Case: Tulsidas Kalichand &amp; Others Vs. Commissioner of Income Tax, Bombay City I

2. The assessment year under consideration is 1952-53, and the previous year, the Calendar year, 1951. In that year, Mr. Tulsidas Kilachand, one of the four appellants, made a declaration of trust in favour of his wife, a portion of which may be quoted hereI, Tulsidas Kilachand ........ hereby declare that I hold 244 shares of Kesar Corporation Ltd. and 120 shares of Kilachand Devchand and Co., Ltd ............... upon trust to pay the income thereof to my wife Vimal for a period of seven years from the date hereof or her death (whichever event may be earlier) and I hereby declare that this trust shall not bethe year of account, a sum of Rs. 30,404 was received as dividend income on those shares, and the assessee contended that this income, after being grossed up, was not liable to be included in his total income, in view of the third proviso to S. 16(1)(c) of the Indian Income-tax Act. The Income-tax Officer did not accept this contention, and though the assessment order is not before us, we gather from the statement of the case that the reason he gave was that the income had accrued to or had arisen in the hands of Mr. Tulsidas Kilachand and had been paid by him to his wife. The Income-tax Officer held that the words of the proviso "income arising to any person by virtue of a settlement or disposition" did not apply to this income.3. On appeal, the Appellate Assistant Commissioner held that the case was governed by S. 16(3)(b), and need not be considered under the third proviso to S. 16(1)(c) of the Act. It appears to have been conceded before him that if the former provision applied, the proviso would not save the income from being assessed in the hands of Mr. Tulsidas Kilachand. The appeal was dismissed.4. In the appeal before the Tribunal, Mr. Tulsidas Kilachand again relied upon the third proviso to S. 16(1)(c), and contented that the case was not governed by S. 16(3)(b) and that dividend income could not be included in his assessment. The Tribunal came to the conclusion that the case was covered either by S. 16(3)(a)(iii) or by S. 16(3)(b), and that the income from the shares was, therefore, liable to be included in the income of Mr. Tulsidas Kilachand. The Tribunal, however, raised and referred the following question under S. 66(1) of the Act to the High Court of Bombayon a true construction of the deed of declaration of trust dated 5th March, 1951, the net dividend income of Rs. 30,404 on 120 shares of Kilachand Devchand and Co., Ltd. and 244 shares of Kesar Corporation Ltd. held under trust by the assessee for the benefit of his wife was income liable to be included in the total income of the assessee?"The High Court came to the conclusion that, though S. 16(1)(c) was not satisfied in view of the third proviso, S. 16(3)(b) was applicable to the case, and answered the question in the affirmative.

Court's reasoning:
That case thus has no application to the facts of the present case. Where the disposition is differently made.8. The disposition here is for a period of seven years or the life of the settlee, whichever is shorter. During that period or the life of the settlee, Mr. Tulsidas Kilachand has bound himself upon trust to pay the dividends to his wife and not to revoke the settlement. The intention is obviously to put this case within the third proviso to S. 16(1)(c), because cl. (c) does not apply to any income arising to any other person provided the disponer derives no direct or indirect benefit, even though the assets remain his property. If it were only a question of the application of the proviso, this disposition would exempt. But by the deed of trust, the shares do not remain the property of the settlor. Section 16(1)(c) has, therefore, no application, and the proviso is not attracted.The contention that there was no transfer at all in this case is not sound. The sharesw were previously held by Mr. Tulsidas Kilachand for himself. After the declaration of trust by him, they were held by him not in his personal capacity but as a trustee. No doubt, under Ss. 5 and 6 of the Indian Trusts Act if the declarer of the trust is himself the trustee also, there is no need that he must transfer the property to himself as trustee; but the law implies that such a transfer has been made by him, and no overt act except a declaration of trust is necessary. The capacity of the declarer of trust and his capacity as trustee are different, and after the declaration of trust, he holds the assets as a trustee. Under the Transfer of Property Act, there can be a transfer by a person to himself or to himself and another person or persons.In our opinion, there was, in this case, a transfer by Mr. Tulsidas Kilachand to himself as a trustee, though there was no formal transfer.12. The assessee also stresses the words "any person or association of persons" in S. 16(3)(b), and contends that such a person must be other than the husband, who transfers. The words "any person" are wide enough to include the husband, when he transfers property to himself in another capacity. The change of capacity makes him answer the description "any person". In our opinion, this deed must be regarded as involving a transfer by the husband to a trustee, and even though the husband is the same individual in his capacity as a trustee he must be regarded as a person distinct from the transferor. In our opinion, section 16(3)(b) covers thewords "adequate consideration" denote consideration other than mere love and affection, which, in the case of a wife, may be presumed. When the law insists that there should be "adequate consideration" and not "good consideration", it excludes mere love and affection. They may be good consideration to support a contract; but adequate consideration to avoid tax is quite a different thing. To insist on the other meaning is really to say that consideration must only be looked for, when love and affection cease to exist.14. In our opinion, this case falls within the special rules concerning wife and minor child, laid down in S. 16(3)(b) and not within the third proviso to S. 16(1)(c). It must thus be held that there was a transfer of the assets to the husband-trustee for the benefit of the wife. The answer given by the High Court was thus correct.