Rajendra Lal v. Commissioner Of Income Tax, Allahabad High Court, Judgment, Law, casemine.com

Citation Codes

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Case Number

IT REFERENCE NO. 252 OF 1964

Judges

V.G. Oak C

Acts

14. Section 64 of the Indian Income-tax Act, 1961, corresponds to Section 16, of the Indian Income-tax Act, 1922.
Sub-clause (iii) of Clause (a) of Sub-section (3) of Section 16 of the 1922 Act.
Section 66 of the Indian Income-tax Act, 1922. Rajendra
Section 16(3)(a)(iii) of the Indian Income-tax Act, 1922.
Sub-clause (iii) of Clause (a) of Section 16(3).
Section 16(3)(a)(iv) of the 1922 Act
provisions of Section 16(3)(a)
provisions of Section 16(3),

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Smart Summary

Factual and Procedural Background

This is a reference under Section 66 of the Indian Income-tax Act, 1922. The assessee is Rajendra Lal, an individual and son of Sir Shadi Lal. The assessment year is 1961-62 and the relevant accounting period ended on March 31, 1961.

Certain shares worth Rs. 2,20,000 belonged to a joint Hindu family consisting of Sir Shadi Lal and his sons. A partial partition took place on August 18, 1959, and the shares were divided among family members (the opinion reproduces the allocation). At assessment for 1961-62, the Income‑tax Officer noted income received by Smt. Sushila Devi by way of interest/dividend on Rs. 1,00,000 and included that income in the assessment of Rajendra Lal on the footing that Rs. 1,00,000 had been transferred by Rajendra Lal in favour of his wife. The inclusion was made under Section 16(3)(a) of the 1922 Act, and that decision was upheld by the Appellate Assistant Commissioner and by the Appellate Tribunal.

At the request of the assessee, the Tribunal referred the following question of law to the court: "Whether, in the facts and circumstances of the case, the provisions of Section 16(3)(a) are applicable?"

Legal Issues Presented

Whether, in the facts and circumstances of the case, the provisions of Section 16(3)(a) of the Indian Income‑tax Act, 1922, are applicable?

Arguments of the Parties

Appellant's Arguments (as stated in the opinion)

The principal contention of the assessee's counsel was that the sum of Rs. 1,10,000 (the share received on partition) did not belong to Rajendra Lal in his individual capacity, but as karta of a smaller joint family consisting of himself and his wife; accordingly he could not be treated as having transferred assets to his wife within Section 16(3)(a)(iii).
Reliance was placed on decisions (Commissioner of Income‑tax v. Beni Prasad Tandon and Narendra Nath v. Commissioner of Wealth‑tax) holding that where a coparcener with only a wife and daughters receives a share on partition, that share should be treated as belonging to a Hindu undivided family consisting of the coparcener, his wife and minor daughters, not exclusively to the coparcener.
The assessee's counsel also suggested that, according to a passage from Malta's Hindu Law, a wife may be entitled to a separate share on partition; he relied on that passage to argue that Smt. Sushila Devi had a right to a separate share rather than having received a transfer from her husband.
It was contended that the transferor was the undivided Hindu family (or that the property retained the character of joint family property), so the transfer could not be regarded as a husband-to-wife transfer within the meaning of Section 16(3)(a)(iii).

Contentions Against the Appellant (as addressed in the opinion)

The factual position was that, of the two coparceners (Rajendra Lal and Narendra Lal) each entitled to Rs. 1,10,000, Rajendra Lal voluntarily allotted Rs. 1,00,000 of his allotted share to his wife as part of a family arrangement; the Court treated this as an indirect transfer by Rajendra Lal in favour of his wife.
There was a challenge to the genuineness/adequacy of the consideration recorded against the wife's share (notations described the Rs. 1,00,000 as 'capitalised consideration for her maintenance finally'); the Court examined those entries and found them fictitious, concluding the transfer was otherwise than for adequate consideration.
It was argued (and considered) that Rajendra Lal might not have been competent to transfer a share with the character of joint family property; the Court addressed competence and relied on authority indicating that, in the absence of male issue, the dividing coparcener could be properly described as owner for these purposes.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Commissioner of Income-tax v. Beni Prasad Tandon, [1969] 71 I.T.R. 322 (All.)	Held that a share of family property received by a member of a Hindu undivided family who has no male issue but only a wife and daughters on partition should be treated as property belonging to the Hindu undivided family consisting of the assessee, his wife and minor daughters, not exclusively the assessee.	The Court observed this decision but concluded it did not directly assist the assessee because the present question was whether there was a transfer by the husband to the wife within Section 16(3)(a)(iii), not whether the share should be assessed as individual or HUF property.
Narendra Nath v. Commissioner of Wealth-tax, [1969] 74 I.T.R. 190 (S.C.)	Supreme Court held that when a coparcener having a wife and two minor daughters and no son receives his share on partition, that property in his hands belongs to the Hindu undivided family of himself, his wife and minor daughters, and cannot be assessed as his individual property for wealth-tax purposes.	The Court treated this authority as distinguishable for the same reason as Beni Prasad Tandon—the issue here was whether there was a transfer by the husband to his wife attracting Section 16(3)(a)(iii); the Court also relied on the Supreme Court's observation that, in absence of male issue, the dividing coparcener may be described as owner, to support the proposition that Rajendra Lal was competent to allot the Rs. 1,00,000 to his wife.
Hirday Narain v. Commissioner of Income-tax, [1965] 57 I.T.R. 363 (All.)	Held that Section 16(3)(a)(iv) of the 1922 Act was not applicable where the assessee was a Hindu undivided family (i.e., the section applies to individuals, not to HUFs in that context).	The Court distinguished this case on the factual ground that the present assessee was an individual, not a HUF, making Hirday Narain not determinative of the present question.
Maharaj Kumar Kamal Singh v. Commissioner of Income-tax, [1968] 67 I.T.R. 725 (Pat.)	Patna High Court held that for income from assets transferred to a wife to be included in the husband's total income under Section 16(3), the transferor-husband must himself have been the owner of the assets before the transfer; properties in an impartible estate belong to the HUF, so transfers by the holder of such an estate to his wife could not be included under Section 16(3)(a)(iii).	The Court noted this principle but applied it to the facts by determining that Rajendra Lal was competent and in effect the transferor of the Rs. 1,00,000 from his share; consequently the principle in Maharaj Kumar Kamal Singh did not prevent application of Section 16(3)(a)(iii) in this instance.

Court's Reasoning and Analysis

The Court approached the matter by testing the facts against the elements of sub-clause (iii) of clause (a) of Section 16(3) of the 1922 Act. The relevant statutory text provided for inclusion in the husband's total income of so much of the income of his wife as arises directly or indirectly from assets transferred directly or indirectly to the wife by the husband otherwise than for adequate consideration.

The key analytical steps were:

Whether there was a transfer (direct or indirect) by Rajendra Lal in favour of his wife — the Court found that there was. Although Rajendra Lal did not make a direct transfer in the simple sense, sub-clause (iii) covers indirect transfers; on partition Rajendra Lal, one of two coparceners each entitled to Rs. 1,10,000, allotted Rs. 1,00,000 of his share to his wife as part of the family arrangement, which the Court treated as an indirect transfer by Rajendra Lal to his wife.
Whether the transferor was Rajendra Lal or the undivided family — the Court rejected the contention that the transfer was by the undivided family. The sum in question was transferred by Rajendra Lal from the share to which he was entitled on partition; therefore it was a transfer by the husband.
Whether Rajendra Lal was competent to make such an allotment from the share received on partition — the Court observed that Rajendra Lal was the sole coparcener in the small family consisting of himself and his wife, and noted the Supreme Court's observation in Narendra Nath that in the absence of male issue the dividing coparcener may be properly described as owner; on that basis the Court concluded Rajendra Lal was competent to allot Rs. 1,00,000 to his wife.
Whether the transfer was made otherwise than for adequate consideration — the partition entries recorded that the Rs. 1,00,000 was the 'capitalised consideration for her maintenance finally.' The Court inspected the record and found no indication of strained relations or proceedings for maintenance; similar notations were made for other women and minors. The Court regarded these entries as fictitious and therefore held that there was no adequate consideration supporting the transfer.
Conclusion as to applicability of Section 16(3)(a)(iii) — because an indirect transfer by the husband to his wife had occurred, the husband was competent to make the allotment, and there was no adequate consideration, the Court concluded that all the conditions of sub‑clause (iii) of clause (a) of Section 16(3) were satisfied.

The Court also considered authorities cited by the parties and distinguished those authorities where necessary (for example, noting that decisions treating the partitioned share as HUF property did not directly answer the transfer question under Section 16(3)(a)(iii)).

Holding and Implications

Holding:

The question referred to this Court is answered in the affirmative; the case is covered by Section 16(3)(a) of the Indian Income‑tax Act, 1922, and the assessment made by including the income of Smt. Sushila Devi in the assessment of Rajendra Lal is upheld.

Direct consequences and implications:

The Tribunal was right in holding that the case fell within Section 16(3)(a) and the inclusion of the wife's income in the husband's assessment for the year in question is affirmed.
The assessee (Rajendra Lal) was ordered to pay Rs. 200 to the Commissioner of Income‑tax, U.P., as costs of the reference.
No broader change in legal doctrine is announced in this opinion beyond the application of existing statutory provision to the facts; the opinion confines itself to the direct effect on the parties in this matter.

Note: This summary is drawn exclusively from the text of the provided opinion. Where the opinion did not elaborate broader policy or precedent‑setting commentary, only the direct effects on the parties have been reported.

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Rajendra Lal v. Commissioner Of Income Tax

1. This is a reference under Section 66 of the Indian Income-tax Act, 1922. Rajendra Lal is the assessee. He has been assessed as an individual. He is the son of Sir Shadi Lal. The assessement year is 1961-62. The relevant accounting period ended on March 31, 1961.

2. Certain shares worth Rs. 2,20,000 belonged to the joint Hindu family consisting of Sir Shadi Lal and his sons. There was a partial partition in the family on August 18, 1959. The shares worth Rs. 2,20,000 were divided among the different members of the family as follows :

Sri Rajendra Lal, son of Shadi Lal 10,000 Smt. Sushila Devi, wife of Rajendra Lal 1,00,000 Narendra Lal, son of Shadi 10,000 Smt. Kamla Devi, wife of Narendra Lal 10,000 Km. Rupa Rani (minor) 45,000 Km. Manjula Rani (daughter) 45,000

3. At the time of assessment for 1961-62, the Income-tax Officer noticed certain income received by Smt. Sushila Devi towards interest or dividend on Rs. 1,00,000, The Income-tax Officer included this income in the assessment of Rajendra Lal on the footing that the sum of Rs. 1,00,000 had been transferred in 1959 by Rajendra Lal in favour of his wife, Smt. Sushila Devi. Her income was included in Rajendra Lal's assessment under Section 16 (3)(a) of the Act. This decision was upheld in appeal by the Appellate Assistant Commissioner and by the Appellate Tribunal. At the request of the assessee, the Tribunal has referred the following question of law to this court.

''Whether, in the facts and circumstances of the case, the provisions of Section 16(3)(a) are applicable ?

The question for consideration is whether the present case falls under Sub-section (3) of Section 16 of the Act. Sub-section (3) of Section 16 of the Act stated;

"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 a 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 ;...."

4. The question for consideration is whether the present case is covered by sub-clause (iii) of clause (a) of sub-section (3) of section 16. It is true that Rajendra Lal did not make a transfer in favour of his wife directly. But Sub-clause (iii) covers cases of indirect transfer also. We have, therefore, to consider whether there is a case of indirect transfer of assets by Rajendra Lal in favour of his wife.

5. In 1959 Rajendra Lal and Narendra Lal were, the two coparceners, who were entitled to receive shares in the property worth Rs. 2,20,000. Each of the two brothers was entitled to a share worth Rs. 1,10,000. But the two brothers decided to allot certain shares to other members of the family. According to that plan, a sum of Rs, 1,00,000 was allotted to Smt. Sushila Devi from the total share of Rs. 1,10,000, to which Rajendra Lal was entitled under the partition. This was an indirect transfer by Rajendra Lal in favour of his wife of assets worth Rs. 1,00,000.

6. The main contention of the learned counsel for the assessee is that the sum of Rs. 1,10,000 did not belong to Rajendra Lal in his individual capacity, but as karta of the smaller joint family consisting of himself and his wife. Reliance was placed upon a decision of this court in Commissioner of Income-tax v. Beni Prasad Tandon, [1969] 71 I.T.R. 322 (All.). It was held by this court that a share of family property received by the member of a Hindu undivided family who has no male issue but only a wife and daughters on partition of the undivided family should be treated as property belonging to the Hindu undivided family consisting of the assessee, his wife and minor daughters, and not property exclusively belonging to the assessee.

7. Similarly, in Narendra Nath v. Commissioner of Wealth-tax, [1969] 74 I.T.R. 190 (S.C.) it was held by the Supreme Court that, when a coparcener having a wife and two minor daughters, and no son, receives his share of joint family properties on partition, such property in the hands of the coparceners belong to the Hindu undivided family of himself, his wife and minor daughters, and cannot be assessed as his individual property for the purposes of wealth-

tax.

8. These decisions do not directly assist the assessee, because in the present case we are not concerned with the question whether the sum of Rs. 1,00,000 was assessable in Rajenda Lal's hands as an individual or as representative of the undivided Hindu family. The question which directly arises for consideration is whether there was a transfer by the husband-in favour of the wife as contemplated by Section 16 (3) a of the Act.

9. The learned counsel suggested, that at the time of the partition in 1959, Smt. Sushila Devi was entitled to a certain share in the joint family property. In Malta's Hindu Law, thirteenth edition, it is stated at page 365 under Section 315 that;

"A wife cannot herself demand a partition, but if a partition does take place between her husband and his sons, she is entitled to receive a share equal to that of a son and to hold and enjoy that share separately even from her husband."

10. That passage does not support the contention that a coparcener's wife is entitled to a separate share in the joint family property even if that coparcener has no son. This is not a case where Smt. Sushila Devi was entitled to a share in the property as a matter of right. It was as a result of a special arrangement in the family that a share of Rs. 1,00,000 was allotted to her.

11. There was some discussion whether there was any transfer at all within the meaning of Sub-clause (iii) of Clause (a) of Section 16(3). But the point was not seriously pressed. This is a clear case of transfer in favour of Smt. Sushila Devi.

12. It was, however, contended that the transferor was not Rajendra Lal but the undivided Hindu family. It is true that originally the entire property belonged to the undivided Hindu family consisting of Sir Shadi Lal and his sons. But it is not correct to say that the sum of Rs. 1,10,000 was transferred by the joint family. This sum was transferred by Rajendra Lal alone from the share to which he was entitled under the partition. This is a case of a transfer by a husband in favour of the wife.

13. The learned counsel further contended that, since the property received by Rajendra Lal upon partition had the character of joint family property, he was not competent to transfer it in favour of his wife. This contention does not appear to be correct. We must bear in mind that Rajendra Lal was the sole coparcener in the joint family consisting of himself and his wife. In Narendra Nath's case referred to above, their Lordships of the Supreme Court observed at page 197, that in the absence of male issue the dividing coparcener may be properly described in a sense as the owner of the property. It, therefore, appears that Rajendra Lal was fully competent to allot to his wife a share worth Rs. 1,00,000 from the total share of Rs. 1,10,000 to which he was entitled under the partition.

14. Section 64 of the Indian Income-tax Act, 1961, corresponds to Section 16, of the Indian Income-tax Act, 1922. In the Law and Practice of Income-tax by Kanga and Palkhivala, sixth edition, volume 1, the learned authors have observed at page 530 that section 64 of the 1961 act applies only to the computation of the total income of any individual. The section does not cover the case of the karta of a joint family gifting coparcenery property to his wife or minor son.

15. The learned authors have relied upon two decisions of the Allahabad High Court and the Patna High Court. The decision of the Allahabad; High Court is Hirday Narain v. Commissioner of Income-tax, [1965] 57 I.T.R. 363 (All.). In that case the assessee was a Hindu undivided family. It was, therefore, held that Section 16(3)(a)(iv) of the 1922 Act was not applicable. In the present case the assessee is an individual. This important circumstance distinguishes the present case from Hirday Narain's case.

16. In Maharaj Kumar Kamal Singh v. Commissioner of Income-tax, [1968] 67 I.T.R. 725 (Pat.) it was held by the Patna High Court that where income from assets transferred to a wife are sought to be included in the total income of the husband under the provisions of Section 16(3), it would necessarily mean that the transferor-husband was himself the owner of the assets before they were transferred. Since the properties comprised in an impartible estate belong to the Hindu undivided family of which the holder of the asset is a member, income from house property transferred by the holder of an impartible estate to his wife cannot be included in his total income under Section 16(3)(a)(iii) of the Indian Income-tax Act, 1922.

17. We have explained above that Rajendra Lal was fully competent to allot a share worth Rs. 1,00,000 to his wife from the total share of Rs. 1,10,000 to which he was entitled. There is, therefore, no difficulty in bringing the instant case within the four corners of Sub-clause (iii) of Clause (a) of Sub-section (3) of Section 16 of the 1922 Act.

18. Another condition mentioned in Clause (iii) is that the transfer should be otherwise than for adequate consideration. We have, therefore, to consider whether the transfer in question by Rajendra Lal in favour of his wife was for adequate consideration. Details of the relevant entries relating to the partition have been quoted in the statement of the case. Against the share of Rs. 1,00,000 allotted to Smt. Sushila Devi in the partition, there was a note that this sum was the capitalised consideration for her maintenance finally. If the sum of Rs. 1,00,000 represented a genuine consideration towards Smt. Sushila Devi's claim for maintenance, it could probably be said that the consideration was inadequate. But there is no indication on the record that relations between Rajendra Lal and his wife were strained in 1959. There is no suggestion that she had filed any suit for maintenance against her husband. There are similar notes against the shares allotted to Smt. Kamla Devi, Kumari Manjula Rani and Kumari Rupa Rani, minor. It is impassible to accept the suggestion that this was a genuine settlement of claims of the women and the children. Thus, the entries relating to maintenance appear to be fictitious. It must, therefore, be held that the transfer in question was otherwise than for adequate consideration.

19. The sum of Rs. 1,00,000 was transferred by Rajendra Lal in favour of his wife indirectly at the time of the partition in 1959. There was no adequate consideration to support the transfer. The assessee is an individual. Thus, all the conditions set forth in Sub-clause (iii) of Clause (a) of Sub-section (3) of Section 16 of the Act are fulfilled in the instant case. The Tribunal was right in holding that the case is covered by section 16(3)(a) of the Act.

20. We answer the question referred to this court in the affirmative, and against the assessee. The assessee shall pay the Commissioner of Income-tax, U.P., Rs. 200 as costs of this reference.

Rajendra Lal v. Commissioner Of Income Tax

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Appellant's Arguments (as stated in the opinion)

Contentions Against the Appellant (as addressed in the opinion)

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Rajendra Lal v. Commissioner Of Income Tax

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