Case: S.P. Jaiswal and Ors Vs. Commissioner of Income Tax

balance amount in deposits and the question for consideration was whether the income derived by the wife from the said deposits and shares had to be assessed in the hands of the assessee under Section 16(3)(1)(iii) of the Income-tax Act, 1922. This Court held that the transfers in question were direct transfers and the income realised by the wife was income indirectly received in respect of the transfer of cash directly made by the assessee, and therefore, there was a proximate connection between the income and the transfer of assets made by the assessee and as such the said income has to be included in the income of the assessee under Section 16(3)(a)(iii) of the Income-tax Act, 1922. 12. Mr. Rammurthi also relied upon the decision in the case of Commissioner of Income-tax v. Smt. Pelleti Sridevamma [1995]216ITR826(SC) , but in the said case Clause (iv) of Section 64(1) of the Income Tax Act, 1961 came up for consideration as to whether in computing the total income of an individual all income which arises directly or indirectly to a minor child can be included or not. It is in that connection this Court had explained the true meaning of the expression that the income must be proximate as observed in Prem Bhai Parekhs case, [1970]77ITR27(SC) : [1970]77ITR27(SC) . But in the case in hand we are not really concerned with Section 64(1) of the Act and the case is, therefore, of no direct assistance. 13. The assessee in course of his argument had also contended that the interest income which children derived from the amount of loan transaction in their favour have already been taxed in their hands, and therefore, the same cannot be taxed twice. Mr. Rammurthi, however, repelling the aforesaid contention had urged that under the Income-tax Act the Assessing Officer has the right to tax the right person namely the person who is liable to be taxed according to law with respect to a particular income and merely because a wrong person has been taxed with respect to a particular income the Assessing Officer is not precluded from taxing the right person with respect to that income. In this connection, he placed reliance on the observation of this Court in the case of Income-tax Officer v. Ch. Atchaiah [1996]218ITR239(SC) , wherein this Court observed as under: We are of the opinion that under the present Act, the Income-tax Officer has no option like the one he had under the 1922 Act. He can, and he must, tax the right person and the right person alone. By right person, we mean the person who is liable to be taxed, according to law, with respect to a particular income. The expression wrong person is obviously used as the opposite of the expression right person. Merely because a wrong person is taxed with respect to a particular income, the Assessing Officer is not precluded from taxing the right person with respect to that income. This is so irrespective of the fact which course is more beneficial to the Revenue. 14. In view of the aforesaid decision of this Court, the assessees contention that the children of the assessee have been taxed in respect of the income accruing from the amount is of no relevance. It may be stated at this stage that Mr. Rammurthi, appearing for the Revenue fairly stated that there is no bar for a father to advance loan to his children for carrying on their business and such loan or the income arising from such loan cannot be taxed in the hands of the father but he reiterated that in the case in hand in fact no loan had been advanced and it was merely a paper device invented by the assessee to reduce the tax liability. It would be apt. at this stage to quote the observations of Lord Macmillan in the case of Chamberlain v. Inland Revenue Commissioners (1943) 25 Tax Cas. 317, 329. This legislation is designed to overtake and circumvent a growing tendency on the part of taxpayers to endeavour to avoid or reduce tax liability by means of settlement. Stated quite generally, the method consisted in the disposal by the taxpayer of part of his property in such a way that the income should no longer be receivable by him, while at the same time he retained certain powers over, or interests in, the property or its income. The Legislatures counter was to declare that the income of which the taxpayer had thus sought to disembarrass himself should, notwithstanding, be treated as still his income and taxed in his hands accordingly. 15. And this Court in the case of Tulsidas Kilachand and Ors. v. Commissioner of Income-tax, Bombay City [1961]42ITR1(SC) had held that the aforesaid observations apply to the provisions of Indian Income Tax Act and Section 16 thereof which has been enacted with the intent and for the same purpose. Chapter V of the Indian Income Tax Act, 1961 is also designed for the same purpose, and therefore, the aforesaid observations in Chamberlains case (supra) would also apply. 16. Admittedly, the transaction between the assessee and the partners of the firm constituted by his children, and the so-called return of money on 1.4.1963 in the books of accounts of the firm of children and re-transfer of the same amount in the names of the children in the books of accounts of the assessees firm is nothing but a paper device designedly made to reduce the tax burden of the assessee and by no stretch of imagination can be held to be a loan transaction by the assessee in favour of his children. This is also apparent from the inconsistent stand taken by the children in the affidavits filed in this Court. Such a paper transaction intended merely to reduce the tax liability and cannot be held to be a loan nor the High Court in the circumstances can be said to have exceeded its advisory jurisdiction in answering the question posed.

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

Explanation:
0[ds]10. The assessee also relied upon the decision of this Court in the case of Commissioner of Income-tax, Punjab, Jammu And Kashmir, and Himachal Pradesh v. 5. Raghbir Singhwherein the question for consideration was whether the assessee who had created a trust in respect of the shares which he had obtained in the partition of the family could be taxed on the income derived from such settlement under the provisions of the first proviso to Section 16(1)(c) of the Indian Income Tax Act, 1922 and this Court came to the conclusion that the assessee not having obtained any benefit from the trust and the trust having been created to discharge an obligation that was on the assessee, the assessee could not have been taxed under Section 16(1)(c) of the Indian Income Tax Act, 1922 as the income from shares would not be deemed to be the income of the assessee. The aforesaid conclusion of this Court was on account of the terms and conditions of the trust deed and it was found that the assets and the income were unmistakably impressed with the obligations arising out of the trust deed. We fail to understand how this decision is of any assistance to the assessee in the case in hand.in the case of Commissioner of Income-tax v. Smt. Pelleti Sridevamma [1995]216ITR826(SC) ,but in the said case Clause (iv) of Section 64(1) of the Income Tax Act, 1961 came up for consideration as to whether in computing the total income of an individual all income which arises directly or indirectly to a minor child can be included or not. It is in that connection this Court had explained the true meaning of the expression that the income must be proximate as observed in Prem Bhai Parekhs case, [1970]77ITR27(SC) : [1970]77ITR27(SC) . But in the case in hand we are not really concerned with Section 64(1) of the Act and the case is, therefore, of no direct assistance.14. In view of the aforesaid decision of this Court, the assessees contention that the children of the assessee have been taxed in respect of the income accruing from the amount is of no relevance. It may be stated at this stage that Mr. Rammurthi, appearing for the Revenue fairly stated that there is no bar for a father to advance loan to his children for carrying on their business and such loan or the income arising from such loan cannot be taxed in the hands of the father but he reiterated that in the case in hand in fact no loan had been advanced and it was merely a paper device invented by the assessee to reduce the tax liability. It would be apt. at this stage to quote the observations of Lord Macmillan in the case of Chamberlain v. Inland Revenue Commissioners (1943) 25 Tax Cas. 317, 329.This legislation is designed to overtake and circumvent a growing tendency on the part of taxpayers to endeavour to avoid or reduce tax liability by means of settlement. Stated quite generally, the method consisted in the disposal by the taxpayer of part of his property in such a way that the income should no longer be receivable by him, while at the same time he retained certain powers over, or interests in, the property or its income. The Legislatures counter was to declare that the income of which the taxpayer had thus sought to disembarrass himself should, notwithstanding, be treated as still his income and taxed in his hands accordingly.15. And this Court in the case of Tulsidas Kilachand and Ors. v. Commissioner of Income-tax, Bombay City [1961]42ITR1(SC) had held that the aforesaid observations apply to the provisions of Indian Income Tax Act and Section 16 thereof which has been enacted with the intent and for the same purpose. Chapter V of the Indian Income Tax Act, 1961 is also designed for the same purpose, and therefore, the aforesaid observations in Chamberlains case (supra) would also apply.16. Admittedly, the transaction between the assessee and the partners of the firm constituted by his children, and the so-called return of money on 1.4.1963 in the books of accounts of the firm of children and re-transfer of the same amount in the names of the children in the books of accounts of the assessees firm is nothing but a paper device designedly made to reduce the tax burden of the assessee and by no stretch of imagination can be held to be a loan transaction by the assessee in favour of his children. This is also apparent from the inconsistent stand taken by the children in the affidavits filed in this Court. Such a paper transaction intended merely to reduce the tax liability and cannot be held to be a loan nor the High Court in the circumstances can be said to have exceeded its advisory jurisdiction in answering the question posed.