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Sital Chowdhury Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberIncome-tax Reference No. 514 of 1971
Judge
Reported in[1979]119ITR698(Cal)
ActsIncome Tax Act, 1922 - Section 16(3); ;Income Tax Act, 1961 - Section 64 and 64(1); ;Income Tax (Amendment) Act, 1976
AppellantSital Chowdhury
RespondentCommissioner of Income-tax
Appellant AdvocateA.N. Roy, ;N.C. Saha and ;Subhas Barman, Advs.
Respondent AdvocateB.L. Pal and ;Ajit Sengupta, Advs.
Excerpt:
- .....and 1959-60, the ito in computingthe income, of the assessee included the income arising from the assetstransferred to j. n. chowdhury as aforesaid under section 16(3)(b)of the indian i.t. act, 1922, on the ground that the respective transfers by the assessee to his brother were made with a view to avoid the income from the assets and properties being taxed in the hands of the transferor. he treatedthe transfer by the assessee in favour of j. n. chowdhury as a transfer infavour of the assessee's wife and son. 4. on appeal, the aac confirmed the assessment to the extent of the income, the benefit whereof went to the wife of the assessee but held that the income accruing in favour of the major son should be excluded. on further appeal, the tribunal held that on the facts the said section.....
Judgment:

Sen, J.

1. Amarendra Nath Chowdhury, since deceased, was the original assessee in these proceedings. At his instance, this court under Section 256(2) of the I.T. Act, 1961, directed the Tribunal to draw up a statement of case and refer the following questions of law to this court :

'1. Whether, on the facts and in the circumstances of the case, Section 64(iii) of the Income-tax Act, 1961, applies

2. Whether, on the facts and in the circumstances of the case, the entire income from the assets transferred by Amarendra Nath Chowdhury to Jatindra Nath Chowdhury, since deceased, is includible in the income of Amarendra under Section 64(iii) of the Income-tax Act, 1961 ?'

2. The facts found and/or admitted herein are of short compass. The assessee had executed a deed of trust conveying certain stocks and debentures as well as interest in some landed property valued in aggregate at Rs. 4,98,000 to his brother, J. N. Chowdhury, who was directed to hold the same in trust for the benefit of the wife and two daughters of the said J.N. Chowdhury. On the same day, J. N. Chowdhury executed a similar trust in respect of assets and properties of the same nature and value as conveyed in trust by the assessee. In the trust executed by J. N. Chowdhury, the assessee was appointed as the trustee and the benefit thereunder was conferred on the assessee's wife and his major son.

3. In the assessment years 1958-59 and 1959-60, the ITO in computingthe income, of the assessee included the income arising from the assetstransferred to J. N. Chowdhury as aforesaid under Section 16(3)(b)of the Indian I.T. Act, 1922, on the ground that the respective transfers by the assessee to his brother were made with a view to avoid the income from the assets and properties being taxed in the hands of the transferor. He treatedthe transfer by the assessee in favour of J. N. Chowdhury as a transfer infavour of the assessee's wife and son.

4. On appeal, the AAC confirmed the assessment to the extent of the income, the benefit whereof went to the wife of the assessee but held that the income accruing in favour of the major son should be excluded. On further appeal, the Tribunal held that on the facts the said Section 16(3)(b) did not apply at all. There was a reference to this court from the said order of the Tribunal at the instance of the revenue when the contentions of the assessee were upheld in the judgment under the title CIT v. A.N. Chowdhury [1969] 71 ITR 326.

5. In the present reference, we are concerned with the assessment year 1962-63. In this year the ITO in the course of assessment proceedings included in the income of the assessee and brought to tax Rs. 12,900 which arose from the assets and properties transferred to J. N. Chowdhury in trust for the latter's wife and daughters under Section 64 of the I.T. Act, 1961.

6. On appeal, the AAC confirmed the assessment on the ground that Section 64(v) of the I.T. Act, 1961, applied to the facts of the case.

7. The assessee preferred a further appeal to the Tribunal and contended that the matter was concluded by this court's decision in the case of the assessee for the earlier assessment years--See [1969] 71 ITR 326. It was contended on behalf of the revenue that the I.T. Act, 1961, had brought about a change and, therefore, the said decision had no further application. It was contended, in the alternative, that the assessment could in any event be sustained under Section 64(iii) of the Act,

8. The Tribunal found that Section 16(3)(b) of the Indian I.T. Act, 1922, and Section 64(v) were identical in language and the latter Act had not brought about any change of law by the said section. But Clause (iii) of Section 64 of the new Act did apply to the facts of the case. It was held that in the facts found it could be said that the income which had been added to the assessee's income had arisen directly or indirectly from assets transferred directly or indirectly to the wife of the assessee. The Tribunal held that the decision of the Supreme Court in CIT v. C.M. Kothari : [1963]49ITR107(SC) applied in the facts of the instant case and following the same rejected the appeal.

9. To appreciate the controversy in the instant case, it is necessary to keep in view the relevant statutory provisions which, inter alia, are as follows :

Indian Income-tax Act, 1922.

' Section 16. Exemptions and exclusions in determining the total income.--(3) In computing the total income of any individual for the purpose of assessment, there shall be included-

(a) so much of the 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 than for adequate consideration or in connection with an agreement to live apart ;......

(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 or a minor child or both. '

Income-tax Act, 1961.

'Section 64. Income of individual to include income oj spouse, minor child, etc.--In computing the total income of any individual, there shall be included all such income as arises directly or indirectly--......

(iii) subject to the provisions of Clause (i) of section 27, to the spouse of such individual from assets transferred directly or indirectly to the spouse by such individual otherwise than for adequate consideration or in connection with an agreement to live apart;.....,

(v) to any person or association of persons from assets transferred otherwise than for adequate consideration to the person or association of persons by such individual, to the extent to which the income from such assets is for the immediate or deferred benefit of his or her spouse or minor child (not being a married daughter) or both.......'

10. At the hearing, Mr. Aditya Narayan Roy, learned advocate for the assessee, cited and relied on the case of A.N. Chowdhury [1969] 71 ITR 326. The questions which were referred to this court in that case were as follows :

'(1) Whether the Tribunal was right in holding that the provisions of Section 16(3)(b) of the Indian I.T. Act, 1922, were not applicable to the cases of transfers of property by way of trust

(2) If the answer to question No. 1 be in the negative, whether, on the facts and in the circumstances of this case, income of the properties given in trust by the assessee to his brother for the benefit of the latter's wife and minor child was chargeable to tax in the hands of the assessee under Section 16(3)(b) of the Indian Income-tax Act, 1922 ?'

11. This court held-that under Section 16(3)(b) the income that could be assessed was an income arising from a transfer by the individual for the benefit of his wife or minor children. In the facts of the case the transfer was to a trustee arid legally the income was the income of the trustee which arose out of the trust properties transferred. This court held that Clause (b) of Section 16(3) did not envisage the case of a trust.

12. This court further compared the provision of Section 16(3)(b) with Section 16(3)(a) and noted that in the latter the expression ' directly or indirectly ' had been repeatedly used both in connection with the income and the assets but the said words had been altogether omitted in Section 16(3)(b). This was held to be significant and it was construed that the language of Section 16(3)(b) excluded indirect income. This court also noted that the part of Section 64 of the later Act, i.e., I.T. Act, 1961, corresponding to Section 16(3)(b) of the earlier Act were identical in language.

13. Mr. Roy also drew our attention to the decision of the Supreme Court in the case of C.M. Kothari : [1963]49ITR107(SC) . The facts in that case were that the assessee and his two sons were partners in a firm. The firm entered into an agreement to purchase a house at Madras and paid an amount by way of advance. The sale deed was, however, executed in favour of the wife, one of the daughters-in-law and one of the sons of the assessee. Balance of the consideration was shown to be paid in the name of the wife, the son and the daughter-in-law. The ladies drew cheques from their respective bank accounts but amounts were credited in the bank accounts by debiting the son in the firm in the case of his mother, viz., the wife of the assessee, and by debiting the assessee in the said firm in the case of the daughter-in-law. The amounts were shown as gift by the son to the mother and by the assessee to his daughter-in-law.

14. In the assessment years 1948-49, 1950-51 and 1951-52, the ITO assessed the income from the respective l/3rd share of the said house in the hands of assessee and his son and not in the hands of his wife and the daughter-in-law. The AAC and the Tribunal upheld the order of the ITO. The question which was referred to the High Court was as follows :

' Whether there was material for the Appellate Tribunal to bold that the income arising to Mrs. C.M. Kothari and Mrs. D. C. Kothari from the property arose indirectly out of the assets transferred indirectly by their husbands so as to attract the provisions of Section 16(3)(a)(iii).'

15. The assessee succeeded before the High Court and the matter finally came up on appeal before the Supreme Court.

16. The Supreme Court construed Section 16(3)(a)(iii) and held as follows (pp. 110, 111) :

' It is argued that the first requisite of the section is that the assets must be those of the husband and that is not the case here. It is true that the section says that the assets must be those of the husband, but it does not mean that the same assets should reach the wife. It may be that the assets, in the course of being transferred, may be changed deliberately into assets of a like value of another person, as has happened in the present case. A chain of transfers, if not comprehended by the word ' indirectly ', would easily defeat the object of the law which is to tax the income of the wife in the hands of the husband, if the income of the wife arises to her from assets transferred by the husband. The present case is an admirable instance of how indirect transfers can be made by substituting the assets of another person who has benefited to the same or nearly the same extent from assets transferred to him by the husband.

It is next contended that even if chain transactions be included, then, unless there is consideration for the transfer by the husband, each transfer must be regarded as independent, and in the present case, the department has not proved that the transfers by the son to the mother and by the father-in-law to his daughter-in-law were made as consideration for each other. We do not agree. It is not necessary that there should be consideration in the technical sense. If the two transfers are inter-connected and are parts of the same transaction in such a way that it can be said that the circuitous method has been adopted as a device to evade implications of this section, the case will fall within the section. In this case, the device is palpable and the two transfers are so intimately connected that they cannot but be regarded as parts of a single transaction. It has not been successfully explained why the father-in-law made such a big gift to his daughter-in-law on the occasion of diwali and why the son made a belated gift, equally big, to his mother on the occasion of her birthday which took place several months before. These two gifts match each other as regards the amount....An intimate connection between the two transactions, which were prima facie separate, is thus clearly established and they attract the words of the section, namely, ' transferred directly or indirectly to the wife'.'

17. Mr. Roy sought to distinguish this decision by contending, firstly, thatthere was no trust involved in the case before the Supreme Court and,secondly, there is no finding in the present case that there were chaintransactions.

18. In our view, the distinctions sought to be drawn by Mr. Roy are of little consequence. The words ' directly and/or indirectly ', in our opinion, covers the case of a trust, and the nature of the transactions in the instant case appear to us to be similar to that which was before the Supreme Court. In the case before us transfers have been made by the brothers in favour of their respective wives and children whereas in the case before the Supreme Court, the transfers were made by the father and the son in favour respectively of the mother and the daughter-in-law. The assets of the assessee in the process of being transferred in favour of his wife have been deliberately and in a planned manner turned into the assets of a like value in the hands of another person and on the basis of exchange the income is indirectly reaching the hands of the assessee's wife.

19. Mr. B. L. Pal, learned counsel for the revenue, has contended before us that Section 64(iii) of the I.T. Act, 1961, being applicable in this case, the matter is concluded by the decision of the Supreme Court.

20. Mr. Pal also drew our attention to another decision of this court in CIT v. Abhijit Sen : [1968]68ITR23(Cal) . The facts of this case were that the assessee, his brother and his father were all shareholders in a private limited company. On a certain date, the father transferred by way of gift a number of shares in the said company to the wives of his two sons. On the same day, the assessee and his brother made gifts of shares in the same company to their mother. There were also corresponding gifts by the brothers to each other's wives. As a result of these transactions, the mother of the assessee, the wife of the assessee and the wife of the assessee's brother each came to possess equal number of shares in the said company. In the assessment year in question, the ITO applied Section 16(3)(a) of the Indian I.T. Act, 1922, and included the dividend income in respect of the shares transferred by the assessee in the income of the assessee. The Tribunal deleted this inclusion. On a reference, this court, following the Supreme Court in C.M. Kothari : [1963]49ITR107(SC) , held that Section 16(3)(a)(iii) of the Indian I.T. Act, 1922, was attracted to the facts and that the assessee sought to avoid a direct transfer to his wife but wanted to achieve the same object indirectly through a device of cross-transfers. The contentions of the revenue were upheld.

21. We accept the contention of Mr. Pal that the language of Section 64(iii) of the I.T. Act, 1961, as it stood at the relevant time being identical with that of Section 16(3)(a)(iii) of the earlier Act, the decision of the Supreme Court in the case of C.M. Kothari : [1963]49ITR107(SC) and of this court in the case of Abhijit Sen : [1968]68ITR23(Cal) put an end to the controversy in the matter before us. It appears to us that the facts found are sufficient to hold that the income in the instant case which was sought to be assessed in the hands of the assessee, arose directly or indirectly to the spouse of the assessee from assets transferred indirectly and through the means of a trust. No consideration has been shown to have been passed from the wife of the assessee nor is it anybody's case that the assessee and his wife agreed to live apart. In our opinion, the words ' directly or indirectly ' as contained in the said section are wide enough to cover transfers effected through the means or devise of trust.

22. For the above reasons, the revenue succeeds in this reference. Question No. 1 is answered in the affirmative and in favour of the revenue. Question No. 2 is answered in the affirmative and also in favour of the revenue. In the facts and circumstances, there will be no order as to costs.

C.K. Banerji, J.

23. I agree.


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