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

2. The respondent, Keshavalal Lallubhai Patel, hereinafter referred to as the assessee, was assessed till the assessment year 1952-53 (Accounting year ending March 31, 1952) as an individual. On April 18, 1951, he swore an affidavit before the Deputy Nazir, District Court, Ahmedabad, throwing all his self-acquired properties, mentioned in the affidavit, into the common hotchpotch of the Hindu undivided family, consisting of himself and his two sons. The assessee had a wife and two sons, one a major and the other a minor. However, no entries in the books were passed. On June 12, 1951, an oral partition was effected between the several members of the Hindu undivided family, and consistent with this partition, entries in the books were made. A joint declaration was made by the assessee, his wife and the major son on June 26, 1951, before the District Court. Later, a joint statement was made on December 5, 1951, before the Revenue Court. Properties were transferred thereafter in accordance with this arrangement to the means of the several members of the family.3. For the assessment year 1952-53, the assessee claimed that assessment should be made taking into consideration the conversion of the self-acquired into joint family property and the subsequent partition. The Appellate Tribunal confirmed the order of the Income-tax Officer and Assistant Appellate Commissioner disallowing the claim of the assessee on the ground that "throwing into the hotchpotch ones self-acquired property, and a subsequent partition amongst the members of the Hindu undivided family is an indirect transfer of the property within the meaning of S. 16(3) of the Act.  The Appellate Tribunal at the instance of the assessee referred the following question to the High Courton the facts and circumstances of this case the throwing into the hotchpotch of the applicants self-acquired property and the subsequent partition among the members of the Hindu undivided family is an indirect transfer of property so far as the wife and minor son are concerned, within the meaning of Section 16(3)(a)(iii) and (iv) of the Income-taxThe High Court answered the above question in favour of the assessee. As stated above, it granted a certificate under S. 66A (2) of the Act.

Court's reasoning:
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.