Case: Col. H.H. Sir Harinder Singh Vs. Commissioner of Income Tax, Punjab and Haryana, Jammu and Kashmir and Himachal Pradesh

that on a true construction of cl. (b) of S. 16 (3) of the Act ,as no benefit has accrued to the minor daughter in the year of account, the sum of Rs. 410/- could not be included in the total income of the assessee. This Court agreed with the view of the High Court. 24. It is clear from the above two decisions that when a trust is created, though the income is in the hands of the trustees, the underlying principle of cl. (b) of S. 16 (3) is that so much of the income as represents the shares of the wife or the minor child, as the case may be, is to be included in computing the total income of the husband or the father. This is consistent with the scheme of S. 16 and in particular, sub-section (3) thereof, which is intended to foil an individuals attempt to avoid or reduce the extent of tax, by transferring his assets to his wife or minor child. From the above discussion it follows, that the second contention of Mr. Puri cannot also be accepted. 25. Now coming to the second question, referred to the High Court, which relates to the reduction claimed by the assessee of the annual letting value of Faridkot House in Diplomatic Enclave, New Delhi, we have already pointed out that the said claim has been rejected by the Revenue, as well as by the High Court. It is admitted by the Revenue as well as the assessee, that the claim of the appellant in this regard in respect of the residential house in Lytton Road, New Delhi, has been allowed by the Revenue. The question regarding the house in Diplomatic Enclave arises only for the assessment year 1960-41. The Income-tax Officer has not given any reason for rejecting the claim of the assessee. The Appellate Assistant Commissioner has held that as the appellant has been granted the usual allowance in respect of Faridkot House in Lytton Road, he is not entitled to any further allowance in respect of another house. In fact the officer has said that both the houses have to be treated as one unit for purposes of computing the annual letting value. But there is one finding, in the order of the Appellate Assistant commissioner, which is to be noted, namely, that the houses in Lytton Road and Diplomatic Enclave are used and occupied by the assessee for residential purposes. The Income-tax Appellate Tribunal has not differed from the finding of the Appellate Assistant Commissioner that both the houses are used and occupied for residential purposes by the assessee. But the Appellate Tribunal has also taken the view that the assessee is entitled to the necessary allowance only in respect of one residential house, under the first proviso to S. 9 (2) and that the second proviso thereto does not help the assessee. According to the Appellate Tribunal, the second proviso to S. 9 (2) of the Act will take in cases where the property, in the occupation of an assessee for purposes of residence, consists of more than one residential houses but so situated as to form one property. The Appellate Tribunal has given an illustration of a palace or a bungalow with various out-houses. In such a case, according to the Appellate Tribunal, all the buildings situated in one compound are to be treated collectively as one property, for the purpose of the first proviso. In this view, the Appellate Tribunal also rejected the claim of the assessee in respect of the house in Diplomatic Enclave. 26. The High Court has very summarily rejected the claim of the appellant in this regard. After referring to the contention of the assessee that the second proviso to S. 9 (2) clearly indicates that the first proviso contemplates an assessee having more than one residential house it has held that the said contention cannot be accepted. 27. Mr. K. C. Puri, learned counsel for the appellant has urged that the finding of the Appellate Assistant Commissioner that the two houses in Lytton Road and Diplomatic Enclave are used for residential purposes by the assessee, has not been departed from by either the Appellate Tribunal or the High Court. On this basis, Mr. Puri urged that a reading of the first and second provisos to section 9 (2) of the Act clearly shows that the allowance, to an assessee, is not confined only to one residential house, as held by the Revenue and the High Court. A reading of the second proviso to sub-section (2) clearly, in our opinion, indicates that the first proviso will take in more than one residential house, if the assessee is able to establish that all the houses are occupied by him for purposes of his own residence. So far as this is concerned, we have already pointed out that the finding is in favour of the assessee. 28. Mr. B. Sen, learned counsel for the Revenue, found considerable difficulty in supporting the order of the High Court, answering question No. 2 in the negative and against the appellant. But he attempted to argue that the question, whether the assessee is actually occupying the house in Diplomatic Enclave also for purposes of his own residence, has not been investigated. We are not inclined to accept this contention of Mr. Sen. We have already referred to the finding of the Appellate Assistant Commissioner to the effect that both the houses - one in Lytton Road and the other in Diplomatic Enclave - are used and occupied by the appellant for purposes of his own residence. This finding has not been disturbed either by the Appellate Tribunal or by the High Court. If so, on a proper construction of the first proviso to sub-section (2) read with its second proviso clearly supports the contention of Mr. Puri that the view of the Revenue and the High Court that the assessee can claim allowance only for one residential house, is erroneous.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]17. Taking the first contention of Mr. Puri, according to him the corpus of the property covered by the trust (in this case the Government Securities) should have been transferred for the benefit of the wife or the minor child. The minor daughter, in this case, was not entitled to the corpus of the trust property, namely, the securities. We understood Mr. Puri to urge that S. 16 (3) (b) of the Act will apply only to those cases where ultimately the corpus of the trust property is also transferred to the wife or the minor child, as the case may be. We have no hesitation in rejecting this contention of Mr. Puri. The provisions of S. 16 (3) (b) are very clear and the only requirement, so far as this aspect is concerned, is that the assets must be transferred to any person or association of persons and that transfer of assets must be for the benefit of the wife or the minor child or both. In this connection it is pertinent to note the wordings of S. 16 (3) (a) (iii) and Section 16 (3) (a) (iv). The former provision clearly refers to assets transferred directly or indirectly to the wife by the husband and the latter provision refers to assets transferred directly or indirectly to the minor child not being a married daughter, but in cl. (b) of S. 16 (3) the transfer of assets is not to the wife or the minor child or both but to any person or association of persons. Therefore, it is clear that when the legislature intended to provide for a direct transfer of assets either to the wife or to the minor child, it has used the expressions as are found in S. 16 (3) (a) (iii) and S. 16 (3) (a) (iv). The different phraseology used in cl. (b) of S. 16 (3) makes it clear that the transfer of assets need not be to the wife or the minor child. Nor does the said clause require that the corpus of the property, so transferred to any person or association of persons, should ultimately vest in the wife or the minor child. Mr. Puri quite frankly admitted that there is no decision to support his contention. On the other hand, we find that there is a decision of the Bombay High Court in Commissioner of Income-tax, Bombay v. Mahomed Yusuf Ismail, 1944-12 ITR 8  = (AIR Bom 160) which is against the contention advanced by Mr. Puri. In that decision one of the questions that arose for consideration was whether the income received by the wife of the assessee under a deed of wakf can be included in the assessment of the husband under S. 16 (3) (b). The assessee therein had executed a deed of wakf. Under the terms of the said deed, the assessees wife was to get 21% of the income accruing from the property which was the subject of the wakf deed. It was contended that as no part of the assets or the corpus had been transferred to the wife, the income received by the latter cannot be included in the taxable income of her husband, the assessee. A Division Bench of the Bombay High Court rejected this contention and held that as assets had been transferred, under the wakf deed, to the trustees and as the transfer was beneficial to the wife and that as she had got 21 % of the income from the properties, Section 16 (3) (b) of the Act was properly applied by the Revenue. We are in agreement with this decision of the Bombay High Court and as such the first contention of Mr. Puri will have to be rejected18. Coming to the second contention, according to Mr. Puri under S. 16 (3) (b) of the Act, only so much of the income of the person or association of persons to whom the property has been transferred for the benefit of the wife or the minor child and not the income received by the minor that can be included in the taxable income of the assessee According to the counsel, what has been done by the Revenue is to include in the assessment of the appellant, the income received by the minor daughter in the relevant accounting years. That procedure is opposed to S. 16 (3) (b) of the Act. Here again, the contention of the learned counsel cannot be accepted. If this contention is accepted, the position will be that the Revenue might have included the whole of the income arising from the assets transferred to the Grindlays Bank and not merely that portion of the income which has been received by the minor daughter. Such a construction is totally opposed to the clear provisions of the scheme of Section 16 (3) and in particular the clear wording of cl. (b) of S. 16 (3) of the Act19. From a plain reading of S. 16 (3) (b) it is clear that what is to be included, in computing the total income of the assessee, is that part of the income of the trust which is received for the benefit in this case of the minor daughter. It is the share income which has accrued to or has been received by the minor daughter under the trust deed, in the relevant accounting year, that has to be included in the total income of her father, the assessee. The expression "so much of the income" occurring in this clause also makes it clear that the said provision relates to the share income of the minor daughter, in this case, and not that of the Grindlays Bank, the trustee20. Section 16, sub-section (3) of the Act provides specifically for assets transferred to the wife or the minor child. The income from assets transferred to the wife is still to be included in the total income of the husband, 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)). Again 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 the husband, for the benefit of his wife has to be included in the husbands taxable income. (vide sub-section (3) (b)). The same sub-section (3) of S. 16 of the Act provides for the income, from the assets transferred by a father to his minor child, to be included in the total income of the father, if the assets have been transferred, directly or indirectly to the minor child, not being a married daughter, otherwise than for adequate consideration (vide sub-section (3) (a) (iv)). Again, 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 the father, for the benefit of his minor child has to be included in the fathers taxable income. (vide sub-section (3) (b)). The above is the scheme of S. 16 (3) of the Act. It must also be noted that under S. 16 (3) (a) sub-clauses (iii) and (iv) and also clause (b) of sub-section (3) the transfer contemplated thereunder should have been "otherwise than for adequate consideration". The words "adequate consideration" denote consideration other than mere love and affection. There is no controversy, in the case before us, that the transfer, by the of trust, is one "otherwise than for adequate consideration". It is true that when assets are transferred to the trustees, as in the case before us, there was income in the hands of the trustees and the latter were liable to pay tax thereon. That, however, is not the question before us. The question before us is whether the income, representing the share of the minor daughter, which has accrued in the hands of the trustee, or was received by the said minor could be included in the total income of the appellant under cl. (b) of sub-s. (3) of S. 1621. For a proper appreciation of cl. (b) of S. 16 (3), in our opinion, that clause must be read in the context of the scheme of S. 16; and the two clauses (a) and (b) of sub-section (3) of S. 16, must be read together. So read, the reasonable interpretation to be placed on cl. (b) appears to be that the scheme of the section requires that an assessee can only be taxed, on the income, from a trust fund created for the benefit of his wife or minor child or both, provided that in the year of account, the wife or the minor child, or both, have derived some benefit under the trust deed. That is, the wife or the minor child, either has received the income or the income has accrued to them or they have a beneficial interest, in the income in the relevant year of account. From this it follows, that if no income accrues or benefit is derived and there is no income at all, so far as the minor child, in the case before us, is concerned, then it is not consistent with the scheme of section 16, that the income or the benefit which is non-existent, so far as the minor child is concerned, is to be included in the income of his or her father. In the case before us, there is no controversy that the minor daughter has received the income in all the relevant accounting years24. It is clear from the above two decisions that when a trust is created, though the income is in the hands of the trustees, the underlying principle of cl. (b) of S. 16 (3) is that so much of the income as represents the shares of the wife or the minor child, as the case may be, is to be included in computing the total income of the husband or the father. This is consistent with the scheme of S. 16 and in particular, sub-section (3) thereof, which is intended to foil an individuals attempt to avoid or reduce the extent of tax, by transferring his assets to his wife or minor child. From the above discussion it follows, that the second contention of Mr. Puri cannot also be acceptedIt is admitted by the Revenue as well as the assessee, that the claim of the appellant in this regard in respect of the residential house in Lytton Road, New Delhi, has been allowed by the Revenue. The question regarding the house in Diplomatic Enclave arises only for the assessment year 1960-41. The Income-tax Officer has not given any reason for rejecting the claim of the assessee. The Appellate Assistant Commissioner has held that as the appellant has been granted the usual allowance in respect of Faridkot House in Lytton Road, he is not entitled to any further allowance in respect of another house. In fact the officer has said that both the houses have to be treated as one unit for purposes of computing the annual letting value. But there is one finding, in the order of the Appellate Assistant commissioner, which is to be noted, namely, that the houses in Lytton Road and Diplomatic Enclave are used and occupied by the assessee for residential purposes. The Income-tax Appellate Tribunal has not differed from the finding of the Appellate Assistant Commissioner that both the houses are used and occupied for residential purposes by the assessee. But the Appellate Tribunal has also taken the view that the assessee is entitled to the necessary allowance only in respect of one residential house, under the first proviso to S. 9 (2) and that the second proviso thereto does not help the assessee. According to the Appellate Tribunal, the second proviso to S. 9 (2) of the Act will take in cases where the property, in the occupation of an assessee for purposes of residence, consists of more than one residential houses but so situated as to form one property. The Appellate Tribunal has given an illustration of a palace or a bungalow with various out-houses. In such a case, according to the Appellate Tribunal, all the buildings situated in one compound are to be treated collectively as one property, for the purpose of the first proviso. In this view, the Appellate Tribunal also rejected the claim of the assessee in respect of the house in Diplomatic Enclave26. The High Court has very summarily rejected the claim of the appellant in this regard. After referring to the contention of the assessee that the second proviso to S. 9 (2) clearly indicates that the first proviso contemplates an assessee having more than one residential house it has held that the said contention cannot be acceptedA reading of the second proviso to sub-section (2) clearly, in our opinion, indicates that the first proviso will take in more than one residential house, if the assessee is able to establish that all the houses are occupied by him for purposes of his own residence. So far as this is concerned, we have already pointed out that the finding is in favour of the assesseeWe have already referred to the finding of the Appellate Assistant Commissioner to the effect that both the houses - one in Lytton Road and the other in Diplomatic Enclave - are used and occupied by the appellant for purposes of his own residence. This finding has not been disturbed either by the Appellate Tribunal or by the High Court. If so, on a proper construction of the first proviso to sub-section (2) read with its second proviso clearly supports the contention of Mr. Puri that the view of the Revenue and the High Court that the assessee can claim allowance only for one residential house, is erroneous.