Citation Codes

Equivalent Citations

citation codes

Case Number

Income-tax Reference No. 83 of 1973

Judges

Kantawala, C.J
Chandurkar, J.

Acts

s. 16(3)(b) of the Indian I.T Act, 1922 (corresponding to s. 64(1)(iii) of the I.T Act, 1961).
s. 64(1)(iii) of the I.T Act, 1961 (hereinafter referred to as the Act).
provisions of s. 16(3)(a)(iii) of the Indian I.T Act, 1922,
provisions of section 25 of the Indian Contract Act
provisions of s. 16(3)(a)(iii) of the Indian I.T Act,
provisions of s. 16(3) of the Indian I.T Act, 1922,
section 4(1)(a)(i) (of the Wealth-tax Act, 1957),
section 16(3)(a)(iii) of the Income-tax Act,
s. 16p)(a)(iii) of the Indian I.T Act, 1922,
provisions of the Indian Contract Act
section of the Indian I.T Act, 1922.
assessee.6. Section 64(1)(iii),
s. 16(3)(b) of the I.T Act,
section 4(1)(a)(i)

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Smart Summary

Structured Summary of the Opinion (Kantawala, C.J.)

Factual and Procedural Background

The assessee, Vivian Bose, married Miss Irene Mott (a Canadian national) on December 18, 1930. Because Canadian law required a pre-nuptial arrangement for a foreign bride to acquire a half-share in her husband's properties, the assessee entered into a pre-nuptial agreement with Miss Mott dated August 20, 1930. The agreement provided that certain accounts, securities, shares and properties then possessed and future acquisitions would be held in their joint and several names with rights of survivorship.

On December 5, 1938, Bimal Kumar Bose sold a one-third share in a vacant plot (Khasara No. 217/1, Hennessee Road, Nagpur) to the assessee and his wife for Rs. 4,334; the entire consideration was paid by the assessee. On November 23, 1940, the assessee (having inherited an adjoining part of Khasara No. 217/1) executed a transfer described as by a “trustee” to “beneficiaries” (the assessee and his wife), stating that the transfer was pursuant to the pre-nuptial agreement.

During assessment proceedings for the years 1967-68 and 1968-69, the assessee argued that the transfers (even if after marriage) were made for adequate consideration and, therefore, the income of the wife from those properties could not be included in the assessee's income under s. 64(1)(iii) of the Income-tax Act, 1961. The Income-tax Officer (ITO) rejected this contention and included the wife's income in the assessee's income under s. 64(1)(iii); the Appellate Assistant Commissioner (AAC) upheld that order.

On further appeal, the Tribunal held that s. 64(1)(iii) was not attracted: (i) the December 5, 1938 sale was by B.K. Bose to the assessee and his wife (not a transfer by the assessee to his wife); (ii) the November 23, 1940 deed, though between the assessee and his wife, did not amount to a prohibited transfer as trustee/beneficiary; and (iii) assuming indirect transfer by the assessee, the transfers were made pursuant to the pre-nuptial agreement and for “adequate consideration” (the promise to marry), so s. 64(1)(iii) did not apply. The Tribunal relied on a dictionary meaning of “adequate” and emphasized that the validity of the pre-nuptial agreement was not disputed by the revenue.

The present reference to this Court (Supreme Court bench) concerns whether the Tribunal was correct in concluding the transfers were for adequate consideration and hence the wife's income was not includible in the assessee's total income under s. 64(1)(iii).

Legal Issues Presented

Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the transfer of the immovable properties by the assessee to his wife was for adequate consideration and that the income from those properties was not includible in the total income of the assessee under section 64(1)(iii) of the Income-tax Act, 1961?

Arguments of the Parties

Revenue's Arguments (Mr. Joshi)

Section 64(1)(iii) includes income arising directly or indirectly to a spouse from assets transferred to the spouse otherwise than for adequate consideration; the relevant transfers were by the assessee to his wife and were otherwise than for adequate consideration.
“Adequate consideration” is not equivalent to “good” or merely “valid” consideration; there is a recognised distinction. “Adequate consideration” means consideration whose value can be measured in terms of money or money's worth.
A promise to marry cannot be valued in money and therefore cannot constitute “adequate consideration”; transfers pursuant to that promise (or a pre-nuptial agreement rooted in that promise) are transfers otherwise than for adequate consideration and are caught by s. 64(1)(iii).

Assessee's Arguments (Mr. Thakur)

The transfers were made pursuant to a pre-nuptial agreement required by Canadian law so that Miss Irene Mott could acquire rights in her Canadian property; under Canadian law the bride needed a pre-nuptial agreement to acquire a half-share in her husband's properties to preserve her rights in Canada.
The transfers were therefore not mere gratuities: they were made to enable the wife to preserve and exercise rights in Canada (e.g., operate her Canadian bank account), and so constituted “adequate consideration”.
It was submitted that the Tribunal correctly treated the transfers as for adequate consideration because of the special effect of the Canadian law and the obligations under the pre-nuptial agreement.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Tulsidas Kilachani v. CIT, [1961] 42 ITR 1 (Supreme Court)	Construction of “adequate consideration” in s.16(3)(b) of the Indian I.T. Act, 1922 (corresponding to s.64(1)(iii) of the 1961 Act): the term excludes mere love and affection; distinction between “good consideration” and “adequate consideration”.	The Court relied on this decision to support the proposition that “good” or “valid” consideration (e.g., love and affection or a promise to marry) does not necessarily amount to “adequate consideration” for the purposes of s.64(1)(iii).
P.J.P. Thomas v. CIT, [1962] 44 ITR 891 (Calcutta High Court)	Held that transfers to a prospective wife in consideration of forthcoming marriage fall within the section, but marriage cannot be regarded as “adequate consideration” because adequacy cannot be objectively measured.	The Court recited this Calcutta High Court view as authoritative on the non-adequacy of marriage/promise to marry, but noted that the Supreme Court later reversed this decision on a different ground; the opinion references P.J.P. Thomas for the Calcutta High Court's reasoning about adequacy.
Philip John Plasket Thomas v. Commissioner of Income Tax, Calcutta, [1963] 49 ITR (SC) 97 (Supreme Court)	Reversed the Calcutta High Court on the ground that s.16(3)(a)(iii) applies only where the husband-wife relationship subsists at the time of transfer as well as at accrual of income; the Supreme Court declined to express an opinion on the Calcutta High Court's interpretation of “adequate consideration”.	The Court noted this Supreme Court decision and observed that it overruled the Calcutta High Court on the subsistence point but did not settle the question of the meaning of “adequate consideration”. The present Court thus treated the Calcutta High Court's analysis on adequacy as not authoritative in light of the subsequent Supreme Court ruling on a different point.
Potti Veerayya Sresty v. CIT, [1972] 85 ITR 194 (Andhra Pradesh High Court)	Held that “adequate consideration” must be measurable in terms of money or money's worth; consent to adopt a son, even if valid consideration for a contract, did not constitute adequate consideration to avoid taxation under the I.T. Act.	The Court relied on this reasoning to support the proposition that adequate consideration requires an objective monetary measure; the present Court cited and endorsed this approach in its analysis.
CWT v. Khan Saheb Dost Mohd. Alladin, [1973] 91 ITR 179 (Andhra Pradesh High Court)	Stated that “adequate consideration” is not the same as sufficient/good/valid consideration and must be valuable consideration measurable in money's worth; applied this meaning in the context of s.4(1)(a)(i) (Wealth-tax Act) and analogous income-tax provisions.	The Court invoked this decision to reinforce the conclusion that “adequate consideration” means valuable consideration capable of being compared and measured with money or money's worth; this principle informed the Court's conclusion that a promise to marry is not adequate consideration.

Court's Reasoning and Analysis

The Court proceeded in a stepwise analysis anchored on the Tribunal's factual findings and the statutory language of s. 64(1)(iii):

The Tribunal had found (for present purposes accepted by the Court) that the immovable properties were transferred directly or indirectly by the assessee-husband to his wife pursuant to the deeds of 5 December 1938 and 23 November 1940. Given that factual basis, the controlling legal question became whether those transfers were made “for adequate consideration.”
The Court examined the proper legal meaning of “adequate consideration.” It posed the interpretive options (equate with “good” or “valid” consideration, or require consideration measurable in terms of money/money's worth) and resolved to consult the judicial authorities construing like provisions (both Supreme Court and High Court decisions under the 1922 Act and analogous provisions).
The Court relied on Tulsidas Kilachani v. CIT to establish that “adequate consideration” excludes mere love and affection: while love and affection may constitute “good” consideration sufficient to support contracts, they do not qualify as “adequate consideration” for the tax provision.
The Court discussed the Calcutta High Court's reasoning in P.J.P. Thomas (which held that a transfer in consideration of forthcoming marriage could not be objectively assessed as “adequate”), but noted the subsequent Supreme Court decision in Philip John Plasket Thomas which reversed the Calcutta High Court on a different point (the timing/subsistence of the marital relationship) and did not finally adjudicate the meaning of “adequate consideration.”
The Court placed particular emphasis on decisions of the Andhra Pradesh High Court (Potti Veerayya Sresty and CWT v. Khan Saheb Dost Mohd. Alladin), which held that “adequate consideration” must be capable of objective monetary measurement — i.e., be valuable consideration measurable in terms of money or money's worth — and therefore is distinct from “good” or “valid” consideration.
Applying these authorities, the Court concluded that a promise to marry or obligations under a pre-nuptial agreement (even if required by foreign law and serving to preserve the wife's rights in foreign property) cannot be treated as “adequate consideration” because such motives or promises do not represent consideration in favour of the husband that is objectively measurable in money's worth.
The Court further reasoned that preservation of the wife's rights under Canadian law (and the necessity of a pre-nuptial agreement to protect her Canadian property rights) is a motive for entering into the pre-nuptial agreement but is not a consideration flowing to the husband. Because s. 64(1)(iii) requires that the transfer be for adequate consideration in favour of the transferor (the husband), the Canadian-law-driven motive does not convert the transfers into ones made for adequate consideration.
On that basis, the Court concluded the Tribunal's finding that the transfers were for adequate consideration (and therefore outside s. 64(1)(iii)) was legally incorrect.

Holding and Implications

Holding: The Court answered the referred question as follows:

“The Tribunal was not right in holding that the transfer of the immovable properties by the assessee to his wife was for adequate consideration and the income from the properties so transferred was not includible in the total income of the assessee under section 64(1)(iii) of the Act.”

Direct consequences and immediate implications:

The Tribunal's conclusion that the transfers were for adequate consideration is set aside.
Accordingly, the income from the immovable properties in question (which were found to have been transferred directly or indirectly by the assessee to his wife) is not excluded from the assessee's total income under s. 64(1)(iii) on the basis of adequate consideration — i.e., the transfers were not for adequate consideration as that term is understood in law.
The assessee is ordered to pay the costs of the revenue.

The Court reached these conclusions by applying existing precedent and statutory interpretation; the opinion does not purport to announce a new, novel test beyond applying the prior authorities discussed.

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Commissioner Of Income-Tax, Vidarbha And Marathwada v. Vivian Bose.

Kantawala, C.J:— Vivian Bose, the assessee, was married to Miss Irene Mott, a Canadian lady, on December 18, 1930. It is common ground that, under the Canadian law, there must be a pre-nuptial agreement between the couple to the effect that the lady would acquire, after marriage, one-half share in the properties of her husband. Unless Miss Irene Mott could acquire such a right in the properties of the assessee, she could not have any right in her properties in Canada. The assessee, therefore, entered into a pre-nuptial agreement with Miss Irene Mott on August 20, 1930. This agreement, inter alia, provided that the assessee should transfer into the joint and several names of his wife and himself with rights of survivorship between them all his accounts, securities, shares and properties of every sort and kind of which he shall happen to be possessed in his own right at the date of the marriage. The agreement further provided that whatever properties might be acquired by the assessee after the date of the said marriage in his own exclusive right shall either be acquired in the joint and several names of his wife, Irene, and himself or shall as soon thereafter as possible be transferred to their joint and several names, with rights of survivorship between them.

2. On December 5, 1938, one Bimal Kumar Bose sold one-third share in the vacant plot bearing Khasara No. 217/1 situate on the Hennessee Road, Nagpur, to the assessee and his wife for Rs. 4,334. The total consideration therefor was paid by the assessee. On November 23, 1940, the assessee, who had inherited the adjoining plot of land situate on Hennessee Road, being a part of Khasara No. 217/1, transferred the same to himself and his wife. In this sale deed, the vendor described himself as the “trustee” of the plot and the vendees as the “beneficiaries”. This transfer was also stated to be in pursuance of the pre-nuptial agreement dated August 20, 1930. In the course of assessment proceedings for the assessment years 1967-68 and 1968-69, the assessee contended that even if it is considered that the immovable properties were transferred after his marriage, the transfer being for adequate consideration, the revenue could not include his wife's income in his hands under s. 64(1)(iii) of the I.T Act, 1961 (hereinafter referred to as the Act). The ITO rejected the said contention of the assessee and added the income of the property belonging to the wife of the assessee in the hands of the assessee under s. 64(1)(iii) of the Act. This order was upheld by the AAC in appeal.

3. In second appeal before the Tribunal, it was sought to be urged on behalf of the assessee, firstly, that by sale deed dated December 5, 1938, B.K Bose had sold the plot jointly to the assessee and his wife. In other words, the assessee had not transferred this plot to his wife and, accordingly, the income arising to the wife of the assessee from the said plot could not be assessed in the hands of the assessee under s. 64(1)(iii) of the Act. Secondly, it was contended that the sale deed dated November 23, 1940, though between the assessee and his wife, in fact evidenced a transaction between a trustee and a beneficiary and not between husband and wife and, therefore, the provisions of s. 64(1)(iii) were not attracted. Lastly, it was contended that even if the properties in question were considered to have beeen transferred by the assessee to his wife, the transactions were effected for adequate consideration, viz., promise to marry, and as such the same were not hit by s. 64(1)(iii). On the other hand, it was sought to be contended on behalf of the revenue that the provisions of s. 64(1)(iii) were applicable not only to cases where the assets were directly transferred by the assessee to his spouse but also to those involving indirect transfers. According to the revenue, the transfers of properties evidenced by the sale deeds dated December 5, 1938, and November 23, 1940, fall within the ambit of s. 64(1)(iii). It was urged that there was no consideration for this transfer and as such the revenue was justified in including in the income of the assessee the income of his wife arising from the properties in question. The Tribunal accepted some of the contentions on behalf of the assessee and held that the provisions of s. 64(1)(iii) were not attracted. The Tribunal held that since the sale deed dated December 5, 1938, was executed between B.K Bose on the one hand and the ass essee and his wife on the other, it could not be said that it was the assesses who had transferred the property to his wife by this deed. The Tribunal rejected the contention of the assessee that he had transferred the property referred to in the sale deed dated November 23, 1940, to his wife as a trustee and not as a husband. However, proceeding on the assumption that the properties in question had been indirectly transferred by the assessee to his wife, the Tribunal held that the case of the assessee will go out of the ambit of s. 64(1)(iii) as the property was transferrrd to the wife pursuant to the provisions contained in the pre-nuptial agreement dated August 20, 1930. The Tribunal emphasised the fact that the validity of the pre-nuptial agreement was not even doubted by the revenue. The Tribunal pointed out that even past consideration is good consideration for a valid transfer and the promise of Miss Irene Mott to marry the assessee constituted a good and valid consideration for transferring the property in question by him to her. The Tribunal relied upon the meaning of the word “adequate” given in Webster's New World Dictionary as “equal to, requirement or occasion, sufficient, suitable”. The Tribunal, accordingly, held that the transfers of the immovable properties in question were effected for adequate consideration and as such the income of the wife of the assessee from these properties is not liable to be assessed in the hands of the assessee under s. 64(1)(iii) for each of the assessment years in question.

4. For these two assessment years, 1967-68 and 1968-69, from this order of the Tribunal, 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 right in holding that the transfer of the immovable properties by the assessee to his wife was for adequate consideration and the income from the properties so transferred was not includible in the total income of the assessee under section 64(1)(iii) of the Income-tax Act, 1961?”

5. Mr. Joshi on behalf of the revenue contended that having regard to the provisions of s. 64(1)(iii) as existing during the relevant year, in computing the total income of any individual, there shall be included all such income as arises directly or indirectly to the spouse of such individual from the assets transferred directly or indirectly to the spouse by such individual otherwise than for adequate consideration or in connection with an agreement to live apart. He submitted that immovable properties transferred pursuant to the deeds dated December 5, 1938, and November 23, 1940, were properties transferred by the assessee to his wife otherwise than for adequate consideration and the income arising from these properties was to be included in the income of the assessee. He submitted that the expression “adequate consideration” used in s. 64(1)(iii) cannot be equated to “good consideration”. According to his submission, there is a well recognised distinction in the meaning of the expression “adequate consideration” and “good consideration” and the mere fact that there is “good consideration” for the transfer of the property by itself will not be sufficient to come to the conclusion that the properties are transferred for “adequate consideration”. He urged that transfer of immovable property pursuant to the provisions of a pre-nuptial agreement between the assessee and Miss Irene Mott may be a transfer for “good consideration”; but it cannot be regarded as a transfer for “adequate consideration”. By the expression “adequate consideration”, according to his submission, it is meant such consideration value of which can be measured in terms of money or money's worth. A promise to marry, according to his submission, cannot be regarded as a consideration the value of which can be measured in terms of money or money's worth and, therefore, when the properties were transferred pursuant to a promise to marry, it cannot be said that they were transferred for adequate consideration. According to his submission, the Tribunal was in error in taking the view that as the properties were transferred pursuant to the pre-nuptial agreement, they were transferred for “adequate consideration” and the income from these properties was not liable to be included in the income of the assessee under s. 64(1)(iii). Mr. Thakur, on the other hand, on behalf of the assessee submitted that it is not merely pursuant to a pre-nuptial agreement or a promise to marry that the movable properties are transferred to Miss Irene Mott. He urged that Miss Irene Mott was a Canadian lady and under the Canadian law it was necessary that the “would be bridegroom” enters into a pre-nuptial agreement with the “would be bride” in order that she acquires half share in all the properties of the assessee after marriage. Law in that country, he urged, was that unless she has half share in the properties of the husband, the assessee, she could not have any right on her Canadian property. She had a bank account in Canada which she could not have otherwise operated in the absence of the agreement to;that effect after marriage. He, therefore, submitted that in view of this special provision of the Canadian law the Tribunal was right in taking the view that the properties were transferred by the assessee to his wife for “adequate cons ideration” and, therefore, her income from these properties was not liable to be included in the income of the assessee.

6. Section 64(1)(iii), as existing for the relevant assessment years, provides as under:

“64. (1) In computing the total income of any individual, there shall be included all such income as arises directly or indirectly—…

(iii) subject to the provisions of clause (i) of section 27, to the spouse of such individual from assets transferred directly or indirectly to the spouse by such individual otherwise than for adequate consideration or in connection with an agreement to live apart.”

7. In view of the finding of the Tribunal that pursuant to the deeds dated December 5, 1938, and November 23, 1940, the immovable properties are either directly or indirectly transferred by the assessee-husband to the wife, the question arises whether such a transfer was for “adequate consideration”. If the transfer is for adequate consideration, then, naturally, the income of the wife from the properties cannot be includible in the income of the husband; but if these properties are transferred otherwise than for adequate consideration in favour of the wife, then the income of the wife in respect of those properties will be includible in the income of the husband during the relevant assessment years.

8. Question then arises what is meant by “adequate consideration”. Is this expression to be equated to “good consideration” or “valid consideration” or does it mean “consideration the value of which can be measured in terms of money or money's worth” as contended”on behalf of the revenue? The provisions of s. 64(1)(iii) have come up for consideration both before the Supreme Court and the other High Courts on more than one occasion and there are judicial pronouncements upon the meaning of the expression “adequate consideration” either occurring in this section or in the corresponding section of the Indian I.T Act, 1922. It would be relevant in view of this position to refer to the relevant judicial pronouncements to which our attention has been drawn.

9. In Tulsidas Kilachani v. CIT, [1961] 42 ITR 1, the Supreme Court had occasion to construe the meaning of the expression “adequate consideration” as occurring in s. 16(3)(b) of the Indian I.T Act, 1922 (corresponding to s. 64(1)(iii) of the I.T Act, 1961). The Supreme Court then points out that the words “adequate consideration” in s. 16(3)(b) of the I.T Act, denote consideration other than mere love and affection, which, in the case of a wife, may be presumed. When the law insists that there should be “adequate consideration “and not “good consideration”, it excludes mere loveand affection. They may be regarded as “good consideration “to support a contract, but “adequate consideration” to avoid taxis quite a different thing. This decision of the Supreme Court clearly indicates that there is a well recognised distinction between the expression “good consideration” and “adequate consideration”. Love and affection may be regarded as good consideration; but the same cannot be regarded as adequate consideration.

10. The Calcutta High Court had also an occasion to consider the provisions of s. 16(3) of the Indian I.T Act, 1922, in the case of P.J.P Thomas v. CIT, [1962] 44 ITR 891 In this case, the Calcutta High Court has taken the view that the provisions of s. 16(3)(a)(iii) of the Indian I.T Act, 1922, will apply even to cases where property was transferred to a prospective wife before the marriage in consideration of the marriage which is intended to take place. In that case, the Calcutta High Court held that where a person transfers some property to a woman “in consideration of the forthcoming marriage” between them, and the marriage takes place, the income accruing to the wife from the property after the marriage can be included in the husband's income under the provisions of s. 16(3)(a)(iii) of the Indian I.T Act, but not under the provisions of s. 17(1)(a) ihasmuch as the transfer becomes irrevocable as soon as the marriage takes place. According to the Calcutta High Court, though the marriage may bej good and valuable consideration for transfer of property to a lady who) agrees to marry the transferor, since it is not possible to determine the adequacy of such consi deration, marriage cannot be regarded as “adequate consideration” within the meaning of s. 16(3)(a)(iii). Mukharji J., who spoke for the court, at page 907 observes

“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, eyen 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 wife's income if it arises from transfer of assets made by the husband to the wife on adequate consideration. Could marriage by itself be ever an adequate consideration? The wofd ‘adequate’ in this context appears to exclude marriage itself as a Valuable consideration because there can be no objective measure for Assessing adequacy of marriage as a valuable consideration. It is quite true that a woman may not marry a man unless the man secures her financially before marriage and in such an event the financial and monetary consideration is enough consideration to support a contract but that does not solve the difficulty in the interpretation of section 16(3)(a)(iii) of the Act because the adequacy of such consideration is put down as a test. What will induce a woman to feel financially secure before she marries a man cannot be a justiciable concept by either the income-tax authorities or the Income-tax Tribunal or even by this court. It is also difficult to dissociate from such monetary consideration how much of it is affected by the question of natural love and affection which are excluded from its consideration. The price that a spouse might put on her marriage may be a matter of her own assessment but it can never provide a dependable test for courts, Tribunals or taxing authorities for interpreting the adequacy of the consideration involved…Therefore, as an ante-nuptial, arrangement of this nature) where marriage is put forward as valuable and financial consideration itself, it is not possible to determine the adequacy of such consideration (and hence in the context of the expression ‘adequate consideration’ in section 16(3)(a)(iii) of the Income-tax Act, it is not possible to include marriage within the expression ‘adequate consideration’.”

11. We may, however, point out that this matter went further in appeal before the Supreme Court and the decision of the Calcutta High Court has been overruled by the Supreme Court in its judgment reported in Philip John Plasket Thomas v. Commissioner Of Income Tax, Calcutta, [1963] 49 ITR (SC) 97. The judgment has been reversed on the ground that in order to attract the application of s. 16p)(a)(iii) of the Indian I.T Act, 1922, the relationship of husband and wife must subsist not only at the time of accrual of income from the assets but also when the transfer of assets is made. The words “wife” and “husband” in s. 16(3)(a) must be taken in their primary sense ^which is clearly indicative of a marital relationship. The provisions of s. 16(3)(a)(iii) were not attracted in that case as a transfer of property was made at a time when the transferee was not the assessee's wife. However, at page 110, the Supreme Court has declined to express any opinion upon the interpretation put by the Calcutta High Court on the expression “adequate consideration”.

12. A similar question came up for consideration before the Andhra Pradesh High Court in more than one decision. In the case of Potti Veerayya Sresty v. CIT, [1972] 85 ITR 194 (AP), when assets were transferred by a husband to the wife upon her giving consent to adopt a son, a question arose whether such assets were transferred for adequate consideration. While considering the meaning of the expression “adequate consideration”, the Andhra Pradesh High Court has pointed out that good consideration to support a contract under the provisions of the Indian Contract Act is one thing and “adequate consideration” to avoid tax under the I.T Act is quite a different thing. Even assuming for a moment that giving consent to her husband for adopting a boy formed a legal and valid consideration for the transfer, still it cannot be said that it has brought any benefit to the assessee in terms of money or money's worth. Since the law insists that the consideration for transfer must be adequate, there must be some means to measure the adequacy of the consideration. That is to say, the, consideration that supports the transfer should be one the value of which can be measured in terms of money or money's worth. To the same effect meaning has been assigned to the expression “adequate consideration” by the Andhra Pradesh High Court in the case of CWT v. Khan Saheb Dost Mohd. Alladin, [1973] 91 ITR 179 (AP). At page 186, it is pointed out:

“‘Adequate consideration’ cannot be equated to sufficient consideration, good consideration or valid consideration; it means something more than good or valid consideration. Natural love and affection may be regarded as good consideration as seen from the provisions of section 25 of the Indian Contract Act which states that an agreement without consideration is void. However, such consideration cannot be termed as ‘adequate consideration’ which means valuable consideration. In other words, adequate consideration must be held to be valuable consideration which can only be measured or tested on the basis of money's worth. ‘Adequate consideration’, within the meaning of section 4(1)(a)(i) (of the Wealth-tax Act, 1957), must, in our judgment, be construed as valuable consideration capable of being compared and measured with money or money's worth. Where a transfer is gratuitous or made only out of natural love and affection but not for any valuable consideration measurable in money or money's worth, it is not for adequate consideration within the meaning of section 4(1)(a)(i) of the Act.”

13. It is not controverted by Mr. Thakur that there is no decision of any other High Court where a different meaning has been assigned to the expression “adequate consideration”. This being the position, ordinarily, s. 64(1)(iii) being an all-India statute, uniformity of I construction by the various High Courts is eminently desirable and the considered opinion of the High Courts should be followed unless there are overriding reasons for taking divergent views. It is clear from the decision of the Supreme Court in Tulsidas Kilachand's case, [1961] 42 ITR 1 as well as from the decision of the Calcutta High Court in P.J.P Thomas' case, [1962] 44 ITR 897, that natural love and affection or even a promise to marry may be good consideration for a contract but it cannot be regarded as adequate consideration. As stated by the Andhra Pradesh High Court, “adequate consideration” means that type of consideration) the value of which can be measured in terms of money or money's worth. A mere promise to marry, though it may be good consideration to support the validity of a contract, cannot be regarded as one for adequate consideration. Simply because the immovable properties were transferred having regard to the obligations of the assessee under the pre-nuptial agreement, it is not possible for Us to take the view that the said properties were transferred for adequate consideration as understood in law.

14. Question then arises whether having regard to the fact that Miss Irene Mott was a Canadian lady and under the Canadian) law she would have lost her right in the property held in Canada, can lit be said that there was adequate consideration for the transfer? What s 64(1)(iii) requires is that the transfer by the husband to the spouse must be for adequate consideration in order that the income of the property so transferred may not be includible in the income of the husband. The only consideration in favour of the husband for transfer is the obligation arising under the pre-nuptial agreement. The preservation of right of the wife under the Canadian law in respect of a property in Canada is not a consideration in favour of the husband at all because the transfer is not a consideration in favour of the husband at all. That may be a motive for entering into a pre-nuptial agreement; but since it is not consideration in favour of the husband for transfer, it is not possible for us to take the view that, such being the position-in Canadian law, the transfer by the husband of the properties in favour of the wife pursuant to the provisions of the pre-nuptial agreement was for adequate consideration as that expression is understood in law. Accordingly, the question referred to us is answered as under:

15. The assessee shall pay the costs of the revenue.

Commissioner Of Income-Tax, Vidarbha And Marathwada v. Vivian Bose.

Structured Summary of the Opinion (Kantawala, C.J.)

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Revenue's Arguments (Mr. Joshi)

Assessee's Arguments (Mr. Thakur)

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Commissioner Of Income-Tax, Vidarbha And Marathwada v. Vivian Bose.

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