TaxTMI 
TaxTMI 
1961 (2) TMI 89
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....ax Act and also held that such transfer could be construed to be a revocable one within the meaning of section 16(1)(c) of the Act. The facts giving rise to these questions of law may be briefly stated. The assessee is P.J.P. Thomas who held 750 "A" shares in J. Thomas and Co. Ltd., Calcutta. He entered into an engagement to marry one Mrs. Judith Knight. The engagement was announced on the 3rd September, 1947. The assessee and Mrs. Judith Knight on the 10th December, 1947 presented to the company an application to transfer the said shares to Mrs. Judith Knight. The company transferred those shares to Mrs. Knight and registered the same in the name of Mrs. Knight on its books on the 15th December, 1947. Marriage took place between the assessee and Mrs. Judith Knight, within three days after the registration, on the 18th December, 1947. The fact of the marriage was communicated to the company on the 26th January, 1948, and the name of Mrs. Judith Knight was rectified as Mrs. Judith Thomas in the books of the company. It is undisputed that during the relevant period the shares stood registered in the name of the assessee's wife and the income in question arose to her a....
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....consideration failed, that is, the forthcoming marriage did not take place, then Thomas would be in a position to recall the shares from Mrs. Judith Knight and all or such dividends as she might have withdrawn between the date of the deed and the failure of consideration of the marriage. Now comes section 16(3)(a)( iii) of the Income-tax Act. Section 16 deals with "exemptions and exclusions in determining the total income." Sub-section (3) of section 16 was added to the statute book by section 2 of the Indian Income-tax (Amendment) Act, 1937 (IV of 1937). It 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 or minor child... 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;..." This is the relevant portion of section 16(3)(a)( iii) with which we are concerned. On an examination of the language of this section, it is clear (1) that it relates to the computation of the total income of ....
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....tween 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." The argument, therefore, of the assessee that because Mrs. Judith Knight was not the wife of the assessee at the time of the deed of transfer, hence section 16(3)(a)(iii ) of the Act could never apply to the assessee is, in my view, wrong, first, because the crucial date to determine the relationship between the husband and wife is the date when the taxing authorities are computing the total income of the husband in which time they had become husband and wife in this case and secondly, because the nature of the document in this case is such that the transfer or the disposition or the settlement of these shares can only be construed as a transfer to a person as wife and in no other capacity. The whole object and purport and purpose of this transfer of shares was by a husband to a wife. Interesting arguments were advanced to us whether the words "husband&qu....
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....n if it could be assumed that natural love and affection amounted to consideration within the meaning of section 16(3)(a)( iii) of the Income-tax Act, it could not come under the words "adequate consideration" within the meaning of that section. These reasons will be found in the judgment of the full bench delivered by Harries C.J. at pages 147 to 149 and in the observations of Manoharlal J. at pages 151 to 154 of the Patna report which I have already quoted. The next case is one of the Lahore High Court, In re Sardarni Narayan Kaur [1943] ITR 448, where the Lahore High Court took the same view of interpretation of the expression "adequate consideration" in section 16(3)(a)(iii ) at pages 452-53 of the report. The next case is Tulsidas Kilachand v . Commissioner of Income-tax [1958] 33 ITR 383, where the Bombay High Court took the same view that the words "adequate consideration" in section 16(3)(b) did not include within their scope natural love and affection. Prima facie all these cases are against the assessee. But what is contended on behalf of the assessee is that these cases are distinguishable on the ground that they all related to cases of h....
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....d, the marriage followed within three days of registration. In fact, from the dates it is irresistible inference that Mrs. Judith Knight did not wish to get on to the marriage register until she first got on to the company's register of shareholders. It will, therefore, be the most proper inference to hold in this case that marriage was a part of the financial and valuable consideration for which the transfer of these shares was made to the prospective wife. From that point of view, the facts in this case may answer the question of valuable consideration and the decisions quoted above are not an obstacle in the way of the assessee. But the assessee's difficulties arise when the adequacy of that consideration is considered. Even if marriage can be a valuable consideration for a transfer of assets, even then in order to avoid the addition, the husband has to show that the consideration was adequate. Now, in this case apart from the facts, the question would arise; can marriage, even considered as a valuable consideration which will support transfer of assets, ever be judged on that basis? It is unquestioned that section 16(3)(a)( iii) of the Act exempts the husband from the w....
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.... I am not unmindful of the situation that section 16(3)(a )(iii) of the Act provides as between husband and wife as such, a case of transfer for adequate consideration which will be excluded from the operation of this sub-section. But a transfer as between husband and wife as such for adequate consideration can certainly be objectively measured because there marriage itself is not the consideration but the consideration will be measured by the market standards of the assets, and price at the date of transfer and there is no difficulty in evaluating such a consideration. It may be an unusual instance for which this sub-section provides because such a case of transfer between husband and wife for adequate consideration may not be frequent and will perhaps be few and far between for the simple reason that as between husband and wife during coverture certain transfers are not made as between ordinary contracting parties, but even then when they do take place, the taxing authorities or the Income-tax Tribunal or the courts will always have enough materials to judge of the adequacy of such a consideration. But this argument is not available where marriage itself is put forward as a cons....
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.... that the husband or the parent is bound to maintain his wife or child and any settlement or disposition that he makes upon them would be to provide maintenance for them which in any case he was bound to do. The transfer of assets was at best only an arrangement for providing maintenance to these dependent relations. Therefore, if expenditure was incurred directly by the assessee for such purpose out of his income, he could not claim any allowance. If this reasoning be applied, then in this case the assessee does not succeed. The decision in Cohen v. Sellar [1926] 1 KB 536 lays down the proposition that if a man who had promised to marry a woman and had given to her an engagement ring in contemplation of marriage and then refused without legal justification to carry out his promise, he could not demand the return of the engagement ring but if a woman who had received an engagement ring in contemplation of marriage refused to fulfil the conditions of the gift and to carry out her promise, she must return the ring. This, if anything, bears on the nature of the contract and the condition of the gift. The principle is clear that where, as in the case before us, the whole transfer is s....
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....ana Sons v. Commissioner of Income-tax AIR 1955 TC 30); (2) are the attributes of a wife enough to make a woman a wife such as a concubine or a fiancee as in T.V. Krishna Iyer v. Commissioner of Income-tax [1960] 38 ITR 144 ; (3) the woman is not an individual (see Commissioner of Income-tax v. Sodra Devi [1957] 32 ITR 615 (SC) and (4) looking at the list of reliefs of the harassed husband, the income-tax relief value of a wife comes to only about ₹ 10 or ₹ 12 a month on an analysis of the great advantages of taxation which a married man is supposed to enjoy over his unmarried fellowman in India. I shall rest content in this reference by holding the very old traditional orthodox and unfashionable view that a wife under section 16(3)(a )(iii) means a legally wedded wife and no one else, although the customs of such legal wedding may liberally vary as being sanctified either in the church or on the marriage register or before some ancient fire. For these reasons, I answer the first question in the affirmative and hold that the dividends mentioned therein can be included in the income of Mr. Thomas and taxed in his hands under section 16(3)(a)( iii) of the Indian Income-t....
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....c). Section 16(1)(c), unlike section 16(3)(a)(iii ), does not expressly refer to husband and wife or parent. It deals with settlement or disposition. It expressly says that such disposition may be revocable or not revocable. But the governing words of section 16(1)(c) are "from assets remaining the property of the settlor or disponer". In other words, although there is a settlement or disposition and although it may be revocable or not revocable, the acid test is that the assets remain the property of the settlor or disponer notwithstanding such settlement or disposition. Therefore it is said that income arising to a person by such settlement or disposition shall be deemed to be the income of the settlor or disponer. Now, this particular part of section 16(1)(c) has no application because here the assets, namely, the 750 shares did not remain the property of Mr. Thomas. The next part of section 16(1)(c) is concerned with a revocable transfer. It is there that the issue is joined. The second part of section 16(1)(c) of the Act uses the words "all income arising to any person by virtue of a revocable transfer of assets shall be deemed to be the income of the transferor....
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.... to section 16(1)(c). Kania J. was of the view that a contingent claim provided for in clause 4 of the deed of transfer in that case which stated that in the event of the assessee surviving his wife, the income should be paid to him, was not covered by the first proviso of section 16(1)(c) of the Income-tax Act. On the other hand, Chagla J. was of the view that the words of section 16(1)(c) of the Act were wide enough even to cover a provision for a retransfer which was contingent in its nature. This case again did not actually decide the point which was put forward in this reference before us, namely, whether this provision could be an implied provision or an inference from or as a legal effect of the deed. The other cases to which our attention was drawn on behalf of the assessee was Inland Revenue Commissioners v. Wolfson [1949] 1 All ER 865. This was a House of Lords decision construing the English Finance Act of 1938 and its section 38(1). It was held there that the power referred to in section 38(1)(a) of the English Finance Act of 1938 must be found in the terms of settlement and not aliunde and as there was no such power conferred by the deed of covenant, the annual paymen....
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.... the report, Chagla C.J. observed: "It is to be borne in mind that the first proviso to section 16(1)( c) is very wide in its terms and makes any transfer a revocable transfer if it contains any provision which in any way gives the settlor a right to reassume power directly or indirectly over the income or the assets. Therefore, it is sufficient if such a power is given to the settlor. It may be given in any way." Tendolkar J. did not express himself on this point and observed at page 311 of the report dealing with the first proviso to section 16(1)(c) of the Act: "That proviso deals with cases where a trust is not, in fact, revocable but is deemed to be revocable by reason of certain provisions contained therein. That is not the present case before us, and what ever may be the correct view of the first proviso, since it does not arise in the determination of the reference before us, I do not wish to express any opinion with regard to it. The correct interpretation of that proviso, to my mind, is not necessarily a guide to the correct interpretation of the substantive section 16(1)(c) which deals with the question as to whether a trust is or is not, in fact, a r....
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....n 16(1)(c) arose in the facts and circumstances of this case. For these reasons, I hold that the answer to the second question should be in the negative and that in the facts and circumstances of the case, the dividends could not be included in the total income of Mr. Thomas under section 16(1)(c) of the Income-tax Act. Each party will bear his own costs of this reference. Bose J.-This reference under section 66(1) of the Indian Income-tax Act involves determination of two questions of law turning on the interpretation of the provisions of section 16(3)(a)( iii) and section 16(1)(c ) of the Indian Income-tax Act. It has been argued that, in order that section 16(3)(a )(iii) of the Act may be attracted, the transfer has to be by the husband to a person who is actually the married wife of the transferor, at the time of the execution of the transfer and not merely a fiancee or the prospective wife, and as Mrs. Judith Knight was not married to Mr. Thomas at the date of the execution of the transfer, the provisions in question are not attracted. Now, it is true that the relation of husband and wife is a condition precedent to the applicability of the section. But it appears to me th....
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.... a mere sentimental consideration. It appears to me, however, that consideration of marriage or a promise to marry for a bona fide transfer of assets is a good valuable consideration but whether such consideration is adequate or not depends upon and has to be determined in the light of facts of a particular case. In Halsbury, Vol. 34, para. 814, page 459 (3rd edition it is stated that a valid marriage by itself irrespective of any pecuniary benefit or consideration constitutes valuable consideration for a settlement. There is a reference to a case in footnote (P) which is the case of Ex parte Marsh ( supra) which is cited along with several other cases in the said footnote of Halsbury at page 459. In this case of Ex parte Marsh ( supra), it is pointed out by the Lord Chancellor that "all marriage agreements differ from other agreements, for these do not arise from the consideration of a portion only but on account of the marriage". It is further stated in this very paragraph of Halsbury that a marriage that takes place on the faith of a voluntary settlement may supply ex post facto consideration and the case of Prodger v. Langham [1663] 1 Sid. 133 is referred to in suppo....
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.... of such propositions was that "If the marriage actually takes place then the engagement ring or like gift will, in the absence of express agreement to the contrary, become, I infer, the absolute property of the recipient, and that property will not, I presume, be divested by subsequent divorce." In the case of Nanjundaswami Chetty v. Kanagaraju Chetty [1919] ILR 42, Mad. 154, a settlement of a portion of a joint family property was made by a Hindu in favour of his foster-daughter in consideration of her marriage with another who offered to marry her on such condition. The alienation was challenged by a person who claimed to be the adopted son of the settlor inter alia on the ground that it was not supported by any consideration. Abdur Rahim J., who delivered the judgment of the Division Bench after referring to the definition of "consideration" as given in section 2(d) of the Contract Act, observed at page 159: "If a person contracts a marriage in consideration of a promise, then it seems to us that the marriage is valuable consideration within the meaning of this definition. In this respect the law is the same in India as in England. In England a promi....
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....ractice of the ancient Germans was to purchase their wives. The co-emptio of the Roman law was in form a purchase of the bride. To buy a wife remained in the middle ages the common expression for an engagement to marry. In modern times this practice has survived in the form of dowry, settlements and like dispositions. But the further question that arises is whether the consideration is adequate or not. There is no doubt that a modern marriage in all countries involves certain financial and economic considerations. The question of adequacy will depend on the social and financial status of the wife, (as for example, when the bride is a rich heiress) the extent of her needs and activities of life, her external appearance, her earning capacity, her educational qualifications, the sacrifice that she may have to make or any loss that she may have to suffer by reason of the marriage, the value of the property transferred and such other factors. But as these considerations for determining the adequacy are likely to vary from case to case and no fixed objective standard can be laid down for the purpose, it is reasonable to hold that such a kind of consideration was not intended to be compr....