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Judgment
H. MAHAPATRA J. - All these four references are u/s 66 (1) of the Indian Income Tax Act in relation to the assessment years 1957-58, 1958-59, 1959-60 and 1960-61, respectively.
The assessee is the holder of an impartible estate, and, by an indenture dated the 23rd November, 1950, granted to his wife two premises at Camac Street, Calcutta, for life by way of supplementary khorposh (maintenance) grant. The income from those two house properties was included in the total income of the assessee u/s 16 (3) (a) (iii) of the Indian Income Tax Act. The assessee challenged that mainly on two grounds. He attacked that legal provision as ultra vires article 14 of the Constitution of India. His objection was that that provision was not attracted to the present case. These objections were overruled by the Income Tax Appellate Tribunal, Patna Bench; and on the request of the assessee, the following questions have been referred by the Tribunal to this court.
"(1) Whether the provisions of section 16 (3) (a) (iii) of the Indian Income Tax Act, 1922, are ultra vires the Constitution of India ?
(2) Whether, in the facts and circumstances, of the case, the Tribunal was justified in holding that the provisions of section 16 (3) (a) (iii) applied to the income arising from a property transferred by the holder of an impartible estate to his wife for her maintenance ?"
In regard to the assessment years 1959-60 and 1960-61, the net annual value of the residential houses of the assessee at ten per cent. of the total income of the assessee under the first proviso to sub-section (2) of section 9 was challenged on the ground that the total income of the assessee to be considered in that respect should not have included the income from the two house properties transferred to his wife by way of the supplementary maintenance grant. As that contention was not accepted by the Tribunal, the following question has been refereed at the instance of the assessee in respect of the last two assessment years involved :
"Whether in the facts and circumstances the Tribunal was right in holding that the income u/s 16 (3) (a) (iii) was to be included in the total income for the purpose of computing the net annual value of the residential house at 10% of the total income under the 1st proviso to section 9 (2) ?"
Learned counsel appearing for the assessee conceded that the provisions u/s 10 (3) (a) (iii) of the Indian Income Tax Act are not ultra vires the Constitution of India. In that view, the first question is answered in the negative and against the assessee (see also Balaji v. Income Tax Officer, Special Investigation Circle, Akola).
The second question was argued at length by both the sides. Section 16 is about exemptions and exclusions in determining the total income of an assessee and indicated how such total income is to be computed. In sub-section (3) it is provided :
"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 consideration or in connection with an agreement to live apart."
The transfer envisaged in this provision is a valid transfer and income sought to be included in the total income of the husband (or parent) is accepted as the income of the wife (or the minor child). If the transferred assets are taken to be assets belonging to the wife by virtue of transfer, the transferor would necessarily be the owner of such assets before the transfer is made. In other words, both the transferor and the transferee, at the relevant time, before or after the transfer, are owners of those assets. Ordinarily, the income arising directly or indirectly from such transferred assets would be assessable to Income Tax in the hands of the transfer wife; but by the special provision made u/s 16, they are deemed to be the assessable income in the hands of the transferor-husband. This deeming provision does not cover all the transfers of assets by the husband to the wife. Only those transfer, which are made not for adequate consideration or are not in connection with an agreement to live apart, are brought under this deeming provision. Though the language employed in sub-section (3) of section 16 is in directive from giving the manner of computation, the provision is, in fact and in effect, a deeming provision. The charging section 3 of the Indian Income Tax Act, 1922, is in respect of the total income of a previous year of every individual, where an individual is the assessee. The income of the wife from the assets transferred to her by her husband is taken to be the income of the husband, the individual assessee, under the deeming provision laid u/s 16 (3) and, in that view, becomes assessable in the hands of the husband.
In the instant case, the assessee is an individual. He is the holder of an impartible estate. Incidents of impartible estate are well defined and settled by custom and judicial precedents. The holder has uncontrolled powers of enjoyment and disposal over the impartible estate and income arising therefrom; but all the same, the estate belongs to the Hindu joint family of which the holder, at a particular time, is a member. According to the custom giving rise to succession by primogeniture, the eldest male issue of the holder of the impartible estate succeeds to possession and enjoyment of the estate after the death of the last holder; but the right of survivorship, which is the quintessence estate success to possession and enjoyment of the estate after the death of the last holder; but the right of survivorship, which is the quintessence of law of succession in the Mitakshara school of Hindu law, is not inconsistent with that custom. The rule of primogeniture and the incidence of an impartible estate are matters of custom and usage; and they override the general law of succession only in matters covered by such custom and not otherwise. As far as belonging of the estate is concerned, it belongs to the joint family. But the right of partition and joint possession of the coparceners of the joint family other than the holder of the estate are abrogated by the custom of impartibilty. No doubt, unrestricted powers of possession, enjoyment and disposal of the holder of the impartible estate are like those of an absolute owner of a self-acquired property. It is on this analogy that, sometimes or rather very often, the holder of such an estate is referred as the absolute owner of that estate. That, if I can say so with great respect, is a loose way of description. The holder of the estate is endowed, by custom, with those powers of enjoyment and disposal, and, to that extent, the rights of the members of the joint family remain customarily curtailed. The estate belongs to the joint family who is the owner; but the holder of the estate has powers to dispose it of according to his wish. This customary power of disposal does not deprive the joint family of the ownership of the estate. If it were so, then succession to the estate by survivorship, according to the Hindu law of succession, could not be brought into play in any circumstance; that operates not by any custom but only by the force of law.
In the case of Commissioner of Income Tax v. Dewan Bahadur Dewan Krishna Kishore, the judicial Committee, while dealing with the provision u/s 9 of the Indian Income Tax Act, 1922, as it was then, considered whether the income from property, which formed part of an impartible estate, could be assessee in the hands of the holder of that impartible estate as owner of that property and held that it was not he who was the owner but the joint family was the owner of that property. The Judicial Committee observed :
"Since the decision of the Board in Baijnath Prasad Singh v. Tej Bali Singh, it has been settled law that property though impartible may be the ancestral property of a joint family and that in such cases the successor falls to be designated according to the ordinary rule of the Mitakshara. The concluding words of the judgment delivered on behalf of the Board by Lord Dunedin in Baijnath Prasad Singh v. Tej Bali Singh are to that effect and in that case as well as in Shiba Prasad Singh v. Rani Prayag Kumari Debi at page 345, which followed it, the keynote of the position is - not that property which is not joint property devolves by virtue of custom as though it had been joint - but that the general law regulates all beyond the custom, that the custom of impartibility does not touch the succession since the right of survivorship is not inconsistent with the custom; hence the estate retains its character of joint family property and devolves the general law upon that person who being in fact and in law joint in respect of the estate is also the senior member in the senior line.
The birth-right of the senior member to take by survivorship still remains. Nor is this right a mere spes succession is similar to that of a reversioner succeeding on the death of a Hindu widow to her husbands estate. It is a right which is capable of being renounced and surrendered.
The later cases are to the same effect. Though the co-ownership of the junior member may be in a sense only, carrying no present right to joint possession, if the question be whether the Hindu undivided family or the present holder is owner of the estate the answer of the Hindu law is that it is joint family property."
This led to the amendment of section 9 in 1948, by substituting sub-section (4) of that section so as to include a provision to the effect that the holder of an impartible estate shall be deeded to be the individual owner of all the properties comprised in that estate. But that amendment was restricted only for the purpose of section 9, that is, for assessment on income from house property. So, the decision of the Judicial Committee about the legal position in regard to ownership of an impartible estate remained where it was and only a deeding provision was made by the amendment so as to bring the income from house property in that impartible estate to be assessee in the hands of the holder of the estate. The legislature took particular care to restrict this deeming provision and said :
"9. (4) For the purposes of this section -
(a) the holder of an impartible estate shall be deeded to be the individual owner of all the properties comprised in the estate."
When the holder transfers a property to another person the transferee becomes the owner of that property, and within the meaning of section 9 of the Indian Income Tax Act, there can be no question of assessing the income of that property in the hands of the transferor as owner after the transfer. In the instant case, the Income Tax Officer did not include the income of the two house properties in question in the total income of the assessee deeming him to be the owner of those properties as provided under sub-section (4) (a) of section 9 of the Act. It was also not contended before us on behalf of the revenue that, though a life grant was made of the two properties to the wife of the holder, the assessee still continued to be the owner thereof in the sense that those properties were still comprised in the impartible estate. Whatever scope, if any, could be for such a contention, since that was not the basis of the action taken against the assessee, we need not pursue or examine it here.
Learned counsel for the revenue contended that to construe the proper meaning of section 16 (3) (a)(iii), it is not necessary to assume that transferor-husband must be the owner of the assets before they are transferred to his wife. The mere fact that the transferor happens to be the husband and the transferee, the wife, would be sufficient to attract that provision. Sub-section (3) opens with the words :
"In computing the total income of any individual for the purpose of assessment, there shall be included..."
The income of an individual necessarily means the income belonging to and owned by an individual. Although the income of a wife or a minor child does not belong to that individual assessee, it is to be included in his total income under the provisions of sub-section (3). When the income from the assets transferred to the wife is sought to come within that inclusion, it would necessarily mean that the transferor-husband was himself the owner of the assets before they were transferred. In other words, the income of such assets, which would have been assessed as the income of that individual before the transfer, is brought to same assessability after the transfer of those assets if the transferee happens to be the wife and the consideration for that transfer is inadequate or the transfer is not in connection with an agreement to live apart. I cannot, therefore, accept the contention raised for the revenue that whether the husband was the owner or not of the assets in question is immaterial.
Next, it was urged that, for all practical purposes, the transferor-husband holding an impartible estate must be taken to be owner of that estate; and in that view, sub-section (3) of section 16 will be attracted. I have already partly dealt with this aspect of the question and shown that the impartible estate does not cease to be the estate of the joint family consisting of, among others, the holder of the estate only because such holder has unrestricted powers of enjoyment and disposal of the estate. To propound the opposite view, learned counsel for the revenue referred to the case of Sartaj Kauri v. Deoraj Kauri. In that case, the son of the holder of an impartible estate challenged the alienation made by the holder as invalid and not binding on him. In that context, it was observed that, in regard to an impartible estate, the sons right at birth did not exist where there was no right on his part to partition. In regard to the sons claim of inalienability of that estate, it was necessary for the plaintiff (son) to show that there was some custom which would prevent the operation of the general law empowering alienation, and that proof of a custom that the estate descended to the eldest son to the exclusion of the other sons was not sufficient. At one place in that decision, the Judicial Committee observed, and learned counsel stressed upon that very much :
"The property in the paternal or ancestral estate acquired by birth under the Mitakshara law is, in their Lordships opinion, so connected with the right to a partition that it does not exist where there is no right to it... By the custom or usage the eldest son succeeds to the whole estate on the death of the father, as he would if the property were held in severalty. It is difficult to reconcile this mode of succession with the rights of a joint family, and to hold that there is a joint ownership, which is a restraint upon alienation. It is not so difficult where the holder of the estate has no son, and it is necessary to decide who is to succeed."
It would appear that this statement was in the context of the question of alienation by the holder unconcerned with the other members of the joint family. "Joint ownership" was used, as it appears to me, in the sense of a restraint upon alienation of the estate. What was specifically decided in regard to ownership of the impartible estate in Baijnaths case and reiterated in the case of Commissioner of Income Tax v. Dewan Bahadur Dewan Krishna Kishore, as already referred to, was not gone into in this case, which was decided in 1888.
Another case relied upon by the revenue was Shiba Prasad Singh v. Rani Prayag Kumari Debi, where it was observed that an impartible estate belongs to the joint family for a limited purpose and though it is ancestral, it is clothed with the incidents of self-acquired property. This decision does not dispute that the joint family is the owner of the impartible estate. The incidents of custom related thereto override some of the features of joint family estate; but that does not mean that the joint family ceases completely to be the owner of an estate only because it is impartible in nature. A later decision of this court, in the case of Commissioner of Income Tax v. Maharani Gyan Manjuri Kauri, dealt with this question elaborately and referred to all the important and relevant cases and concluded that the property of an impartible estate is joint family property, though the holder of the estate for the time being may have absolute rights over its income. A distinction between the income and the estate is clear. In the former, there is no joint ownership; in the latter there is, though it does not carry the present right to joint possession. The authority to transfer a part of the joint family. In that view, the transfer of the two house properties in Calcutta in the instant case by the holder of the impartible estate to his wife cannot be taken as a transfer by the husband of his assets to his wife. The provision u/s 16 (3) (a) (iii) cannot, therefore, be attracted.
Learned counsel further contended that, on the aforesaid view, the purpose of this deeming provision, which was to prevent evasion of Income Tax will be defeated. He argued that an impartible estate holder with impunity can avoid legitimate tax on the assessable income derived from the assets comprised in the impartible estate by effecting sham transfers in favour of his wife and minor children for inadequate or no consideration. This has hardly any force. If he brings about such transfers in favour of persons other than wife and minor children 16 cannot prevent that. To me it appears that the mere purpose behind the deeming legal provision is to create an artificial liability to tax against the husband, who really holds control of the income in his hands, through effecting transfer of the income yielding assets in favour of his own wife and minor children. If the transfer is in favour of major children or other relations, the transferees may assert their own rights against the transferor and the chances of keeping control of the income in the hands of the transferor become much less. In our country, benami transactions in the name of wife and minor children are abundant and they are brought about, not unoften, for keeping away the creditors and tax collectors. Whatever purpose behind the legislation under consideration may be, since it is a taxing statute, it has to be construed strictly; and the citizens liability thereunder cannot be extended, if he does not come within the scope of the legal provision. Where there is a room for any doubt, the benefit must go to the subject.
The present law (income tax Act, 1961) has brought about a different position. Section 22 to 27 deal with income from house property. In section 27(ii) it is provided that, for the purposes of sections 22 to 26, the holder of an impartible estate shall be deemed to be the individual owner of all the properties comprised in the estate. u/s 27(i), an individual, who transfers otherwise than for adequate consideration any house property to his or her spouse, not being a transfer in connection with an agreement to live apart, or to a minor child not being a married daughter, is to be deemed to be the owner of the house property so transferred. An owner of a house property is liable to assessment (section 22). The above two provisions of section 27 taken together bring the husband-transferor of house property comprised in an impartible estate to the wife under the liability of assessment on the income from that house property. Section 64 of the new Act corresponds to section 16 (3) of the old Act. A distinction has thus been made in the new Act in regard to the income from house property comprised in an impartible estate where the house property is with the holder or the transfer is to his wife or minor children otherwise than for adequate consideration. Transfer of other assets of the impartible estate will, therefore, be not subject to such artificial liability in the hands of the holder of the estate. In the instant case before us, the transfer was in regard to house properties; but, in the absence of any provision similar to section 27 of the new Act, that could not be brought within the scope of section 9 of the old Act. The Income Tax authorities sought to bring that under artificial liability created u/s 16 of the old Act, which, as I have shown above, cannot be defended. On this conclusion, question No. (2) under reference has to be answered in the negative an in favour of the assessee.
In view of the above answer, question No. (3) does not fall to be considered.
The reference is thus disposed of. But, in the circumstances of the case, there will be no order for costs against either party.
A. B. N. SINHA J. - I agree.