the law which is to tax theincome of the wife in the hands of the husband, if the income of the wifearises to her from assets transferred by the husband.'
12. But in the context they refer to the cross-gifts, if we may so call thetwo gifts of Rs. 30,000 each. These are transfers in the strict sense of theterm. In the present case there are no cross-gifts. We have, on the other hand,in this case, a throwing of property into the hotchpotch and a partition of theJHF property. As will be pointed out later, the latter at any rate is not atransfer at all.
13. This takes us to the facts of this case, and the question arises whetherthere is any transfer of assets in the strict sense. There is some differenceof opinion whether the act of throwing self-acquired property into thehotchpotch is a transfer or not. We need not settle this controversy in thiscase. Let us assume that it is. But, is a partition of joint Hindu familyproperty a transfer in the strict sense We are of the opinion that it is not.This was so held in Gutta Radhakristnayya v. Gutta Sarasamma. I.L.R.  Mad. 607. Subba Rao, J., then a Judge of the Madras High Court, afterexamining several authorities, came to the conclusion that 'partition isreally a process in and by which a joint enjoyment is transformed into anenjoyment in severalty. Each one of the sharers had an antecedent title andtherefore no conveyance is involved in the process as a conferment of a newtitle is not necessary.' The Madras High Court again examined the questionin M. K. Stremann v. Commissioner of Income-tax, Madras : 41ITR297(Mad) with reference to section 16(3)(a)(iv). It is observed that 'obviously noquestion of transfer of assets can arise when all that happens is separation instatus, though the result of such severance in status is that the propertyhitherto held by the coparcenary is held thereafter by the separated members astenants-in-common. Subsequent partition between the divided members of thefamily does not amount either to a transfer of assets from that body of thetenants-in-common to each of such tenants-in-common'.
14. The Punjab High Court came to the conclusion in Jagan Nath v. The Stateof Punjab (1962) 64 P.L.R. 22. Agreeing with these authorities, we hold thatwhen the joint Hindu family property was partitioned, there was no transfer ofassets within section 16(3)(a)(iii) and (iv) to the wife or the minor son.
15. Mr. Rajagopala Sastri finally contended that we must look at thesubstance of transaction. But as pointed out by Lord Normand in Potts'Executors v. Commissioner of Inland Revenue 32 I.T.C. 211 'the court isnot entitled to say that for the purposes of taxation the actual transaction isto be disregarded as 'machinery' and that the substance or equivalent financialresults are the relevant consideration. It may indeed be said that if theseloose principles of construction had been liberally applied, they would in manyinstances have been adequate to deal with tax evasion and there would have beenless frequent cause for the intervention of Parliament.'
16. In the result the appeal fails and is dismissed with costs.
17. Appeal dismissed.