Commissioner of Income-Tax, Culcutta Vs.
Keshavlal Lallubhai Patel  INSC 254 (9 November 1964)
09/11/1964 HIDAYATULLAH, M.
GAJENDRAGADKAR, P.B. (CJ) WANCHOO, K.N.
CITATION: 1965 AIR 1392 1965 SCR (2) 139
RF 1972 SC2178 (16) RF 1983 SC 109 (8,12)
Income Tax Act, 1922 (11 of
1922)--self-acquired property thrown into H.U.F. Hotchpotch-Thereafter
partition effected amongst members H.U.F.-Whether property transferred to wife
and minor son amounted to indirect transfers under's. 16(3)(a) (iiiq and (iv).
Until the assessment year 1952-53, the
assessee was assessed as an individual. On April 18, 1951, he swore an
affidavit to the effect that he was throwing all his self-acquired properties
into the common hotchpotch of the Hindu undivided family consisting of himself
and his two sons, one a major and the other a minor. On June 12, 1951, an oral
partition was effected between the several members of this undivided family,
and as a result some of the properties were transferred to the assessecc's wife
and his minor son.
For the assessment year 1952-53, the assessee
claimed that assessment should be made taking into account the conversion of
his self-acquired property into joint family property and the subsequent
partition. The Appellate Tribunal confirmed the orders of the Income-tax
Officer and the Assistant Appellate Commissioner disallowing the claim of the
assessee on the ground that throwing into the hotchpotch one's self-acquired
property and a subsequent partition among the members of the Hindu undivided
family was an indirect transfer of property within the meaning of s. 16(3) of
the Income-tax Act, 1922.
However, upon a reference made to it, the
High Court was of the view that the above transactions did not amount to a
direct or indirect transfer within the meaning of s. 1 6(3) (a) (iii) and (iv)
of the Act.
HELD:The two conditions that must be
satisfied before s. 16(3) (a) (iii)or (iv) can apply are(i) Assets must be
transferred by the husband to the wife or the minor child; and (ii) They must
be transferred directly or indirectly.
Only the word 'transfer' occurs in s.
16(3)(a)(iii) and (iv) and a comparison with the language of s. 16(3)(c) shows
that here it has been used in the strict sense and not in the sense of
'including every mean-, by which property may be passed from one to another'.
[103 D-G] Philip John Plasket Thomas v. C.I.T. Calcutta,  2 S.C.R. 480
Although the expression 'directly or
indirectly' is intended to take in indirect transfers, there must still be a
transfer and the word 'indirectly' does not destroy the significance of the
word 'transfer'. Even if the act of throwing self-acquired property into the
hotchpotch is regarded as a transfer, the partition of Joint Hindu family
property is not a transfer in the strict sense and the provisions of s. 16(3)
(a) (iii) and (iv) are therefore not attracted. [104 A, G; 105 C-D) C.I.T. v.
C. M. Kothari,  2 S.C.R. 531. distinguished.
101 Gutta Radhakristnayya v. Gutta Sarasamma,
I.L.R. (1951) Mad.
607, M. K. Streman v. C.1.T. Madras, 41
I.T.R. 297 and Jagan Nath v. State of Punjab, (1962) 64 P.L.R. 22, approved.
Potts' Executors v. Commissioners of Inland
Revenue, 32 T.C.
211, referred to.
CIVIL APPELLATE JURISDICTION : Civil Appeal
No. 1022 of 1963.
Appeal from the judgment and order dated
April 28, 1961 of the Gujarat High Court in Income-tax Reference No. 16 of K.
N. Rajagopala Sastri and R. N. Sachthey, for the appellant.
A. V. Viswanatha Sastri, J. P. Pandit, T. A. Ramachandran,
J. B. Dadachanji, O. C. Mathur and Ravinder Narain, for the respondent.
The Judgment of the Court was delivered by
Sikri, J. This is an appeal on certificate granted by the Gujarat High Court
under S. 66A(2) of the Indian Income Tax Act, 1922, hereinafter referred to
a,,, the Act, and involves the interpretation of s. 16(3) (a) (iii) and S. 16(3)
(a) (iv) of the Act. The facts are not in dispute and it is not necessary to
record the findings of the Income Tax officer and the Assistant Appellate
Commissioner. It is sufficient to extract the relevant facts from the order of
the Appellate Tribunal.
The respondent. Keshavlal Lallubhai Patel,
hereinafter referred to as the assessee was assessed till the assessment year
1952-53 (Accounting vear 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 major and the other a
However, no entries in the books were passed.
On June 12, 1951, an oral partition was affected between the several member 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 names of the
several members of the family.
102 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 orders of the Income Tax
Officer and Assistant Appellate Commissioner disallowing the claim of the assessee
on the ground that "throwing into the hotchpotch one's selfacquired
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 Court "Whether on the facts
and circumstances of this case the throwing into the hotchpotch of the
applicant's 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 Tax Act ?" The High Court answered
the above question in favour of the assesses. As stated above, it granted a
certificate under S. 66A(2) of the Act.
Mr. Rajagopala Sastri, the learned counsel
for the Revenue, urges before us that it is a clear case of indirect transfer
by the assessee, within s. 16 (3) (a) (iii) and S. 16 (3) (a) (iv) of the Act.
He does not dispute the genuineness of the transactions. He says : Look at the
position antecedent to the affidavit dated April 18, 1951. The property in
dispute belonged to the assessee. Then look at the position after the
partition. The properties come to 'be held by the wife and the minor son. These
two facts, according to him, show that there was a transfer, and it was an
indirect transfer because the joint Hindu family had been utilised only as a
conduit pipe by the assessee to transfer properties to the wife and the minor
Section 16 (3) (a) (iii) and (iv) read 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
or minor child 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 103 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;." Mr. Viswanatha Sastri, the learned counsel for
the assessee, contends that in this case there is no transfer in the strict
sense, and as it is a taxing statute, the provisions should be construed
strictly. He says that neither the act of throwing the self-acquired property
into the hotchpotch, nor the partition of joint family property was a transfer
within the meaning of s. 16(3) (a) (iii) or s. 16 (3) (a) (iv). If the
legislature wanted to rope in these acts, it could have used another word, such
Apart from authority, looking at the language
of s. 16(3) (a) (iii), following two conditions must be satisfied before the
said provision can be applied:
(1)Assets must be transferred by the husband
to the wife;
(2)The assets must be transferred directly or
Two questions arise : Is the word 'transfer'
used in the technical sense or in the popular sense ? And, secondly, what is
comprehended in the word 'indirectly'? Some assistance is derived in
ascertaining the meaning of the word 'transfer' by looking at the language of
s. 1 6 ( 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'. This conclusion is reinforced by the consideration that, as observed
by this Court in Philip John Plasket Thomas v. Commissioner of Income-Tax,
Calcutta(1), s. 16(3) "creates an artificial income and must be construed
strictly." (1) 2 S.C.R. 480.
104 Coming now to the expression 'directly or
indirectly' there does not seem to be any doubt that the legislature meant to
rope in indirect transfers. One example is furnished by Commissioner of Income
Tax v.C. M. Kothari(1). But there must still be a transfer of assets. The word
'indirectly' does not destroy the significance of the word transfer'.
Mr. Rajagopala Sastri relies strongly on the
decision of this Court in Commissioner of Income Tax v. C. M.
Kothari(1). But in our opinion that case is
clearly distinguishable and does not assist us in this case. In that case, C.
M. Kothari and his sons were both desirous of putting Rs. 30,000 in the hands
of their wives to enable them to buy a share in a house. Instead of directly
gifting the amount, they hit upon the following device : C. M. Kothari would
gift Rs. 30,000 to the daughter-in-law and the "on would gift Rs. 30,000
to the mother. This Court held that it was a palpable device and a trick and
the two cross transactions amounted to an 'indirect transfer' within s.
16(3) (a) (iii). In effect, this Court held
that the father used his son as a conduit pipe and the son used his father as a
conduit pipe to gift Rs. 30,000 each. Mr. Sastri relies on the words
"chain of transfers" used by Hidayatullah, J., in the following
"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."
But in the context they refer to the cross gifts, if 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 no cross-gifts. We have, on the otherhand, 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.
This 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
selfacquired 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, arc of the
opinion that it is not. This Was so held in Gutta Radhadristnayya v. Gutta
Saravamma.(2) Subba Rao, J., then a Judge of the Madras High Court, after (1)
 2 S.C.R. 531, (2)1,1,.R.  Maci. -67.
105 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 sharers 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. Commissioner of Income Tax, Madras(1) 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-incommon. 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".
The Punjab High Court came to the same
conclusion in Jagan Nath v. The State of Punjab (2) . 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
Mr. Rajagopala Sastri finally contended that
we must look at the substance of the transaction. But as pointed out by Lord
Normand in Potts' Executors v. Commissioners of Inland Revenue(")
"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 of Parliament." In the result the
appeal fails and is dismissed with costs.
(1) (1961) 41 I.T.R. 297.
(2) (1962) 64 P.L.R. 22.
(3) 32 T.C. 21 1.