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Petitioner: P. J. P. THOMAS VS Respondent: COMMISSIONER OF INCOME-TAX, CALCUTTAHonorable Justice P. B. MUKHARJIS. Alyangar and S. B. Sen,E. Meyer and B. L. Pal
1963 P T D 602
1963 P T D 602
[Calcutta India]
Before P. B. Mukharji and H. K. Bose, JJ
P. J. P. THOMAS
versus
COMMISSIONER OF INCOME‑TAX, CALCUTTA
Income‑tax Reference No. 49 of 1956, decided on 28th February 1961.
Income‑tax Act (XI of 1922)
-- Ss. 16(3)(a)(iii) & 16(3)(c). Transfer of assets to wife‑Transfer before marriage in consideration of proposed marriage‑Marriage effected‑ Whether income from assets can be included in husband's income‑Whether marriage "adequate consideration"‑Revocability of transfer‑Applicability of Ss. 16(3)(a)(iii), 16(3)(c).
In order to attract the application of section 16(3)(a)(iii) of the Income‑tax Act, 1922 it is not necessary that the person to whom the properties were transferred should have been the assessee's wife at the time of the transfer. Section 16(3)(a)(iii) will apply even to cases where property was transferred to a prospective wife before the marriage in consideration of the marriage which is intended to take place. The question to be considered in applying section 16(3)(a)(iii) is whether at the time when the income is sought to be assessed the relationship of husband and wife existed between the parties.
Though marriage may be good and valuable consideration for transfer of property to a lady who agrees to marry the transferor, since it is not possible to determine the adequacy of such consideration, marriage cannot be regarded as "adequate consideration" within the meaning of section 16(3)(a)(iii).
Where a person transfers some property to a woman "in consideration of the forthcoming marriage" between them, and the marriage takes place, the income accruing to the wife from the property after the marriage can be included in the husband's income under the provisions of section 16(3)(a)(iii) of the Income‑tax Act, 1922 but not under the provisions of section 16(1)(c) inasmuch as the transfer becomes irrevocable as soon as the marriage takes place.
Alt v. Alt 4 (1862) 4 Giff 84 ; Behramji Sorabji Lalkaka v. Commissioner of Income‑tax (1948) 16 1 T R 301 ; Cohen v. Sellar (1926) 1 K B 536 ; Commissioner of Income‑tax v. Sir Kikabhai Premchand (1948) 16 I T R 207 ; Commissioner of Income‑tax v. Sodra Devi (1957) 32 I T R 615 ; De Manneville v. Crompton 35 E R 138 ; Estcourt v. Estcourt 1 Cox. 20 ; Goldicutt v. Townshend 54E R 437 ; Halifax Joint Stock Banking Co. v. Gledhill (1891) 1 Ch. D 31 ; Hammersley v. Baron De Biel 12 Cl & F 45 ; Inland Revenue Commissioners v. Wolfson (1949) 1 All E R 865 ; Krishna Iyer T. V. v. Commissioner of Income‑tax (1960) 38 I T R 144.; Luders v. Anstey 4 Ves. 501 ; Makkar Pillai v. Commis sioner of Income‑tax (1957) 32 I T R 161 ; Marsh Ex parte : 1 ATK 158 ; Maunsell v. White 4 H L Cas. 1039 ; Nanjundaswami Chetty v. Kanagaraju Chetty (1919) I L R 42 Mad. 154 ; Narayana (V. P.) & Sons v. Commissioner of Income‑tax (1955) A I R 1955 T C 30; Prodger v. Langham (1663) 1 Sid. 133 ; Raj Bahadur H. P. Banerjee v. Commissioner of Income‑tax (194 !) 9 I T R 137 ; Ramji Keshavji v. Commissioner of Income‑tax (1945) 13 I T R 105 ; In re Sardarni Narain Kaur (1943) 11 I T R 448 ; Synge v. Synge (1894) 1 Q B D 466 (C A) ; Tarunendra Nath Tagore v. Commis sioner of Income‑tax (1958) 33 I T R 492 ; Tulsidas Kilachand v. Commissioner of Income‑tax (1958) 33 I T R :183 and Viret .v. Viret (1880) 50 L J Ch. 69 ref.
STATEMENT OF CASE
By these applications, presented on 20th June 1956, the assessee requires the Appellate Tribunal to refer to the High Court two questions of law which are said to arise out of the Appellate Tribunal's consolidated order dated 4th April 1956, in I. T. A. Nos. 2635, 2636, 2637 and 2638 of 1955‑56. Inasmuch as two questions of law do arise out of the aforesaid order, we hereby draw up a statement of the case and refer it to the High Court of Judicature at Calcutta under section 66(1) of the Indian Income‑tax Act. As the questions are common, the applications are consolidated and a common statement of the case is submitted.
2. The assessee is an individual and the assessment years are 1949‑50, 1950‑51, 1951‑52 and 1952‑53 the relevant previous years having ended on 30th April 1948, 30th April 1949, 30th April 1950 and 30th April 1951, respectively.
3. The assessee is one Mr. P. J. P. Thomas. He held 750 "A" shares in J. Thomas & Co. Ltd., 8, Mission Row, Calcutta.
4. The assessee entered into an engagement to marry Mrs. Judith Knight and the engagement was announced in the papers on 3rd September 1947. On 10th December 1947, the assessee and Mrs. Judith Knight presented to the com pany an application to transfer the said 750 "A" shares to Mrs. Judith Knight. On 15th December 1947, the company transferred those shares to Mrs. Judith Knight and registered Mrs. Judith Knight as the owner of the said shares.
The relevant portion of the transfer deed runs as follows :
"I, Philip John Plasket Thomas, of 8, Mission Row, Calcutta, in consideration of my forthcoming marriage with Judith Knight of 35, Ridgeway, Kingsbury, London (herein after called the said transferee) do hereby transfer to the said transferee the 750 `A' shares numbered 1‑750 standing in my name in the books of J. Thomas & Co. Ltd., to hold to the said transferee executors, administrators and assigns, subject to the several conditions 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 the same conditions:"
5. On 18th December 19.47, the marriage was solemnised. On 26th January 1948, the fact of marriage was communi cated to the company and the name of the share‑holder was changed in the books of the company to Mrs. Judith Thomas. During the relevant period, the shares stood registered in the name of the assessee's wife and the income, in question arose to the wife of the assessee.
6. In connection with the 1951‑52 and 1952‑53 assessment of Mr. P. J. P. Thomas, the Income‑tax Officer took the view that the dividends paid by the company to Mrs. Judith Thomas during the accounting period ending 30th April 1950, and 30th April 1951, respectively were includible in the total income of P. J. P. Thomas under section 16(3)(b) of the Income -tax Act and accordingly passed orders of assessment on 27th February 1953, including the sums of Rs. 1,00,000 and Rs. 16,385 being the grossed up dividends for the two years respectively in the total income of Mr. P. J. P. Thomas. The 1949‑50 and 1950‑51 assessments of P. J. P. Thomas which had by then been already completed were re‑opened under section 34 of the Income‑tax Act and the dividends of Rs. 97,091 and Rs. 78,272 as grossed up and paid to Mrs. Judith Thomas during the accounting years ending 30th April 1948 and 30th April 1949, were assessed in the hands of Mr. P. J. P. Thomas on 17th December 1953.
7. Against the aforesaid orders, the assessee preferred appeals to the Appellate Assistant Commissioner. By a common order dated 11th May 1955, he confirmed the orders of the Income‑tax Officer holding that not only the provisions of section 16 (3) (b) but also the provisions of section 16 (3)(a)(iii) of the Act applied to the facts.
8. Against the order of the Appellate Assistant Commis sioner the assessee preferred Appeals Nos. 2635, 2636, 2637 and 2638 of 1955‑56 to the Appellate Tribunal and contended (1) that in consideration of the proposed marriage with Mrs. Judith Knight he transferred the shares to her, that she was not his wife and he was not her husband at the time of transfer of those shares, and, therefore, the provisions of section 16 (3) were not attracted ; (2) that the transfer of shares was absolute even at the time it was made and no condition was attached to the transfer, and (3) that the transfer was for adequate consideration and, therefore, section 16 (3) (a) did not apply.
9. The Appellate Tribunal by its consolidated order dated 4th April 1956, disagreed with the view of the Income‑tax Officer and the Appellate Assistant Commissioner that the provisions of section 16 (3) (b) applied but it held that the case fell within section 16 (3) (a) (iii) of the Income‑tax Act which (omitting words not necessary for the present purpose) runs as follows :
"In computing the total income of any individual for the purpose of assessment, there shall be included so much of the income of a wife . . . of such individual as arises directly or indirectly . . . from assets transferred directly or indirectly to the wife by the husband otherwise than for adequate considera tion or in connection with au agreement to live apart."
10. The Appellate Tribunal held that the consideration for the marriage was mutual between the assessee and Mrs. Judith Knight and, therefore, the same did not operate as a considera tion for the transfer of shares and the transfer of shares was not supported by any other independent consideration and much less, adequate consideration.
11. The Appellate Tribunal further held that the transfer became "effective" only after the marriage had "materialised" and otherwise the assessee would have been entitled to get back the shares from Mrs. Judith Knight and, therefore, the transfer can be construed to be a revocable transfer within the meaning of section 16 (1) (c) which runs as follows :
"In computing the total income of an assessee all 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 the Indian Income‑tax (Amendment) Act 1939 (VII of 1939) from assets remaining the property of the settlor or disponer, shall be deemed to be income of the settlor or disponer, and all income arising to any person by virtue of a revocable transfer of assets shall be deemed to be income of the transferor."
In paragraph 10 of its order, the Appellate Tribunal observed
"Though the transfer was directly to Mrs. Judith Knight it was indirectly to the wife, as unless Mrs. Judith Knight became the wife, the transfer would not become effective."
So saying, the Appellate Tribunal rejected the assessee's contention that at the time of transfer of shares Mrs. Judith Knight was not his wife and he was not her husband. The Appellate Tribunal did not accept any of the contentions of the assessee. A copy of the Appellate Tribunal's order is annexed hereto marked Exh. "A" and forms part of the statement of the case.
12. On the facts stated above the following questions of law arise and are referred to the High Court :
"(1) In the facts and circumstances of 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 could be included in the income of Mr. P. J. P. Thomas and be taxed in his hands under the provisions of section 16 (3) (a) (iii) of the Indian Income‑tax Act ?
(2) In the facts and circumstances of these cases, whether the dividends referred to above could be included in the total income of Mr. P. J. P. Thomas under the provisions of section 16 (1) (c) of the Indian Income‑tax Act ?"
13. Copies of the draft statement of the case were served on both the parties. The respondent had no suggestions to offer. The applicant made certain suggestions and they are incorporated in the statement of the case. The draft statement is finalised.
S. Alyangar and S. B. Sen for the Assesses.
E. Meyer and B. L. Pal for the Commissioner.
JUDGMENT
P. B. MUKHARJI, J.‑This income‑tax reference under section 66 (1) of the Income‑tax Act raises the two following questions of law for our decision
"In the facts and circumstances of 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 could be included in the income of Mr. P. J. P. Thomas and be taxed in his hands under the provisions of section 16 (3) (a) (iii) of the Indian Income‑tax Act ?"
In the facts and circumstances of these cases, whether the dividends referred to above could be included in the total income of Mr. P. J. P. Thomas under the provisions of section 16 (1) (c) of the Indian Income‑tax Act ?"
The Tribunal held that the transfer of shares in question in this case was hit by section 16 (3) (a) (iii) of the Income‑tax Act and also held that such transfer could be construed to be a revoc able one within the meaning of section 16 (1) (c) of the Act.
The facts giving rise to these questions of law may be briefly stated. The assessee is P. J. P. Thomas who held 750 "A" shares in J. Thomas & Co. Ltd., Calcutta. He entered into an engage ment to marry one Mrs. Judith Knight. The engagement was announced on the 3rd September 1947. The assessee and Mrs. Judith Knight on the 10th December 1947 presented to the company an application to transfer the said shares to Mrs. Judith Knight. The company transferred those shares to Mrs. Knight and registered the same in the name of Mrs. Knight on its books on the 15th December 1947. Marriage took place between the assessee and Mrs. Judith Knight, within three days after the registration, on the 18th December 1947. The fact of the marriage was communicated to the company on the 26th January 1948, and the name of Mrs. Judith Knight was rectified as Mrs. Judith Thomas in the books of the company.
It is undisputed that during the relevant period the shares stood registered in the name of the assessee's wife and the income in question arose to her as the wife of the assessee. The four accounting years with which the assessments are concerned are those ending respectively on the 30th April 1948, 30th April 1949, 30th April 1950, and 30th April 1951, and the four assessment years were 1949‑1950, 1950‑51, 1951‑52, and 1952‑1953.
It will be appropriate at this stage to set out the relevant portion of the transfer deed in respect of the above shares whose interpretation will be relevant to answer the questions stated. The relevant portion of the transfer deed runs as follows :
"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 hereby transfer the 750 "A" shares numbered 1‑750 standing in my name in the books of J. Thomas & Co. Ltd. to hold to the said transferee, executors, administrators, and assigns, subject to the several conditions 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 the same conditions,"
The main argument on behalf of the assessee on section 16(3)(a)(iii) of the Income‑tax Act is that it does not apply because Mrs. Judith Knight was not the wife of Mr. Thomas when he transferred the shares to her. In other words, it is contended on behalf of the assessee that in order to apply and attract section 16 (3) (a) (iii) of the Act, it must be a transfer to the wife as such by the husband as such at the date of the transfer.
This leads to the consideration first of section 16 (3) (a) (iii) and of the exact terms of the deed of transfer. Before setting out the provision of the statute which falls for consideration it may be useful to emphasise and consider the relevant terms of the transfer deed. The important provision in the transfer deed is the mention of the consideration as "in consideration of my forthcoming marriage with Judith Knight." Apparently, at that date Mrs. Judith Knight was either a widow or divorcee‑we are told in fact, that she was a divorcee‑and had not yet married Mr. Tomas but the fact remains that at the date of the deed of transfer, the transfer was taking place in consideration of the "forthcoming marriage" between Judith Knight and Thomas. The effect of this document is that if the consideration failed, that is, the forthcoming marriage did not take place, then Thomas would be in a position to recall the shares from Mrs. Judith Knight and all or such dividends as she might have withdrawn between the date of the deed and the failure of consideration of the marriage.
Now comes section 16 (3) (a) (iii) of the Income‑tax Act. Section 16 deals with "exemptions and exclusions in determining the total income." Subsection (3) of section 16 was added to the statute book by section 2 of the Indian Income‑tax (Amendment) Act, 1937 (IV of 1937). It reads as follows
"16. (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 . . . 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 ; . . ."
This is the relevant portion of section 16 (3) (a) (iii) with which we are concerned. On an examination of the language of this section, it is clear (1) that it relates to the computation of the total income of any individual for the purpose of assessment and (2) that the income of a wife of such individual, which arises directly or indirectly from the assets transferred directly or indirectly to the wife by the husband, with the exception of transfers for adequate consideration or in connection with an agreement to live apart, is added back to the husband's income. In other words, for the purposes of income‑tax the income of the wife in such a case becomes the income of the husband and taxable as the husband's income in the husband's hands, although the income apparently arises to the wife. It is not necessary for the purposes of this reference to go into the history of this legislation in section 16 (3) which has been sufficiently indicated by the Supreme Court in the decision of Commissioner of Income -tax v. Sodra Devi at page 626 ((1957) 32 I T R 615). The section makes, on a plain reading and interpretation of it, the following points clear, namely :
"(1) that there must be a transfer by a husband to a wife ;
(2) that the income accruing to the wife must be from assets transferred directly or indirectly to the wife by the husband ;
(3) that the transfer should be without adequate considera tion and not in connection with an agreement to live apart ; and
(4) that such income to the wife must also arise directly or indirectly from the transfer of such assets."
In order to determine whether in a particular case section 16(3)(a)(iii) of the Act applies or not, the relevant point of time must be, on the section itself, the time of computation of the total income of the individual for the purpose of assessment. Now, at the time of the computation of the total income of the husband in this case they had already married and the assessee and Mrs. Judith Knight had become husband and wife. The section does not limit any particular time as to when the transfer of assets in section 16 (3) (a) (iii) of the Act should take place. The word "transferred" in that section leaves it unqualified as to the time of the transfer. The qualifications of the words "transferred" that appear expressly on the statute are "directly or indirectly" and "to the wife by the husband". It appears to me that as the addition of the wife's income to the husband's income under this subsection is made, the relevant time of the relation ship between husband and wife which has to be considered by the taxing authorities is the time of computing of the total income of the individual for the purpose of assessment. That is how I read the opening words of section 16 (3) of the Act: "In computing the total income of any individual for the purpose of assessment."
The argument, therefore, of the assessee that because Mrs. Judith Knight was not the wife of the assessee at the time of the deed of transfer, hence section 16 (3) (a) (iii) of the Act could never apply to the assessee is, in my view, wrong, first, because the crucial date to determine the relationship between the husband and wife is the. date, when the taxing authorities are computing the total income of the husband in which time they had become husband and wife in this case and secondly, because the nature of the document in this case is such that the transfer or the dis position or the settlement of these shares can only be construed as a transfer to a person as wife and in no other capacity. The whole object and purport and purpose of this transfer of shares was by a husband to a wife. Interesting arguments were advanced to us whether the words "husband" or "wife" in section 16 (3) (a) (iii) of the Act could mean prospective husbands and prospective wives. It was the assessee's contention that the word "husband" or the word "wife" did not include prospective husband or prospective wife. They mean a legal husband and a legal wife. I am inclined to agree with that proposition that the words "husband" and "wife" must mean in this section legal husband and legal wife. For this purpose the learned counsel for the assessee relied on the decision of the Kerala High Court in The executors of the will of T. V. Krishna Aiyar v. Commissioner of Income‑tax ((1960) 38 I T R 144), where the question arose whether a concubine could come within the meaning of section 16 (3)(a)(iii) and it was held that she could not and the word "wife" meant in this section a legally wedded wife. We agree with this observa tion. This argument, however, is based on the confusion regard ing the nature of the deed in this particular case and the time when it fell to be construed by the taxing authorities, which was after the marriage had taken place.
The next important point for consideration under sec tion 16(3)(a)(iii) of the Act is the question of "adequate considera tion." On behalf of the assessee reliance has been placed on a number of decisions which may be briefly reviewed. The first is the well known decision of the Patna Full Bench in Rai Bahadur H. P. Banerjee v. Commissioner of Income‑tax ((1941) 9 I T R 137). That case held that all transfers by a husband to his wife of assets otherwise than for adequate consideration covered all transfers in the nature of gifts or transfers made purely on the ground of natural love and affection. The point of the decision was based on the word "consideration" being construed by the Full Bench of the Patna High Court as "valuable consideration" and not merely "good consideration" such as natural love and affection. Many reasons were put forward by the Patna Full Bench why the word "con sideration" should be so construed. One was the definition of the word "consideration" in the Contract Act. The other one was the use of the words "natural love and affection" in section 25 of the Contract Act and the particular context of section 25 of the Contract Act. The third was that even if it could be assumed that natural love and affection amounted to consideration within the meaning of section. 16 (3) (a) (iii) of the Income‑tax Act, it could not come under the words "adequate consideration" within the meaning of that section. These reasons will be found in tile judgment of the Full Bench delivered by Harries, C. J. at pages 14 7 to 149 and in the observations of Manoharalal. J., at pages 151 to 154 of the Patna report which I have already quoted.
The next case is one of the Lahore High Court, In re Sardarni Narayan Kaur ((1943) 11 I T R 488), where the Lahore High Court took the same view of interpretation of the expression "adequate consideration" in section 16 (3) (a) (iii) at pages 452‑53 of the report.
The next case is Tulsidas Kilachand v. Commissioner of Income‑tax ((1958) 33 I T R 383), where the Bombay High Court took the same view that the words "adequate consideration" in section 16 (3)(b) did not include within their scope natural love and affection.
Prima facie all these cases are against the assessee. But what is contended on behalf of the assessee is that these cases are dis tinguishable on the ground that they all related to cases of husbands and wives and not one of them related to a case of a prospective husband and a prospective wife, as in the instant case before us. Therefore, it was contended on behalf of the assessee that while natural love and affection might not be included in the words "adequate consideration" under section 16 (3) (a) (iii), marriage itself could be an adequate consideration and a valuable consideration. In other words, the essence of the assessee's point of contention is that before marriage a prospective wife can stipulate for monetary consideration as valuable consideration for her agreeing to marry. There is nothing wrong in a woman, specially in the case of a widow or a divorcee, stranded once, to make sure that before she entered marriage again she would like to secure herself financially. In that case it is contended with considerable force on…
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