Judgment Case ID: 1598

Judgment:
Appeals Nos. 34 to 36 of 1962. Appeals from the judgment and order dated March 25	 1958	 of the Madras High Court in Case Referred No. 12 of 1954. K. N. Rajagopal Sastri and R. N. Sachthey	 for the appellant. R. Gopalakrishnan	 for the respondent. March 26. The judgment of the Court was delivered by HIDAYATULLAH J. The High Court of Madras in a Reference under s.66 (1) of the Indian Income Tax Act	 answered in the negative the following question: "Whether there was material for the Appellate Tribunal to hold that the income arising to Mrs. C.M. Kothari and Mrs. D. C. Kothari from the property arose indirectly out of the 533 assests transferred indirectly by their husbands so as to attract the provisions of s.16 (3)(a)(iii). " In our opinion	 these appeals by the Commissioner of Income tax. 	 Madras	 must be allowed. Messrs Kothari and Sons is a firm of stock brokers. In 1947	 the firm consisted of C.M. Kothari and his two sons	 D. C. Kothari and H. C. Kothari Their respective shares were 6 : 5 : 5. On October 7	 1947	 the firm entered into an agreement for the purchase of a house in Sterling Road	 Madras	 for Rs.90	000	 and the same day paid an advance of s.5	000. This sum was debited in the books of the firm to the accountsof the three partners as follows: C. M. Kothari Rs.1	800 D. C. Kothari Rs.1	600 H. C. Kothari Rs.1	600 Total. Rs.5	000 The transaction was completed on October 24	 1947. The sale deed	 however	 was taken in the names of Mrs. C.M. Kothari Mrs. D.C. Kothari and H.C. Kothari. The balance of the consideration was paid to the vendors by the firm. Each of the two ladies paid to the firm a cheque of Rs.28	333 5 4. Mrs. C.M. Kothari further paid a cheque of Rs. 1	800	 and Mrs. D.C. Kothari paid another cheque of Rs. 1600 Thus the two ladies paid one third share of Rs.85	000 and the amounts which were respectively paid by their husbands as part of the earnest money. H.C. Kothari was debited with a further sum of Rs.28	333.5 4. In this way	 Mrs. C. M. Kothari pad Rs.200 more than the other two	 because her husband had previously paid Rs.200 more than his sons. The share of the three vendees was however	 Shown to be one third each. 534 The ladies issued the cheques on their accounts into which were paid by the firm	 certain amounts by cheques. Into Mrs. C.M. Kothari 's account was paid an amount of Rs.27	000 which was debited on October 24	 1947 to D.C. Kothari. It was stated to be a birthday gift by him to his mother. On November 13	 1947	 another amount of Rs. 3	000 was paid into Mrs. C. M. Kothari 's account which was debited to the account of D. C. Kothari as a gift by him to his mother for Dewali. Similarly	 on November 13	 1947 Mrs. D. C. Kothari 's account with the bank was credited with a sum of Rs.30	000 by a cheque issued by the firm. This was debited to the account of C	 M. Kothari and was shown as a gift by him to his daughter in law. In this way both the ladies received from the firm Rs. 30	000 which was the exact one third share of the consideration of Rs.90	000	 but the amount was not paid by their respective husbands	 but by the son in one case	 and the father in law		 in the other. In the assessment years 1948 49	 1950 51 and 1951 1952	 the Income Tax Officer assessed the incomefrom the one third share of the house received by Mrs. C.M.Kothari as the income of her husband. Similarlyin the four assessment years 1948 49 to 1951 52	 the income of Mrs. D. C. Kothari from this house was assessed as the income of her husband. This was on the ground that because of the interchange of the money in the family	 either the purchases were made by the donors benami in the names of the donees	 or alternatively	 from assets transferred indirectly by the husband to the wife in each case. The Income Tax Officer pointed out that the birthday of Mrs. C. M. Kothari had taken place earlier in the year and there was no occasion to give a birthday present to her several months later and on a date coinciding with the purchase of this property. The Income Tax Officer also found that in the past	 the father in law bad never given 535 such a big present to his daughter in law on Dewali and this time there was no special circumstance to justify it. The appeals of the assessee to the appellate Assistant Commissioner failed as also those filed before the Tribunal. The Tribunal	 however	 did not hold that the transaction was benami	 but confirmed the other finding that the two ladies bad acquired their share in the house out of assets of the husbands indirectly transferred to them. The Tribunal	 how ever	 stated a case for the opinion of the High Court	 and the High Court answered the question in the negative. As the question whether the two transactions were benami does not fall to be considered	 the only question that survives is whether this case is covered Sy s.16 (3) (a) (iii). This section reads as follows: "16(3). In computing the total income of any individual for the purpose of assessment	 there shall be included (a)So much of the income of a wife. of such individual as arises directly or indirectly (iii)From assets transferred directly or indirectly to the wife by the husband otherwise than for adequate consideration or in connection with an agreement to live apart;" The section takes into account not only transference of assets made directly but also made indirectly. It is impossible to state here what sorts are covered by the word indirectly '	 because such transfers may	 be made in different ways. It is argued that the first requisite of the section is that the assets must be those of the husband and 536 that is not the case here. It is true that the section says that the assets must be those of the husband	 but it does not mean that the same assets should reach the wife. It may be that the assets in the course of being transferred	 may be changed deliberately into assets of a like value of another person	 as has happened in the present case. 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. The present case is an admirable instance of how indirect transfers can be made by substituting the assets of another person who has benefited to the same or nearly the same extent from assests transferred to him by the husband. It is next contended that even if chain transactions be included	 then	 unless there is consideration for the transfer by the husband	 each transfer must be regarded as independent	 and in the present case	 the Department has not proved that the transfers by the son to the mother and by the father in law to his daughter in law were made as consideration for each other. We do not agree. It is not necessary that there should be consideration in the technical sense. If the two transfers are inter connected and are parts of the same transaction in such a way that it can be said that the circuitous method has been adopted as a device to evade implications of this section	 the case will fall within the section. In this case	 the device is palpable and the two transfers are so intimately connected that they cannot but be regarded as parts of single transaction. It has not been successfully explained why the father in law made such a big	 gift to his daughter in law on the occasion of Diwali and why the son made a belated gift	 equally big	 to his mother on the occasion of her birthday which took place several months before. These two gifts match each other as regards the amount	 The 537 High Court overlooked the clear implication of these fact as also the Implication of the fact that though the three purchasers were to get one third share each	 Mrs. C. M. Kothari paid Rs. 200 more than the other two and that each of the ladies re paid the share of earnest money borne by their respective husbands. An intimate connection between the two transactions	 which were primafacie separate	 is thus clearly established and they attract the words of the section	 namely	 "transferred directly or indirectly to the wife". In our opinion	 the High Court was in error in ignoring these pertinent matters. The High Court also overlooked the fact that the purchase of the house at first was intended to be in the names of three partners of the firm. No evidence was tendered why there was a sudden change. It is difficult to see why the ladies were named as the vendees if they did not have sufficient funds of their own. They could only buy the property if some one gave them the money. It is reasonable to infer from the facts that before the respective husbands paid the amounts	 they looked up the law and found that the income of the property would still be regarded as their own income if they transferred any assets to their wives. They hit upon the expedient that the son should transfer the assets to his mother	 and the father in law	 to the daughterin law	 obviously failing to appreciate that the word "indirectly ' is meant to cover such tricks. The appeals must	 therefore	 succeed. The answer of the High Court is vacated	 and the question	 answered in the affirmative. The respondent shall bear the costs of these appeals as also the costs in the High Court. One hearing fee.

Summary:
Messrs Kotbari and Sons is a firm of stock brokers. The firm consisted of Shri C. M. Kothari and his two sons	 Shri D. C. Kothari and Shri H. C. Kothari. The firm entered into an agreement for the purchase of a house and the earnest money was paid by it. Later on	 the house was bought in the name of Mrs. C. M. Kothari	 Mrs. D. C. Kothari and Shri H. C. Kotliari. The house was bought for Rs. 90	000/ and both Mrs. C. M Kothari and Mrs. D. C. Kothari received Rs. 30	000 each from the firm. In the case of Mrs. C. M. Kothari	 she got that amount in the form of birthday gift and Diwali gift from her son	 D. C. Kothari. Mrs. D. C. Kothari also received Rs. 30	000 from the firm as a gift from Shri C. M. Kothari	 her father in law. The Income tax Officer assessed the income of Mrs. C. M. Kothari and Mrs. 1). C. Kotliari from the said house as the income of their husbands. The appeals of the assessees were dismissed by the Appellate Assistant Commissioner and the Tribunal. The Tribunal confirmed the finding of the Income Tax Officer that the two ladies had acquired their shares in the house out of the assets of their husbands indirectly transferred to them. However	 the Tribunal did not hold that the transaction was benami. The Tribunal referred the case to the High Court for opinion whether the income arising to Mrs. C. M. Kotbari and Mrs. D. C. Kothari from the property arose out of the assets transferred indirectly by their husbands so as to attract the provisions of section 16 (3) (a) (iii) of the Income tax Act	 1922.The High Court answered the reference in the negative. The Commissioner of Income tax	 Madras	 came to this Court in appeal. 532 Held that the answer given by the High Court must be set aside and the reference made by the Tribunal must be answered in the affirmative. The object of law 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 to her by her husband. In the present case	 the son transferred the assets to his mother and the father in law transferred his assets to his daughter in law. The term "indirectly" is intended to cover such tricks. If two transfers are inter connected and are parts of the same transaction in such a way that it can be said that a circuitous method has been adopted as a device to evade the implications of section 16 (3) (a) (iii)	 the case will fall within this section. In the present case	 the device is palpable and the two transferrers are so intimately connected that they cannot but be regarded as a part of a single transaction. It was not successfully explained why the father in law made a big gift to his daughter in law and the son made an equally big gift to his mother.