Philip John Plasket Thomas Vs.
Commissioner of Income Tax Calcutta [1963] INSC 66 (22 March 1963)
22/03/1963 DAS, S.K. DAS, S.K.
SARKAR, A.K.
HIDAYATULLAH, M.
CITATION: 1964 AIR 587 1964 SCR (2) 480
CITATOR INFO:
R 1965 SC 866 (9)
ACT:
Income Tax-Transfer of shares by a man to a
woman before marriage-Income from those shares not to be included in that of
her husband-Meaning of wife and husband-Interpretation of statute-Intention of
Legislature-Indian Income-tax Act, 1922 (11 of 1922), ss. 16 (3) (a) (iii),
16(3) (b), 16 (1) (c).
HEADNOTE:
The appellant, who was engaged to one Mrs.
Knight, transferred 750 shares to her on December 10, 1947. On December 15,
1947, the Company transferred those shares in her name in its books. On
December 18, 1947, the marriage was solemnised. The Income-tax Officer included
the income of Mrs. Thomas from those shares in the income of her husband. The
appeal of the assessee-husband was dismissed by the Appellate Assistant
Commissioner who held that the 481 provisions of s. 16 (3) (b) and S. 16 (3)
(a) (iii) applied.
Appeals having failed, the Appellate Tribunal
referred to the High Court the question whether the provisions of s. 16 (3) (a)
(iii) would apply or those of s. 16 (1) (c). The view of the High Court was
that the provisions of s, 16 (3) (a) (iii) would apply and not of s. 16 (1)
(c). The appellant came to this Court after obtaining a certificate of fitness.
Held that the provisions of s. 16 (3) (a)
(iii) did not apply to the present case. From whatever point of view the
transfer of the shares be considered, whether as a consideration for a promise
to marry or a gift subject to the subsequent condition of marriage, the
transfer took effect immediately and was not postponed to the date of marriage.
On the date of transfer, the appellant and Mrs. Knight were not husband and
wife and hence there was no transfer, directly and indirectly, by the husband
to his wife. All income of the wife from all assets is not includible in the
income of her husband. The income from only those assests of the wife can be
included in that of her husband which were transferred to her by her husband
after they became husband and wife.
The statute must be construed in a manner
which carries out the intention of the legislature. The intention of the
legislature must be primarily gathered from the words of the statute itself If
the words are unambiguous or plain, they will indicate the intention with which
the statute was passed and the object to be obtained by it. There is nothing in
s. 16 (3) which indicates that the words 'wife' or 'husband' must not be taken
in their primary sense which is clearly indicative of a marital relationship.
The words 'wife and husband' should be given their true natural meaning. They
do not include prospective husband and prospective wife.
Bhogilal Laherchand v. Commissioner of
Incometax, [1954] 25
1. T. R. 523, Commissioner of Income-tax v.
Sodra Devi [1957], 32 1. T. R. 615, In Re Smalley, Smalley v. Section, [1929] 2
Ch. 112, Doe v. Hiscocks (1839) 5 M. & W. 369, Lord Vestey's Executors
& Vestey v. Commissioner of Inland Reveune (1949), 31 T. C. I and
Commissioner of Inland Revenue v. Gaunt, (1941), 24 T. C. 69, referred to.
CIVIL APPELLATE JURISDICTION: Civil Appeals
Nos. 352-355 of 1962.
Appeals from the Judgment and order dated
February 28, 1961, of the Calcutta High Court in Income Tax Reference No. 49 of
1956.
482 Sachin Chaudhury, D. N. Mukherjee and B.
N. Ghosh, for the appellant.
K. N. Rajagopala Sastri and R.. N. Sachthey,
for the respondent.
1963. March 22. The judgment of the Court was
delivered by S.K. DAS J.-These are four appeals on certificates granted by the
High Court of Calcutta under s. 66-A (2) of the Indian Income-tax Act, 1922.
The appeals are from the decision of the High Court dated February 28, 1961 in
Incometax Reference No. 49 of 1956.
We may first state the relevant facts. One P.
J. P. Thomas is the appellant before us. He was the assessee before the taxing
authorities. He held 750 'A' shares in J. Thomas & Co., Ltd., of 8 Mission
Row, Calcutta. The assessee entered into an engagement to marry one Mrs. Judith
Knight, stated to be a divorcee, and the engagement was announced in certain
newspapers on September 3, 1947. On December 10, 1947 the assessee and Mrs.
Knight presented to the Company an application to transfer the said 750 'A'
shares to Mrs. Judith Knight. A transfer deed of that date stated :
"I, Philip John Plasket Thomas of 8,
Mission Row, Calcutta, in consideration of my forthcoming marriage with Judith
Knight of 35, Ridgeway, Kingsbury, London (hereinafter called the said
transferee) do hereby transfer to the said transferee the 750 'A' shares
numbered 1- 750 standing in my name in the books of J. Thomas & Co., Ltd.,
to hold to the said transferee..........................
Executors, administrators and assigns,
subject to the several conditions on which I hold the same at the time of the
execution thereof.
And 1, the said transferee, do hereby agree
to 483 take the said shares subject to the same conditions." On December
15, 1947 the Company transferred the shares to Mrs. Judith Knight and
registered her as the owner of the shares. On December 18, 1947 the marriage
was solemnised.
On January 26, 1948 the fact of marriage was
communicated to the Company and the name of the shareholder was changed in the
books of the company to Mrs. Judith Thomas. It is undisputed that during the
relevant periods the shares stood registered in the name of the assessee's wife
and when the income in question arose to her she was the wife of the assessee.
The four accounting years with which the assessments were concerned were those
ending respectively on April 30, 1948, April 30, 1949, April 30, 1950 and April
30, 1951. The four assessment years were 1949-1950, 1950-1951, 1951-1952 and 1952-1953.
It appears that for the years 1949-1950 and 1950-1951 assessments of P. J. P.
Thomas which had by then been already completed were reopened under s. 34 of
the Indian Income-tax Act, 1922 and the dividends of Rs. 97,091/- and Rs.
78,272/- as grossed up and paid to Mrs. Judith Thomas during the accounting
years ending April 30, 1948 and April 30, 1949 were re-assessed in the hands of
P. J. P. Thomas. For the assessment years 1951-1952 and 1952- 1953, the
dividends paid by the company to Mrs. Judith Thomas during the accounting
periods ending April 30, 1950 and April 30, 1951 were held by the Income-tax
Officer to be includible in the total income of P. J. P. Thomas under s. 16 (3)
(b) of the Act and accordingly orders were passed including the sums of Rs.
1,00,000/- and Rs. 16,385/being the grossed up dividends for the two years
respectively in the total income of P. J. P. Thomas.
Against the said assessment orders the
assessee preferred appeals to the Appellate Assistant Commissioner. By a common
order dated May 11, 1955 484 the Appellate Assistant Commissioner confirmed the
orders of the Income-tax Officer holding that not only the provisions of s. 16
(3) (b) but also the provisions of s. 16 (3) (a) (iii) of the Act applied in
these cases. Against the order of the Appellate Assistant Commissioner the
assessee preferred four appeals to the Appellate Tribunal and con- tended (1)
that he transferred the shares to Mrs. Judith Knight when she was not his wife,
(2) that the transfer of shares was absolute at the time when it was made and
no condition was attached to the transfer, and (3) that the transfer was for
adequate consideration. On these grounds the assessee contended that the
provisions of s. 16 (3) of the Act were not attracted to the cases in question.
The Appellate Tribunal by a consolidated order dated April 4, 1956 disagreed
with the view of the Income tax Officer and the Appellate Assistant
Commissioner that the provisions of s. 16 (3) (b) applied, but it held that the
cases fell within s. 16 (3) (a) (iii) of the Act, because the transfer became
effective only after the marriage. It further held that the transfer could also
be construed as a revocable transfer within the meaning of s. 16 (1) (c) of the
Act.
Therefore the Appellate Tribunal dismissed
the four appeals.
The assessee then made four applications for
referring two questions of law arising out of the Tribunal's order to the High
Court. These questions were:
1.In the faces and circumstances of these
cases, whether the dividends paid by j. Thomas & Co. Ltd., to Mrs. Judith
Thomas, grossed up to the sums of Rs. 97,091/-, Rs. 78,272/- , Rs. 1,00,000/.
and Rs. 16,385/- respectively for the four years in question could be included
in the income of Mr. P.J.P. Thomas and be taxed in his hands under the
provisions of 485 section 16 (3) (a) (iii) of the Indian income-tax Act? 2.In
the facts and circumstances of these cases, whether the dividends referred to
above could be included in the total income of Mr. P. J. P. Thomas under the
provisions of sec. 16 (1) (c) of the Indian Income-tax Act ? The Tribunal
accepted these applications and referred the aforesaid two questions to the
High Court. By its decision dated February 28, 1961 the High Court answered the
first question against the assessee and the second question in his favour. The
assessee then moved the High Court for a certificate of fitness under s. 66-A
(2) of the Act and having obtained such certificate has preferred the present
appeals to this court. The appeals relate only to the correctness or otherwise
of the answer given by the High Court to the first question. As the Department
has filed no appeal as to the answer given by the High Court to the second
question, it is unnecessary for us to consider the correctness or otherwise of
that answer.
The answer to the first question depends on
the determination of two points : (1) what on its proper interpretation is the
true scope and effect of s. 16 (3) (a) (iii) of the Act, and (2) whether the
transfer made by the assessee in favour of Mrs. Knight took effect only from
the date of the marriage between the assessee and Mrs. Knight.
A third point as to adequate consideration
for the transfer was also gone into by the High Court, but in the view which we
have taken of the first two points involved in the question it is unnecessary
to decide the point of adequate consideration.
Before we proceed to a consideration of the
question, it is necessary to set out the relevant 486 provisions of law.
Section 16 so far as it is relevant reads "16. Exemptions and exclusions
in determining the total income- (1) xx xx xx (2) xx xx xx (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 or minor child of such individual
as arises directly or indirectly- (i) from the membership of the wife in a firm
of which her husband is a partner;
(ii) from the admission of the minor to the
benefits of partnership in a firm of which such individual is a partner;
(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;
or (iv)from assets transferred directly or
indirectly to the minor child, not being a married daughter, by such individual
(otherwise than for adequate consideration);
(b) xx xx xx xx xx".
487 Sub-s. (3) of s. 16 of the Act was
introduced in 1937. For the purpose of its application it is immaterial whether
the partnership was formed before or after 1937 and whether the transfer was
effected before or after that date. However, the sub-section deals only with
income arising after its introduction. It clearly aims at foiling an
individual's attempt to avoid or reduce the incidence of tax by transferring
his assets to his wife or minor child, or admitting his wife as a partner or
admitting his minor child to the benefits of partnership, in a firm in which
such individual is a partner. It creates an artificial income and must be
strictly construed see Bhogilal Laherchand v. Commissioner of Income-tax (1).
Clauses (a) (i) and (a) (ii) of the sub-section provide that in computing the
total income of an individual there should be included the income arising
directly or indirectly to his wife from her share as a partner or to his minor
child from the admission to the benefits of partnership, in a firm of which
such individual is a partner. We are not directly concerned with cls.(a)(i) and
(a) (ii). We are concerned with cl. (a) assets transferred by an individual to
his wife has to be included in the transferor's total income. There are two
exceptions to this rule, viz., (1) where the transfer is for adequate
consideration, or (2) where it is in connection with an agreement to live
apart. The second exception has no bearing on the cases before us.
The first and principal point which has been
urged before us on behalf of the appellant is this. It is pointed out that at
the time the transfer of shares was made by the as asessee to Mrs. Judith
Knight the latter was not the wife of the former and therefore cl. (a) (iii)
which talks of "assets transferred directly or indirectly to the wife by
the husband" has no application, apart altogether from any question of
adequate consideration. This argument on (1) [1954] 25 I.T.R. 523.
488 behalf of the appellant was advanced
before the High Court also. The High Court sought to meet it in the following
way. Mukharji J. who gave the leading judgment said that in order to determine
whether a particular case came under cl.
(a) (iii) or not, the relevant point of time
was the time of computation of the total income of the individual for the
purpose of assessment and the section did not limit any particular time as to
when the transfer of assets should take place. lie then observed:
"It appears to me that as the addition
of the wife's income to the husband's income under this sub-section is made,
the relevant time of the relationship between husband and wife which has to be
considered by the taxing authorities is the time of computing of the total
income of the individual for the purpose of assessment. That is how I read the
opening words of section 16 (3) of the Act : 'In computing the total income of
any individual for the purpose of assessment'." Bose J. expressed a slightly
different view. He said that the material consideration under s. 16 (3) (a)
(iii) was whether the transferee was actually the wife of the assessee during
the relevant accounting period when the income from the assets transferred to
her accrued. In effect both the learned judges held that for the application of
cl. (a) (iii) it was not necessary that the relationship of husband and wife
must subsist at the time when the transfer of the assets is made; according to
Mukharji J. the crucial date to determine the relationship is the date when the
taxing authorities are computing the total income of the husband and according
to Bose J. the crucial time is the time when the income accrues to the wife. It
must also be stated in fairness to Mukharji J. that he did not accept the view
that the words 'husband' and "wife' in cl. (a) (iii) included prospective
husband and prospective wife. He accepted the 489 view that the words 'husband'
and 'wife' must mean legal husband and legal wife. Even so he expressed the view
that on a true construction of s. 16 (3) (a) (iii) the time when the
relationship has to be construed is the time when the computation of the total
income of the husband is made.
Learned counsel for the appellant has very
strongly contended before us that the view expressed by the learned judges of
the High Court as to the proper interpretation of cl. (a) (iii) is not correct.
On a plain reading of sub-s. (3) of s. 16 it seems clear to us that at the time
when the income accrues, it must be the income of the wife of that individual
whose total income is to be computed for the purpose of assessment : this seems
to follow clearly from cl. (a) of sub-s. (3). Therefore, in a sense it is right
to say that the relationship of husband and wife must subsist at the time of
the accrual of the income: otherwise the income will not be the income of the
wife, for the word 'wife' predicates a marital relationship. The matter does
not however end there. When we go to sub-cl. (iii) we find that only so much of
the income of the wife as arises directly or indirectly from assets transferred
directly or indirectly to the wife by the husband shall be included in the
total income of the husband. Therefore, subcl. (iii) predicates a further
condition, the condition being that the income must be from such assets as have
been transferred directly or indirectly to the wife by the husband. This
condition must be fulfilled before sub-cl. (iii) is attracted to a case. It is
clear that all income of the wife from all her assets is not includible in the
income of the husband. Thus on a proper reading of s. 16 (3) (a) (iii) it seems
clear enough that the relationship of husband and wife must also subsist when
the transfer of assets is made in order to fulfill the condition that the
transfer is ""directly or indirectly to the wife by the
husband".
490 Learned counsel for the respondent has contended
before us that the transfer mentioned in s. 16 3) (a) (iii) need not
necessarily be post-nuptial and he has argued that the main object of the
provision s the principle of aggregation, that is, the inclusion of the income
of the wife in the income of the husband, because of the influence which the
husband exercises over the wife. He has also pointed out -hat sub- cl. (i)
which refers to the membership of the wife in a firm of which her husband is a
partner is indicative of the object of the provision because it does not talk
of any assets being brought into the firm by the wife. He has further argued
that in sub-cl. (iii) the word ' wife' is merely descriptive and means the
woman referred to in cl. (a), and the word 'husband' has reference merely to
the individual whose total income is to be computed for the purpose of
assessment. In support of this argument he has relied on the expression
"such individual" occurring in sub- s. (3) (a). We are unable to
accept these arguments as correct. It is indeed true that all the four
sub-clauses of cl. (a) must be harmoniously read as this court observed in
Commissioner of Income-tax v. Sodra Devi (1); but we see no disharmony between
sub-cl. (i) and sub-cl. (iii) on the interpretation which we are putting.
Sub-cl. (i) talks only of the membership of the wife in a firm of which her
husband is a partner ; it has no reference to assets at all. Sub- cl. (iii)
however talks of assets and qualifies the word "assets" by the
adjectival clause "transferred directly or indirectly to the wife by the
husband". We fail to see how any disharmony results from giving full
effect to the adjectival clause in sub-cl.(iii). Nor do we see why the words
'husband' and 'wife' should be taken in the archaic sense contended for by the
learned counsel for the respondent. In re Smalley, Smalley v. Scotton (1), a
decision on which learned counsel for the respondent relies, the facts were
these. A testator by his will gave all his property to "my wife
E.A.S". The testator left a (1) [1957] 32 I.T.R.615,623.
(2) [1929] 2 Ch. 112.
491 lawful wife M.A.S. and children by her
and contributed to their support, but about five years before his death had
contracted a bigamous marriage with a widow E. A. Xi. who lived with him and
was known as E.A.S., and believed she was and was reputed to be his wife. The
will was produced, by E.A.M. It was held that the will taken in connection with
the surrounding circumstance%, indicated that the testator intended to benefit
E.A.M., she being in a secondary sense and by repute his wife. The rules of
construction which were followed in that case were those laid down by Lord
Abinger in Doe v. Hiscoks Lord Abinger said:
"The object in all cases is to discover
the intention of the testator. The first and most obvious mode of doing this is
to read his will as he has written it, and collect his intention from his
words. But as his words refer to facts and circumstances respecting his
property and his family, and others whom he names or describes in his will, it
is evident that the meaning and application of his words cannot be ascertained,
without evidence of all those facts and circumstances.
To understand the meaning of any writer, we
must first be appraised of the persons and circumstances that are the subjects
of his allusions or statements : x x x All the facts and circumstances,
therefore, respecting persions or property, to which the will relates, are
undoubtedly legitimate, and often necessary evidence, to enable us to
understand the meaning and application of his words." We are dealing here
with a statute and the statute must be construed in a manner which carries out
the intention of the legislature. The intention of the legislature must be
gathered from the words of the statute itself. If the words are unambiguous or
plain, (1) (1839) 5 M. & W. 863, 367.
492 they will indicate the intention with
which the statute was passed and the object to be obtained by it. There is
nothing in sub-s. (3) of s. 16 which would indicate that the word "wife'
or the word 'husband' must not be taken in their primary sense which is clearly
indicative of a marital relationship. Nor are we satisfied that the object of
the legislature is just the principle of aggregation. We have said earlier that
sub-s. (3) of s. 16 clearly aims at foiling an individual's attempt to avoid or
reduce the incidence of tax by transferring his assets to the wife or minor
child or admitting his wife as a partner or admitting his minor child to the
benefits of partnership, in a firm in which such individual is a partner. This
object does not require that the word "wife' or the word 'husband' should
be interpreted in an archaic or secondary sense.
Learned counsel for the respondent has drawn
our attention to certain English decisions, particularly the decision of the
House of Lords in Lord Vestey's Executors and Vestey v. Commissioners of Inland
Revenue (1). One of the questions which was considered in that decision was
whether for the purpose of either s. 18 of the Finance Act, 1936 (in England)
or s. 38 of the Finance Act, 1938 (in England) "wife" included a
"widow." Their Lordships had to consider the earlier decision of the
Court of Appeal in Commissioners of Inland Revenue v.Gaunt (2), which held that
the one word included the other. Their Lordships ultimately held, over- ruling
the decision in Gaunt's case (1), that the word "wife" did not
include a "widow." The English decisions proceeded on the footing
that in England it is a principle of Income Tax law, embodied in rule 16 of the
General Rules, that for Income Tax Purposes husband and wife living together
are one. lord Morton said:
"I think that the treatment of husband
and wife by the Legislature for Income Tax (1) (1949) 31 T. C. 1 (2) (1941) 24
T.C. 69.
493 purposes rests on the view that any
income enjoyed by one spouse is a benefit to the other spouse. It is not
surprising, therefore, that in the Sections now under consideration a benefit
to the wife of the settler is treated a% being a benefit to the settler, but it
seems to me unlikely that this principle is being extended by these Sections to
the widow of the settlor." Now, it is quite clear to us that the treatment
of husband and wife in the Indian Income-tax Act, 1922 does not rest on the
view that any income enjoyed by one spouse is a benefit to the other spouse ;
for sub-s. (3) of s. 16 makes it quite clear that all income enjoyed by the
wife is not to be included in the income of the husband and only such of the
wife's income as comes within the sub-section is to be included in the income
of the husband. We therefore think that the English decisions are not in point
and there are no reasons why the word 'wife' or the word 'husband' should not
be given its true natural meaning.
This brings us to the second question,
namely, whether the transfer of shares made by the assessee in favour of Mrs. Judith
Knight on December 10, 1947 was to take effect only from the date of their
marriage. It is admitted that on December 10, 1947 the assessee and Mrs. Knight
were not married. It is also admitted that they were engaged to be married and
the engagement was announced on September 3, 1947. The transfer deed which we
have earlier quoted contained no words of postponement. On the contrary, it
contained words which indicated that the transfer took effect immediately.
Learned counsel for the respondent has rightly pointed out that the expression
in the transfer deed "in consideration of my forthcoming marriage"
can have very little meaning as a real consideration, because on September 3,
1947 the parties had mutually promised to marry each other; therefore the
promise to marry 494 had been made earlier than December 10, 1947. Learned
counsel for the respondent has argued before us that the transfer of shares was
really a gift made to Mrs. Knight in contemplation of the forthcoming marriage
and the gift was subject to a condition subsequent, namely, that of marriage
which if not performed would put an end to the gift. This does not however
advance the case of the respondent in any way. A gift may be made subject to
conditions, either precedent or subsequent. A condition precedent is one to be
performed before the gift takes effect; a condition subsequent is one to be performed
after the gift had taken effect, and if the condition is unfulfilled that will
put an end to the gift. But if the gift had already taken effect on December
10, 1947 and the condition subsequent has been later fulfilled, then the gift
is effective as from December 10, 1947 when the assessee and Mrs. Knight were
not husband and wife. That being the position, sub-cl. (iii) of s. 16 (3) (a)
will not be attracted to the case as the transfer of the shares was not made by
the husband to his wife.
We were also addressed on the question as to
the circumstances in which a gift to an intended wife or husband may be
recovered when the marriage does not take place through the fault of either of
the two parties. We do not think that that question falls for decision in the
present case. From whatever point of view we look at the transfer of shares in
the present case, whether it be in consideration of a promise to marry or be a
gift subject to the subsequent condition of marriage, the transfer takes effect
immediately and is not postponed to the date of marriage. If that be the true
position, as we hold it to be, then sub-cl. (iii) of s. 16 (3) (a) is not
attracted to these cases, apart altogether from any question as to whether
there was adequate consideration for the transfer within the meaning of that
sub-clause.
495 For the reasons given above we allow the
appeals and answer the question referred to the High Court in favour of the
assessee. The appellant will be entitled to his costs in this court as also in
the High Court ; there will be one hearing fee.
Appeals allowed.
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