Irrevocable settlement for minor children's maintenance was not adequate consideration, so income remained taxable in the transferor's hands.

An irrevocable settlement of property made to maintain and educate minor children was held not to be a transfer for adequate consideration where the consideration was not measurable in money or money's worth. The father's natural and legal obligation to support his minor children did not, by itself, convert the transfer into one made for adequate consideration. As the property was permanently transferred but the income continued to arise from assets settled on the minors otherwise than for adequate consideration, the anti-avoidance provisions applied and the income was includible in the transferor's total income.

---

---

Issues: Whether the income derived from properties settled by the assessee on his minor sons was liable to be included in his total income under section 16(3)(a)(iv) of the Indian Income-tax Act, 1922, and section 64(iii) of the Income-tax Act, 1961, on the ground that the settlements were not made for adequate consideration.

Analysis: The settlement deeds were irrevocable and were executed for the maintenance and education of the minor children. Although a Hindu father has a legal obligation to maintain and educate his minor children according to his status, that obligation does not convert an irrevocable transfer of property into a transfer for adequate consideration unless the consideration is measurable in money or money's worth. The object of the anti-avoidance provision is to prevent reduction of tax by transfers to minor children, and a mere discharge or provision for maintenance does not satisfy the statutory requirement of adequate consideration where the property itself is permanently transferred. The provision for the children's expenses was therefore only a device by which the assessee continued to derive the income while seeking to escape tax on it.

Conclusion: The transfers were not for adequate consideration, and the income from the settled properties was includible in the assessee's total income.

Final Conclusion: The reference was answered against the assessee, holding that the income from the settled properties was assessable in the hands of the transferor under the relevant anti-avoidance provisions.

Ratio Decidendi: An irrevocable transfer of property made to meet a legal obligation of maintenance and education does not constitute transfer for adequate consideration unless the consideration is capable of being measured in money or money's worth; such a settlement remains within the anti-avoidance rule taxing income arising from assets transferred to minor children otherwise than for adequate consideration.

---