1. The question in this reference relates to the correct interpretation of s. 4(1)(a)(ii) of the W.T. Act, 1957, and it relates to the assessment year 1963-64 for which the corresponding valuation date was October 28, 1962.

2. The respondent-assessees are six brothers. They along with their grandfather were partners in a firm called Brijmohan Kaluram. On July 23, 1962, these six assessee-partners purported to make gifts of Rs. 50,000 each to the minor sons or daughters of the other brothers. Such gifts were effected by issue of cheques and evidenced by declarations of gifts. On voluntary returns filed by the brothers they were subjected to gift-tax under the G.T. Act. The particulars of the gifts and the names of the doness are as under :

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3. The WTO in the respective assessments of the six assessees took the view that all the transactions of gifts were collusive in nature ultimately amounting to sham transactions. Having regard to the mutual gifts by each brother made in favour of his nephew or niece he took the view that the nephews or nieces, who were the beneficiaries under the gifts, were minors. He took notice of the fact that there was no particular occasion or contingency which made it necessary for all these six sets of gifts of Rs. 50,000 each to be made on the same day, namely, July 23, 1962, by all the six married brothers. The transactions appeared to be of a mutual nature, each gift being the consideration for the opposite gift by one of the other assessees for the benefit of the assessee's child or children. According to him, each gift was adequate and equal in consideration by way of a corresponding gift from the other brother for the benefit of the children of the other. These transaction were collusive in nature ultimately amounting to sham transactions. He held that the transfers of the assets in question have been effected to persons through whom an indirect benefit of an equal nature accrued to the children of the other brothers. Accordingly, in the case of each one of the assessees the sum of Rs. 50,000 was regarded as includible in the assessee's total wealth in terms of s. 4(1)(a)(iii) of the Act. He even went further and held that these transactions did not amount to any real transfer or disposition of the assets in question and was accordingly includible in the computation of the total wealth of the assessee.

4. In the separate appeal filed by each of the assessee the finding of the WTO was confirmed by the AAC. According to him, what each brother gave to his brother's child or children was again received by his child or children in a circuitous manner. The asset in the course of being transferred has been deliberately changed into the asset of a like value of another person. All the transfers were effected on the same day and all the transaction were of equal amount, but the transfers were effected with a deliberate scheme of avoidance of tax under s. 4(1)(a) of the Act. All the transactions were intimately connected and they cannot but be regarded as parts of a single transaction. The transaction according to him also appeared to be of a collusive nature even though the gifts were supported by declarations and gift-tax had been paid. He took notice of the fact that each brother showed much more love and affection for his brother's child or children rather than his own. According to him, the transaction could not be taken at their face value and he had no hesitation in holding that the assets held in the name of the minor child or children were properly included in the net wealth of the assessee.

5. In the second appeals separately preferred by the assessees, the Tribunal reversed the orders of the WTO and the AAC. The Tribunal noted the provisions of s. 4(1)(a)(i) and (ii) of the Act as they then existed and noted the difference in the language of the two cls. (a)(i) and (a)(ii). In cls. (a) (i) which dealt with transfer of the assets by the assessee to his wife, there existed the expression "directly or indirectly" but in clause (a)(ii) which dealt with transfer of assets by the assessee to his minor child the expression "directly or indirectly" is not there. The Tribunal took notice of the fact that the Legislature could not have been unaware of the implications of the expression "directly or indirectly", but in its wisdom had advisedly omitted the expression "indirectly" when it came to s. 4(1)(a)(ii). The Tribunal contrasted the provisions in the Indian I.T. Act, 1922, and pointed out that in s. 16 in respect of assets transferred by an assessee to his wife or to his minor child or children, the expression "directly or indirectly" was used in both the cases, while it was deliberately omitted so far as clause (a)(ii) of s. 4 of the W.T. Act was concerned. It also took notice of the fact that this omission was recognised by the Legislature and later on an appropriate modification was made by the W.T. (Amend.) Act, 1964, whereby the expression "directly or indirectly" was also introduced in clause (a)(ii) in respect of assets transferred to a minor child. The Tribunal took the view that as there was no direct gift by the assessee to his minor child the provisions of s. 4(1)(a)(ii) were not attracted in the present case and the sum of Rs. 50,000 could not be included in computing the net wealth of the assessee.

6. At the instance of the revenue, the following question has been referred to us for our determination :

"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the amount of Rs. 50,000 gifted by the assessee was not includible in the wealth of the assessee for the assessment year 1963-64 ?"

7. Mr. Joshi on behalf of the revenue submitted that all the assessees who made the gifts are related to each other as brother. On the same day, each brother made a gift of Rs. 50,000 in favour of his nephew and/or niece with the result that each assessee's minor child or children benefited to the extent of Rs. 50,000. All these gifts having been effected on the same day were part and parcel of the same transaction an even though the expression "directly or indirectly" was not used at the relevant time still they were part and parcel of the same transaction and the taxing authorities were right including the sum of Rs. 50,000 in computing the net wealth of each one of the assessees. He submitted that such was the real intention of the original provision is clear as, later on, by the W.T. (Ahmed.) Act of 1964, the provisions of s. 4(1)(a)(ii) were amended. Even in the objects and reasons while interdicting the relevant Bill it is clearly stated that the amendment was made to clarify that s. 4(1)(a)(ii) applies to indirect transfers.

8. He, therefore, submitted that even before the addition off this amendment the intention of the Legislature was clear and even in the case of indirect gifts to the minor child of an assessee the provisions of s. 4(1)(a)(ii) as existed earlier were attracted. Reliance was placed by him upon the decision of the Supreme Court in case of CIT v. Keshavji Morarji [1967] 66 ITR 142, wherein the Supreme Court has taken the view that if two transfers are inter-connected and are parts of the same transaction in such a way that it can be said that the circuitous method was adopted as a device to decade the implications of s. 16(3)(a)(iii) or (iv) of the Indian I.T. Act, 1922, the case will fall within the section and the same considerations that art relevant in the application of sub-clause (iii) of s. 16(3)(a) are relevant in the application of sub-clause (iv).

9. Section 4(1)(a) of the Act makes provision for including in the computation of the net wealth of an assessee not only the assets that actually belong to the assessee himself but that which belongs to some other person. Such provision will ordinarily receive strict construction and unless a case is capable of being brought within the language used in the section, the provisions will not be attracted. At the relevant time, i.e., from the assessment year 1963-64, with which we are concerned, s. 4(1)(a)(i) and (ii) read as under :

"4. (1) In computing that net wealth of an individual, there shall be included, as belonging to him -

(a) the value of assets which on the valuation date are held -

(i) by his wife to whom such assets have been transferred by the individual, directly or indirectly, otherwise than for adequate consideration or in connection with an agreement to live separately, or

(ii) by a minor child not being a married daughter to whom such assets have been transferred by the individual otherwise than for adequate consideration."

10. The short question that we have to consider in this case is whether on a proper interpretation of clause (a)(ii) above, in computing the net wealth of each of the assessees is the sum of Rs. 50,000 gifted by the uncle in favour of his nephew or niece to be included therein ? on a plain reading of clause (a)(ii) it is clear that it provides of inclusion of assets which have been transferred by an assessee to a minor child. In the present case, none of the assessees has transferred any amount to his own minor child or children and on a plain reading of sub-clause (ii) such case is not capable of being included therein. Further, the difference in the language of clause (a)(i) and clause (a)(ii) ought not to be overlooked. Under clause (a)(i) even property transferred by an assessee directly or indirectly, otherwise than for adequate consideration or in connection with an agreement to live separately, to his wife in includible. The Legislature in its wisdom considered it proper to use the expression "directly or indirectly" in clause (a)(i), but so far as clause (a)(ii) is concerned, the expression "directly or indirectly" has been omitted. Such omission was made even though in the corresponding provisions in s. 16 of the Indian I.T. Act, 1922, the expression "directly or indirectly" was used in connection with assets transferred by an assessee to his wife as well as to his minor child. Thus, there was a clear departure when initially the W.T. Act was enacted in respect of assets transferred by an assessee to his minor child and assets transferred by an assessee to his wife. The assets transferred by an assessee to his wife were includible even though they where transferred wither directly or indirectly, but so far as a minor child was concerned, they were includible only if they were transferred by the assessee, which means directly transferred. When an uncle has made a gift of Rs. 50,000 in favour of his minor niece or nephew it cannot be said that the father has tranfetrtefd to his own minor child or children Rs. 50,000 even though a number of gifts as parts of the same transaction might have taken place on the same day. This provision of s. 4(1)(a)(ii) is evidenced from the fact that later on Parliament considered it necessary to amend the provisions of s. 4(1)(a)(ii) by the W.T. (Ahmend.) Act, 1964. By that amendment even in clause (a)(ii) the expression directly or indirectly" was introduced. Mr. Joshi has invited our attention our attention to the objects and reasons of the W.T. (Amend.) Bill, 1964. It, inter alia, states that s. 4(1)(a) (of the Bill) amends s. 4(1) (of the W.T. Act, 1957) and also clarifies that s. 4(1)(a)(ii) applies to indirect transfer. It is quite evident from the objects and reasons that this is a clarificatory provision and not a declaratory one. Declaratory provisions may have retrospective effect but so far as a clarficatory provision is concerned, it is always prospective in its operation. Thus, be regard to the difference in the language of the two sub cls. (i) and (ii) s. 4(1)(a) of the Act as well as the comparison of the language of s. 16 of the Indian I.T. Act, 1922, and introduction of an amendment by the W.T. (Amend.) Act, 1964, it is quite evident that prior to the amendment if a transfer was effected indirectly in favour of a minor child then it was not capable of being included in computing the net wealth of an assessee.

11. In the result, our answer to the question is in the affirmative and in favour of the assessees. The revenue shall pay the costs of the assessees.