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K. Subramania Pillai Vs. Agricultural Income-tax Officer, Thuckalay. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtChennai High Court
Decided On
Case NumberTax Case No. 94 of 1960
Reported in[1964]53ITR764(Mad)
AppellantK. Subramania Pillai
RespondentAgricultural Income-tax Officer, Thuckalay.
Cases ReferredBehramji Sarobji Lalkaka v. Commissioner of Income
Excerpt:
- .....the assessee and after hearing the assessee. the result was that the settlement was held to be a revocable settlement, failing within the proviso to section 9(1) of the act, so that the assessee became liable to be assessed on the income of the properties covered by the settlement as well. on the application of the assessee under section 62 of the act, the commissioner has referred the following question for our decision :'whether the settlement deed dated june 20, 1955, executed by the assessee is a revocable one within the meaning of section 9(1) of the travancore-cochin agricultural income-tax act, 1950 ?'section 9(1) and the first proviso thereto read thus :'income from settlement, disposition, etc. - in computing the total agricultural income of an assessee all agricultural income.....
Judgment:

SRINIVASAN J. - This reference arises under the Travancore-Cochin Agricultural Income-tax Act, 1950. The assessee, Subramania Pillai, executed a settlement deed covering his agricultural properties. In the assessment years 1957-58 and 1958-59, the Agricultural Income-tax Officer excluded the income from the properties covered by the settlement deed in making an assessment upon the income of the assessee. The Commissioner, in exercise of his suo motu powers of revision, revised the assessment, holding that the settlement fell within the mischief of section 9(1) of the Act. this revision was made after issuing a notice to the assessee and after hearing the assessee. The result was that the settlement was held to be a revocable settlement, failing within the proviso to section 9(1) of the Act, so that the assessee became liable to be assessed on the income of the properties covered by the settlement as well. On the application of the assessee under section 62 of the Act, the Commissioner has referred the following question for our decision :

'Whether the settlement deed dated June 20, 1955, executed by the assessee is a revocable one within the meaning of section 9(1) of the Travancore-Cochin Agricultural Income-tax Act, 1950 ?'

Section 9(1) and the first proviso thereto read thus :

'Income from settlement, disposition, etc. - 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 that for purposes of this sub-section, a settlement, disposition or transfer shall be deemed to be revocable if it contains any provision for the re-transfer directly or indirectly of the agricultural income or assets to the settlor, disponer or transferor or in any way gives the settlor, disponer or transferor a right to reassume power directly or indirectly over the agricultural income or assets; . . . . . . .'

The question before us is whether the settlement, to the terms of which we shall presently refer, comes within the scope of this section. Broadly stated, this section envisages the following cases : (1) a person may effect a settlement revocable or otherwise of the agricultural income from his property while continuing to the owner of the property; and (2) he may make a revocable transfer of the property itself but continue to be in the receipt of the income therefrom. In the first of these cases, despite the revocability or otherwise of the settlement, so long as the property from which the income is derived continues to be in the ownership of the settlor, the income arising therefrom is deemed to be agricultural income of the settlor notwithstanding that such income has been settled on any other person. In the second case, the asset itself is transferred, but the transfer being revocable, the income arising from the property is deemed to be the income of the transferor. The proviso to the section sets out what shall be deemed to be a revocable transfer. A settlement may contain terms which directly give the power to the settlor to revoke the settlement. In the case of a revocable transfer, the position is quite clear that the income is deemed to be that of the transferor. But the proviso goes further and lays down that though the settlement may not ex facie be revocable, if it contains any provision for the re-transfer of the income to the settlor directly or indirectly, or confers authority upon the settlor to reassume power over the assets or the income, such a transfer shall be deemed to be revocable. Such a deemed revocable transfer is accordingly hit by the main provision itself, and, even in such a case, the income from those assets is liable to be assessed in the hands of the settlor. There is no controversy about the scope of the above proposition. The only question that has been debated before us is whether the terms of the settlement are such that the transfer can be deemed to be revocable in the present case.

The settlement was effected in favour of three (two minors) sons of the settlor and his wife. The properties were divided and listed in the Schedules A to E and those in A, B, and C were respectively allocated to the three sons of the settlor. One property known as 'Kumara Bhavan' was set apart in which the three sons were to have joint rights which were to devolve after the death of the settlor in a particular manner upon the three sons. Since the first of the sons was a major, the A Schedule properties were to be immediately taken possession of by him. The wife of the settlor was to take possession of the B and C Schedule properties on behalf of the two minor sons. The 'Kumara Bhavan' property was to be in the possession and enjoyment of the settlor during his lifetime, The document also set out that it was agreed between the parties that each of the three sons should contribute towards the maintenance of their mother, the wife of the settlor, from out of the income derived from the properties settled on the sons. The following part of the document is important for the purpose of this case :

'Whereas additional properties have been included in the Schedules A to C with a stipulation to grant stridhanam to daughter, Ramalakshmi Ammal, in accordance with the status of the family, individual No. 1 and individual and Individual No. 4 on behalf of individual Nos. 2 and 3 shall jointly execute a stridhanam deed in favour of the aforesaid Ramalakshmi Ammal by selecting such of the properties of equal values from each of the Schedules A to C. But if individual No. 2 happens to attain majority at the time of execution of the said document, then he shall also be a party thereto and if individual Nos., 2 and 3 attain majority, then individual Nos. 1to 3 shall jointly execute the stridhanam deed in the aforesaid manner. And the execution of the stridhanam deed jointly by all the three individuals as aforesaid shall be effected with the knowledge and consent of individual No. 4. In case any obstruction or delay is caused to the execution of the aforesaid stridhanam deed by any one of you, then I shall have the full right and authority to execute the stridhanam deed by selecting the properties to be granted as stridhanam, from out of the properties in Schedules A to C at my free will. . . . .'

The above recitals appear to be fairly clear and beyond any controversy. Ramalakshmi, the daughter, was to be given certain properties by way of stridhanam from out of the properties included in Schedules A to C allotted to the three sons referred as individual Nos. 1, 2 and 3. The document specifically states that in order to enable a stridhanam deed to be executed, additional properties had been included in Schedules A to C. It specified that the document should be executed at an early date, but it did not indicate which properties were to be so gifted as stridhanam to the daughter, Ramalakshmi. It only stated that such of the properties of equal values which should be selected from each of the Schedules A to C. The last part of the extract above is of special importance. It clearly specifies that if the sons did not execute the document or caused obstruction or delay, then the settlor is given full right and authority to select the properties from out of the properties in Schedules A to C at his free will and to execute the stridhanam deed. Notwithstanding therefore that the properties had been allotted to the three sons and they were given the authority to obtain pattas in their individual names and to hold and enjoy those properties, the clause referred to above enables the settlor to take away some of the properties so allotted and to make a grant by way of the stridhanam to the daughter. In the absence of any specification as to which of the properties contained in the Schedules A to C were to be given by way of the Stridhanam to the daughter, the settlor has full power to decide even that fact and to select at his free will such properties of equal value from out of these schedules. It is impossible to repel the view that this clause gives the settlor the right to reassume power over the assets that were transferred by this settlement deed. The proviso would appear to apply and the settlement in the instant case has to be deemed to be revocable settlement within the meaning of the proviso to section 9(1).

It will be noticed that the above section of the Act is identical in terms with section 16(1)(c) and the first proviso thereto of the Indian Income-tax Act. We may refer to Tarunendranath Tagore V. Commissioner of Income-tax where the Calcutta High Court held that even in a case where the power of the seller to cause a re-transfer of the shares sold was to be exercised only in certain contingencies, the sale was nevertheless a revocable transfer within the meaning of the first proviso to section 16(1)(c) of the Act. This decision would appear to apply fully to the present case, for, on the occurrence of the contingency, viz., the failure of the sons and to execute the stridhanam deed, the settlor assumed the power to interfere with the settlement and to take away properties already allotted to the sons and to make a fresh allotment by way of stridhanam. Learned counsel for the assessee, however, refers to Commissioner of Income-tax v. S. M. Bose. That was a case where it was held that the first proviso to section 16(1)(c) of the Income-tax Act could come into play only in cases where the settler can lawfully reassume power over the income or the assets. If the document was such that the settlor retained no right whatsoever over the corpus or the income, he would have no right of revocation. On the facts therein, the learned judges of the Calcutta High Court took the view that the settlor had by that document placed the income from the properties for ever out of his control and that, therefor, the income from the properties could to be assessed in his hands. It seems to us that the present case differs in a very important particular from the facts of that decision. The very basis of the settlement was that certain additional properties intended to go towards the stridhanam of the daughter had been included in the properties allotted to the sons. They were under a duty under the document to effect a transfer of an extent of properties to the daughter and on the failure of that duty, the settlor derived the power to reassume control. It cannot therefore, be said that in this case the settlor had placed it wholly beyond his own power to interfere with settlement in any manner. The decision to our minds has no application.

It was next contended on behalf of the assessee that the third proviso to section 9(1) should be considered and, if that is applied, it would take the present case out of the first proviso. In Ramji Keshavji v. Commissioner of Income-tax, it was held that the third proviso to section 16(1)(c) of the Income-tax Act applies to the first proviso as well as to the substantive provision, section 16(1)(c). Even so, we fail to see how the conditions requisite for invoking the third proviso obtain in this case. The third proviso to section 9(1) of the Act takes a case out of the scope of section 9(1) if the settlement is not revocable for a period exceeding six years or during the lifetime of the settlor and from which agricultural income the settlor derives no direct or indirect benefit. In order to invoke this third proviso both the above conditions should exist. It is true that the latter condition that the settlor derives no direct or indirect benefit from the agricultural income is satisfied. But the first condition that the settlement is not be revocable for the period specified is not complied with. The third proviso has thus no application.

We may also mention that in this decision there was some difference of opinion between the two learned judges,. Kania and Chagla JJ., but the ultimate decision in the case was not rested on that point. In a latter decision, Behramji Sarobji Lalkaka v. Commissioner of Income-tax, Chagla C.J. reaffirmed the view that he took in the earlier case that even a power for retransfer which was contingent would bring such a case within the scope of the first proviso.

We are satisfied that, in this case, the settlement clearly comes within the scope of the first proviso and answer the question in the affirmative and against the assessee. The assessee will pay the costs of the department. Counsels fee Rs. 150.

Question answered in the affirmative.


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