Case: Commissioner Of Income-Tax, Culcutta Vs. Keshavlal Lallubhai Patel

used in the technical sense or in the popular sense? And, secondly, what is comprehended in the word indirectly?9. Some assistance is derived in ascertaining the meaning of the word transfer by looking at the language of S. 16 (1)(c). In that clause, the legislature uses the words settlement, disposition and transfer, and in the expression settlement or disposition is included any disposition, trust, covenant, agreement or arrangement. In this clause, the word transfer is clearly used in the strict sense. If the legislature were minded to include an arrangement or agreement, not amounting to transfer, in S. 16(3)(a)(iii), it could have used these words. It seems to us that the word transfer has been used in the strict sense and not in the sense of including every means by which the property may be passed from one to another. This conclusion is reinforced by the consideration that, as observed by this Court in Philip John Plasket Thomas v. Commr. of Income-tax, Calcutta, (1963) 49 ITR (SC) 97 : (AIR 1964 SC 587 ) S.16(3) "creates an artificial income and must be construed strictly".10. Coming now to the expression directly or indirectly there does not seem to be any doubt that the legislature meant to rope in indirect transfers. One example is furnished by Commr. of Income-tax v. C. M. Kothari, (1963) 49 ITR (SC) 107 : (AIR 1964 SC 331 ). But there must still be a transfer of assets. The word indirectly does not destroy the significance of the word transfer.11. Mr. Rajagopala Sastri relies strongly on the decision of this Court in (1963) 49 ITR (SC) 107 : (AIR 1964 SC 331 ). But in our opinion that case is clearly distinguishable and does not assist us in this case. In that case, C. M. Kothari and his sons were both desirous of putting Rs. 30,000 in the hands of their wives to enable them to buy a share in a house. Instead of directly gifting the amount, they hit upon the following device : C. M. Kothari would gift Rs. 30,000 to the daughter-in-law and the son would gift Rs. 30,000 to the mother. This Court held that it was a palpable device and a trick and the two cross transactions amounted to an indirect transfer within S.16(3)(a)(iii). In effect, this Court held that the father used his son as a conduit pipe and the son used his father as a conduit pipe to gift Rs. 30,000 each. Mr. Sastri relies on the words "chain of transfers" used by Hidayatullah, J., in the following sentence :"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."But in the context they refer to the cross-gifts, if we may so call the two gifts of Rs. 30,000 each. These are transfers in the strict sense of the term. In the present case there are no cross-gifts. We have, on the other hand, in this case, a throwing of property into the hotchpotch and a partition of the JHF property. As will be pointed out later, the latter at any rate is not a transfer at all.12. This takes us to the facts of this case, and the question arises whether there is any transfer of assets in the strict sense. There is some difference of opinion whether the act of throwing self-acquired property into the hotchpotch is a transfer or not. We need not settle this controversy in this case. Let us assume that it is. But, is a partition of joint Hindu family property a transfer in the strict sense? We are of the opinion that it is not this was so held in Gutta Radhakrishnayya v. Gutta Sarasamma, ILR (1951) Mad 607 : (AIR 1951 Mad 213 ) Subba Rao, J., then a Judge of the Madras High Court, after examining several authorities, came to the conclusion that "partition is really a process in and by which a joint enjoyment is transformed into an enjoyment in severalty. Each one of the sharer had an antecedent title and therefore no conveyance is involved in the process as a conferment of a new title is not necessary". The Madras High Court again examined the question in M. K. Stremann v. Commr. of Income Tax, Madras, (1961) 41 ITR 297 : (AIR 1962 Mad 26 ) with reference to S. 16 (3)(a)(iv). It observed that "obviously no question of transfer of assets can arise when all that happens is separation in status, though the result of such severance in status is that the property hitherto held by the coparcenary is held thereafter by the separated members as tenants-in-common. Subsequent partition between the divided members of the family does not amount either to a transfer of assets from that body of the tenants-in-common to each of such tenants-in-common."13. The Punjab High Court came to the same conclusion in Jagannath v. State of Punjab, 64 Pun LR 22. Agreeing with these authorities, we hold that when the joint Hindu family property was partitioned, there was no transfer of assets within S. 16 (3)(a)(iii) and (iv) to the wife or the minor son.14. Mr. Rajagopala Sastri finally contended that we must look at the substance of the transaction. But as pointed out by Lord Normand in Potts Executors. v. Commr. of lnland Revenue, (1952) 32 Tax Cas 211 "the Court is not entitled to say that for the purposes of taxation the actual transaction is to be disregarded as "machinery" and that the substance or equivalent financial results are the relevant consideration. It may indeed be said that if these loose principles of construction had been liberally applied, they would in many instances have been adequate to deal with tax evasion and there would have been less frequent cause for the intervention of Parliament."

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

Explanation:
0[ds]9. Some assistance is derived in ascertaining the meaning of the word transfer by looking at the language of S. 16 (1)(c). In that clause, the legislature uses the words settlement, disposition and transfer, and in the expression settlement or disposition is included any disposition, trust, covenant, agreement or arrangement. In this clause, the word transfer is clearly used in the strict sense. If the legislature were minded to include an arrangement or agreement, not amounting to transfer, in S. 16(3)(a)(iii), it could have used these words. It seems to us that the word transfer has been used in the strict sense and not in the sense of including every means by which the property may be passed from one to another.s takes us to the facts of this case, and the question arises whether there is any transfer of assets in the strict sense.There is some difference of opinion whether the act of throwing self-acquired property into the hotchpotch is a transfer or not. We need not settle this controversy in this case. Let us assume that it is. But, is a partition of joint Hindu family property a transfer in the strict sense? We are of the opinion that it is not this was so held in Gutta Radhakrishnayya v. Gutta Sarasamma, ILR (1951) Mad 607 : (AIR 1951 Mad 213  ) Subba Rao, J., then a Judge of the Madras High Court, after examining several authorities, came to the conclusion that "partition is really a process in and by which a joint enjoyment is transformed into an enjoyment in severalty. Each one of the sharer had an antecedent title and therefore no conveyance is involved in the process as a conferment of a new title is not necessary". The Madras High Court again examined the question in M. K. Stremann v. Commr. of Income Tax, Madras, (1961) 41 ITR 297   : (AIR 1962 Mad 26  ) with reference to S. 16 (3)(a)(iv). It observed that "obviously no question of transfer of assets can arise when all that happens is separation in status, though the result of such severance in status is that the property hitherto held by the coparcenary is held thereafter by the separated members as tenants-in-common. Subsequent partition between the divided members of the family does not amount either to a transfer of assets from that body of the tenants-in-common to each of such tenants-in-common."13. The Punjab High Court came to the same conclusion in Jagannath v. State of Punjab, 64 Pun LR 22. Agreeing with these authorities, we hold that when the joint Hindu family property was partitioned, there was no transfer of assets within S. 16 (3)(a)(iii) and (iv) to the wife or the minor son.14.Mr. Rajagopala Sastri finally contended that we must look at the substance of the transaction.But as pointed out by Lord Normand in PottsExecutors. v. Commr. of lnland Revenue, (1952) 32 Tax Cas211 "the Court is not entitled to say that for the purposes of taxation the actual transaction is to be disregarded as "machinery" and that the substance or equivalent financial results are the relevant consideration. It may indeed be said that if these loose principles of construction had been liberally applied, they would in many instances have been adequate to deal with tax evasion and there would have been less frequent cause for the intervention ofin the context they refer to theif we may so call the two gifts of Rs. 30,000 each. These are transfers in the strict sense of the term. In the present case there are noWe have, on the other hand, in this case, a throwing of property into the hotchpotch and a partition of the JHF property. As will be pointed out later, the latter at any rate is not a transfer at all.