The judgment of the court was delivered by
JAGADISAN J. - This is a revision petition under section 54(1) of the Madras Agricultural Income-tax Act, 1955, calling in question the order of the commissioner of Agricultural Income-tax Act, 1955, calling in question the order of the Commissioner of Agricultural Income-tax Officer in regard to the agricultural income of the petitioner. The petitioner objected to the inclusion of the income of his two wives arising out of lands settled by him upon them in his total agricultural income. The objection was overruled by the department on the ground that the case fell within section 9, sub-section (2), clause (a), sub-clause (iii). The point raised before us is whether this view of the department is correct.
The petitioner has married two wives, Hamsavalli and Sarojini. He is however childless. He executed a registered settlement deed dated January 26, 1956, in and by which he settled certain properties upon his first wife and certain other properties upon his second wife. The total extent of lands owned by him is Ac. 85-36 which is equivalent to standard Ac. 76-87 within the terminology of the Act. The deed purports to be an arrangement for the provision of maintenance to his two wives. But it is not pretended that there was any occasion for the petitioner to cause such as provision to be made even during his life time as admittedly the petitioner and his wives have all along been living together quite amicably. We shall refer to the terms of the deed a little later. The petitioner claimed that the properties settled upon his wives were no longer his properties, that they alone were entitled to enjoy the income arising therefrom, that the document cannot be said to be without adequate consideration and that there was no warrant for the wives income to be made part and parcel of his total agricultural income.
The petitioner and his two wives filed separate application before the Agricultural Income-tax Officer under section 34(1) of the Act for composition of their alleged respective agricultural income from the properties. As stated already, the two wives of the petitioner claimed the properties, the income wherefrom was sought to be subject to levy of tax under the Act, only under the settlement deed. The Agricultural Income-tax Officer was of the opinion that section 9(2) (a) (iii) would cover the case and he accordingly clubbed the entire income and directed a composition under section 34(1) of the Act treating the Income as belonging to the petitioner. This decision was affirmed by the Commissioner of Agricultural Income-tax.
Under the settlement deed dated January 26, 1956, the properties described in schedules A and B thereunder were directed to be enjoyed by the two wives, Hamsavalli and Sarojini. The document is in Tamil and the relevant portion may be translated as follows :
'I have no children. Individuals Nos. 1 and 2 are my wives. In respect of their maintenance I have executed a will on September 11, 1962. As I wish that some provision for their maintenance should be made even when I am alive, and, as they desired the making of such a provision, I have made the following arrangement. Individuals Nos. 3 to 5 are the children of my brothers daughter. As my brothers daughter desired that some provision must be made for their children and requested me to do so I have made the following arrangement. Properties described in Schedules A and B herein belonging to me absolutely and remaining in my possession and enjoyment are hereby settled on individuals Nos. 1 and 2 respectively to be enjoyed by them for their lifetime. They shall be entitled to enjoy the income from these properties after payment of list, and they shall not be entitled to alienate the properties in any manner. This I have done because of my love and affection for individuals Nos 1 to 5. As individuals Nos. 1 and 2 are females, who are not accustomed to move in public, and, as they are not sufficiently experienced in life, and, as they have no capacity to manage the properties, the settlor (the petitioner) himself would function as their trustee and remain in possession and enjoyment of the properties settled upon them as such trustee. The net income from the properties after payment of list and after deducting current and repair expenses shall be paid by the settlor to individuals Nos. 1 and 2. The settlor shall also keep an account in respect of the management of the properties.
After the lifetime of the settlor his brother, N. K. R. Thiruvarangam Naidu, shall function as the trustee and manage the properties and pay the net realisation to individuals Nos. 1 and 2. After him the property shall be managed by such person whom my brother might deem fit and proper.
After the lifetime of my wives, Hamsavalli and Sarojini, the properties in Schedule A shall be taken by individual No. 3, T. S. Narayana Kumar, absolutely in accordance with the conditions prescribed herein. The B schedule properties shall be taken by individuals Nos. 4 and 5, P. K. Suryarao and P. K. Dharmarao, in equal shares with right of survivorship inter se. They shall also take the properties absolutely subject to the terms of this document.....'
The other portions of the document need not be referred to as they have no bearing on the question before us.
A mere glance of the provisions in the document is sufficient to show that the petitioner divested himself of the properties described in schedules A and B attached to the document in favour of his two wives who were to have a life interest in the properties. The remainder, after the termination of their lives, has been disposed of absolutely in favour of the petitioners brothers grandchildren. The document states quite explicitly that the settlement is effected only out of love and affection of the petitioner for his two wives and his brothers grandchildren. It is true that mention is made of a need for making a provision for maintenance, but it is not the case of the petitioner that the wives desired to live apart from him or that he became in law liable to pay maintenance to his two wives. He has always been maintaining them and they have always been living with him.
The sole question for consideration is whether this document, by which the petitioner transferred a portion of his assets to his wives, would fall within the mischief of section 9(2) (a) (iii) of the Act. Section 9 reads as follows :
'9. (1) In computing the total agricultural income of an assessee, all agricultural income arising to any person by virtue of a settlement or disposition, whether revocable or not, and whether effected before or after the commencement of this Act, from assets remaining the property of the settlor or disponer shall be deemed to be the agricultural income of the settlor or disponer, and all agricultural income arising to any person by virtue of a revocable transfer of assets shall be deemed to be the agricultural income of the transferor;....
Provided also that this sub-section shall not apply to any agricultural income arising to any person by virtue of a settlement or disposition which is not revocable for a period exceeding six years or during the lifetime of the person and from which agricultural income the settlor or disponer derives no direct or indirect benefit but the settlor shall be liable to be assessed on the said agricultural income as and when the power to revoke arises to him.
(2) In computing the total agricultural income of any individual for the purpose of assessment, there shall be included :
(a) so much of the agricultural income of a wife or minor child of such individual as arises directly or indirectly :....
(iii) from assets transferred directly or indirectly to the wife by the husband otherwise them for adequate consideration or in connection with an agreement to live apart....'
It is sub-clause (2) (a) (iii) that is relied upon by the department to include the income of the properties settled upon Hamsavalli and Sarojini in the total income of the petitioner. The ingredients of this provision are :
(1) There should be transfer of assets, directly or indirectly by the assessee (husband) to the wife;
(2) The transfer should be 'otherwise than for adequate consideration', or,
(3) In the alternative, it should be in connection with an agreement to live apart.
We may omit from consideration the third limb of this section as admittedly there is no agreement between the petitioner and his wife to five apart. There is no difficulty in holding that there has been a transfer of assets by the petitioner (husband) to the wives. The petitioner is no doubt in possession and enjoyment of the properties. But such possession is not in his own right as the owner of the properties but as the trustee in management for and on behalf of his two wives. Virtually, therefore, the wives should be deemed to be in possession. The first ingredient of transfer of assets which is requisite for the application of the provision is clearly present. Whether the transfer is for adequate consideration is really the crux of the question before us.
Learned counsel for the petitioner contends that the maintenance arrangement effected by a husband in favour of his wife cannot be said to have been brought about without adequate consideration. It is conceded that a transfer of property which is purely gratuitous and in respect of which the transferor obtains no benefit or quid pro quo; is certainly one otherwise than for adequate consideration. It is also clear that a transfer effected out of love and affection which the transferor is said to have evinced for the transferee is one which is bereft of 'consideration' as the term is understood in law.
Valuable consideration is some right, interest, profit, or benefit accruing to the one party, or some forbearance, detriment, loss or responsibility given, suffered, or undertaken by the other at his request : Currie v. Misa and Fleming v. Bank of New Zealand. Consideration, to support a contract, must be of some value in the eye of the law and should not be illusory. But adequacy of consideration is a matter upon which the contracting parties must be satisfied; the court is not concerned with it, unless it be that the inadequacy is so great as to shock ones conscience and such as to raise a presumption of fraud or undue influence. The law makes a distinction between valuable consideration and good consideration. 'Good' consideration is such as that of blood, or of natural love and affection being founded on motives of generosity, prudence, and natural duty; hence 'good' consideration is sometimes opposed to 'valuable' consideration, that is one by which some benefit accrues to the promisor or some detriment to the promisee (Earl Jowitt - Dictionary of English Law). Adequate consideration might indicate only valuable consideration and not the other. We must note that the language employed in section 9(2) (a) (iii) of the Act with which we are concerned is that the transfer must be one which is otherwise than for adequate consideration. The significance of the word 'adequate' has to be recognised and given effect to. We need not labour the point that a transfer motivated purely by love and affection is not one for adequate consideration within the meaning of the section. It is enough to cite the decision of the Supreme Court in Tulsidas Kilachand v. Commissioner of Income-tax, where their Lordships had to construe a provision under the Indian Income-tax Act. Section 16(3) is word the same as section 9(2) (a) (iii) of the Madras Agricultural Income-tax Act. Dealing with the question of adequate consideration, his Lordship, Hidayatullah J., observed thus :
'It remains to consider whether there was adequate consideration for the transfer. Reliance has been placed only upon love and affection. The words adequate consideration denote consideration other than mere love and affection which, in the case of a wife, may be presumed. When the law insists that there should be adequate consideration and not good consideration, it excluded mere love and affection. They may be good consideration to support a contract; but adequate consideration to avoid tax is quite a different thing.'
There is no difficulty in holding that the settlement effected by the petitioner in favour of his wives is, as stated expressly in the instrument of settlement itself, a voluntary gift made by the petitioner in favour of his wives because of his love and affection for them. That is the essence of the transaction and it would not be possible to attribute a different complexion to it by reason only of the fact that the petitioner also expressed a wish that a provisions for maintenance should be made for his wives. But then, what was the necessity for such a provision when the petitioner was living with his wives and the wives did not claim to live away from him for any justifying reason and thereby cast upon the husband the burden or obligation of making a separate provision for maintenance for them. In fact, and this is conceded, there was no enforceable claim for maintenance by the wives against their husband (the petitioner) outstanding at the time of the execution of the settlement, and it is not the petitioners case that the document came into existence to satisfy such a claim. If we may venture to speculate, it seems to us to be obvious that the draftsman of the instrument introduced a clause in it as if the petitioner was providing for the maintenance of the wives be settling the properties in order to avoid the transaction being caught in the net of taxation by reason of section 9(2) (a) (iii) of the Act. We feel we would be justified in holding that the reference to 'maintenance' as such in a transaction which is essentially one by way of gift was merely an attempt to draw a redherring across the trail. Plainly and quite explicitly, therefore, the petitioner came within the mischief of the taxing provision.
Learned counsel for the petitioner has also adopted another line of reasoning to extricate the petitioner out his tax liability. He contends that the third proviso to section 9(1) would come to his rescue. In other words, learned counsel wants the third proviso to section 9(1) to govern the provisions of section 9(2) (a) (iii) as well. A careful scrutiny of the section leads us to the conclusion that this contention is wholly untenable. Section 9(1) of the Act comprises of two different kinds of transactions. Its first limb refers to a settlement or disposition, whether revocable or not whereby agricultural income arises to any person from assets remaining the property of the settlor or disponer; in respect of such a transaction the income should be deemed to be the agricultural income of the settlor or disponer. The second limb refers to revocable transfer of assets and the provision made is that in respect of such transfer agricultural income arising out of the transferred assets shall be deemed to be that of the transferor. It is not very clear whether a transfer of assets within the second limb of section 9(1) would also cover cases of transfer of the corpus of the property wherefrom the income arises. So far as the first limb is concerned the section is quite specific, and it states that, where the income-yielding property remains the property of the settlor, a settlement of disposition of the income alone, whether revocable or not, would not avoid the tax liability of the transferor in respect of such income. The third proviso to section 9(1) is an exception 9(1). What that provides is that any agricultural income arising to any person by virtue of a settlement or disposition which is not revocable for a period exceeding six years or during the lifetime of the transferee and from which agricultural income the settlor or disponer derives no direct or indirect benefits shall not be included in the agricultural income of the settlor or disponer. In the case of a transfer which is not revocable for a period exceeding six years or during the lifetime of the transferee, sub-section (1) will not operate though there is an element of revocability after the expiry of the six years or after the lifetime of the transferee. Section 9(1) being comprehensive to include irrevocable settlement or disposition where the assets remain the property of the settlor or disponer the proviso cuts down its operation to some extent by providing that irrevocability for a period of six years or for the lifetime of the transferee would be sufficient to take out the income from the property settled or disposed of from being taxed in the hands of the settlor or disponer. But so far as section 9(2) (a) (iii) is concerned, it is a special provision treating the wifes income from the transferred assets as the income of the husband. Section 9(1) is general and certainly covers also transaction inter se between the husband and wife. If the department were to rely upon section 9(1) to levy a tax on the husband in respect of the wifes income it might be that the third proviso to section 9(1) could be pleaded by the assessee. But if the department could justify its power to tax based purely on section 9(2) (a) (iii), we are not able to see how the assessee can call in aid the benefit of the third proviso to section 9(1). As a general rule of construction of statutes the special excludes the more general. The general maxim is generalia specialibus non derogant, that is, general things will not derogate from special things. It is true that the maxim is invoked to determine the scope of a general enactment with reference to a specific enactment which precedes it. But its applicability need not be confined to decide the operational sphere of two enactments, one specific and the other general. It can be resorted to for deciding the competing claims of two provisions in the same enactment, a general and a special provision with some overlapping between the two. It seems to us that the legislature designedly excluded the operation of the third proviso to section 9(1) to cases falling within the ambit of section 9(2) (a) (iii).
It is well known that the assessees in order to avoid taxation do resort to methods and devices by which the tax burden can be lessened. We are not suggesting that there is anything sinister about such attempts being made. The law cannot prevent people from ordering their affairs in such a manner as to bear and suffer the minimum amount of taxation. Such persons are not law breakers. To pay tax, which is avoidable is neither a legal nor a moral virtue. But the object of the legislature was certainly to put an end to avoidance of taxation by husbands effecting transfers in favour of their wives. The following observation of Lord Macmillan in Chamberlain v. Inland Revenue Commissioner, dealing with provisions of English law corresponding to section 16 of the Indian Income-tax Act and to the provisions of the present Act, may be usefully referred to :
'The legislation forms part of a code of increasing complexity, beginning with the Finance Act, 1922, section 20, designed to overtake and circumvent a growing tendency on the part of taxpayers to endeavour to avoid or reduce tax liability by means of settlements. Stated quite generally, the method consisted in the disposal by the taxpayer of part of his property is such a way that the income should no longer be receivable by him, while at the same time he retained certain powers over, or interests in, the property or its income. The legislatures counter was to declare that the income of which the taxpayer had thus sought to disembarrass himself should, notwithstanding, be treated as still his income and taxed in his hands accordingly.'
In our opinion the third proviso to section 9(1) cannot take away the effect and operation of section 9(2) (a) (iii) of the Act. It is unnecessary to cite the decisions of various High Court dealing with the corresponding provisions under the Indian Income-tax Act view of the recent decisions of the Supreme Court in Provat Kumar Mitter v. Commissioner of Income-tax; Tulsidas Kilachand v. Commissioner of Income-tax and K. A. Ramachar v. Commissioner of Income-tax.
The case which is very close to the present case is the one reported in Tulsidas Kilachand v. Commissioner of Income-tax. In that case the assessee executed a deed of trust in favour of his wife in respect of certain shares he held in two companies, and thereafter he held the said shares in trust for the benefit of his wife. The dividend income therefrom was included in his total Income-tax Officer and assessed. The assessee objection to the inclusion and the question of the applicability of section 16(3) (a) (iii) came in directly for consideration. The High Court of Bombay held that though section 16(1) (c) was not attracted in view of the third proviso, section 16(3) (b) was applicable to the case and answered the question in the affirmative and against the assessee. The Supreme Court affirmed the decision of the Bombay High Court. Their Lordships first referred to section 16(1) (c) and dealt with its scope. Hidayatullah J. observed thus :
'Section 16(1) (c) provides that income from assets remaining the property of the settlor or disponer or arising to any person by virtue of a revocable transfer of assets shall be deemed to be the income of the transferor. What clause (c) means was decided by this court in Provat Kumar Mitter v. Commissioner of Income-tax... The disposition here is for a period of seven years or the life of the settlee, whichever is shorter. During that period or the life of the settlee, Mr. Tulsidas Kilachand has bound himself upon trust to pay the dividends to his wife and not to revoke the settlement. The intention is obviously to put this case within the third proviso to section 16(1) (c) because clause (c) does not apply to any income arising to any other person provided the disponer derives no direct or indirect benefit, even though the assets remain his property. If it were only a question of the application of the proviso, this disposition would be exempt.'
Then his Lordship discusses the question as to whether the case would fall within sub-section (3). At page 5 of the following observation occurs :
'The section goes on to deal with other situations and to provide for them specially. Sub-section (3) provided specially for assets transferred to the wife or minor child. Income from assets transferred to the wife is still to be included in the total income of the husband, (a) if the assets have been transferred directly or indirectly to the wife by the husband otherwise than for adequate consideration [vide sub-section (3) (a) (iii)]; or (b) so much of the income of any person or association of persons as arises from assets transferred otherwise than for adequate consideration to the person or association by such individual for the benefit of his wife [vide sub-section (3) (b)].'
That was a case where even though their Lordships reached the conclusion that the third proviso to section 16(1) (c) would be applicable yet the assessee, the husband, could not get out of the application of section 16, sub-section (3) (a) (iii). It is plain that their Lordship were not inclined to read the proviso as in any way delimiting the operation of section 16(3) (a) (iii). On principal the same rule should apply even in construing the provisions of the Madras Agricultural Income-tax Act, 1955, section 9 particularly, because, as stated already, the words in the two enactments are completely identical in terms. We do not think we would be justified in referring to other decisions cited before us by learned counsel for the petitioner.
In the result, the petition fails and is dismissed with costs. Counsels fee Rs. 100.