1. The assessee with his wife and an unmarried daughter and four minor sons by name, Thilakaraj, Rajasekhara, Jayaprakash and Natesan, formed a joint Hindu family. He was carrying on business at Kovilpatti under the name and style of Meenakshi Match Factory. He had also leased out certain factory buildings to a partnership firm called Everest Match Factory on an annual rent of Rs. 6,000. The assessee's capital in the books of Meenakshi Match Factory as on September 1, 1955, was Rs. 2,48,410. The assessee also owned other immovable properties valued at Rs. 76,000. For the assessment year 1956-57, he was assessed on an income of Rs. 74,753 in respect of the business run in the name of Meenakshi Match Factory. On February 5, 1956, the assessee executed two settlement deeds in favour of his minor children. By one of the deeds the match factory buildings leased out to Everest Match Factory were settled on Jayaprakash and Natesan. These minors leased the premises to the same partnership for an annual rent of Rs. 6,000. The value of the properties so settled amounted to Rs. 1,38,000. By the other deed, the premises occupied by the Meenakshi Match Factory was settled on Thilakaraj and Rajasekhara. These minors leased the properties to the assessee for an annual rent of Rs. 6,000 for carrying on the business, Meenakshi Match Factory. The value of the properties so settled amounted to Rs. 69,000. The value of the assets held by the assessee as on February 5,1956, after effecting the above settlements was Rs, 1,80,410. The assessee maintained separate accounts for the income from the properties thus transferred and the educational expenses of his four minor sons were being debited in these separate accounts. The minor children were being put in English public school in Yercaud, Salem District.
2. For the assessment years 1957-58 and 1958-59, the Income-tax Officer accepted the settlements as irrevocable and genuine and did not apply the provisions of Section 16(3)(a)(iv) of the Indian Income-tax Act, 1922.
3. For the assessment years 1959-60 and 1960-61, the Income-tax Officer included the income from these properties as the income of the assessee under Section 16(3)(a)(iv) of the Income-tax Act. -On appeal by the assessee, the Appellate Assistant Commissioner deleted this income on the ground that the Income-tax Officer had held that Section 16(3)(a)(iv) was not applicable for the assessment years 1957-58 and 1958-59 and that finding of the Income-tax Officer cannot be said to be perverse or arbitrary. The department preferred appeals to the Tribunal, but they were dismissed as being time-barred.
4. For the assessment year 1961-62, the Income-tax Officer included a sum of Rs. 4,609 representing the net income of the three minor sons of the assessee in the lease income from the properties settled on them, one of the minor sons, Thilakaraj, having become a major on May 21,1959.
5. For the assessment year 1962-63, the amounts so included was Rs. 9,693. The assessee preferred an appeal before the Appellate Assistant Commissioner and contended that the appellant was bound in law to maintain his minor sons and in view of the fact that the settlements were made in fulfilment and discharge of a legal liability, they must be deemed to be for adequate consideration. The Appellate Assistant Commissioner dismissed the appeals with the following observations :
"Under the Hindu law, a father is under a personal obligation to maintain his minor sons because during the period of minority they could not be able to help themselves. Whether maintenance would also include education is not very clear but education of a basic nature and to a limited extent may be naturally inferred. Bat it would be too much to say that under the Hindu Law a Hindu father residing at Kovilpatti has got a legal obligation to educate his minor children in costly English schools situated at hill stations like Yercaud. There is no authority in Hindu law for the proposition that every Hindu father had such a legal obligation. It would be also too much to claim, as suggested by the learned advocate, that a suit could be filed against the appellant enforcing him to spend lavishly in educating his children in the manner done. If the appellant had transferred assets sufficiently to have his minor children educated in a very costly and luxurious manner, he has done so only because of his parental affection and his affluent-circumstances and not in discharge of the normal liability of a Hindu father mentioned in texts of Hindu law. Thus, in the circumstances of this case, it cannot be said that the assets in question had been transferred to liquidate the legal liabilities of a Hindu father. Transfer of assets out of parental affection and love so that the children might lead a luxurious life and have a very costly education cannot be said to be for adequate consideration."
6. The Tribunal considered that though under the Hindu law a father is under a legal obligation to maintain his minor children according to his status, and if he neglects to do so, the next friend of the minors can proceed against him in a court of law by enforcing his legal obligation, that obligation is restricted to his means and there is no legal obligation to maintain his minor children beyond his means. It was also of the view that if the value of the assets transferred to the minor children is far in excess of the legal obligation to maintain them, then, it would amount to a transfer of the assets otherwise than for consideration and proceeded to consider as to whether the value of the assets transferred were far in excess of the legal obligation to maintain them. It then came to the conclusion that the assessee has transferred more than one-third of his total wealth in favour of his minor sons for their maintenance, when he had a further liability of maintaining a daughter and getting her married and when there is a possibility of the assessee begetting more children and that, therefore, it cannot be said that the transfer of properties was in fulfilment of his legal obligation for the maintenance and education of his four minor sons. In that view, the Tribunal dismissed the appeals. At the instance of the assessee, the following question has been referred:
Whether, on the facts and in the circumstances of the case, the income derived from the properties settled by the assessee under the deeds dated February 5, 1956, was liable to be included in the total income of the assessee under
Section 16(3)(a)(iv) of the Indian Income-tax Act, 1922, in respect of the assessment years 1961-62 and 1962-63 ?
7. It has been found that the settlement deeds were irrevocable, that the children were educated at a residential English School in Yercaud and that the income from the properties settled were more or less fully utilised in the educational expenses of the minors. Section l6(3)(aXiv) states that in computing the total income of any individual for the purpose of assessment, there shall be included so much of the income of a minor child of such individual as arises directly or indirectly from the assets transferred directly or indirectly to the minor child by such individual otherwise than for adequate consideration. According to the learned counsel for the assessee, the transfer in this case was for adequate consideration, as the settlement deeds were executed in fulfilment and discharge of a legal liability cast on a Hindu father to maintain and educate his sons, especially, minors. Section 20 of the Hindu Adoptions and Maintenance Act, 1956, dealing with the right of maintenance of children and aged parents, states that a Hindu is bound during his lifetime to maintain his legitimate or illegitimate children and his aged or infirm parents. Clause (2) of that section provides that a legitimate or illegitimate child may claim maintenance from his or her father or mother so long as the child is a minor. Section 3(b) defines "maintenance" as including in all cases provision for food, clothing, residence, education and medical attendance and treatment. It is true that the Act came into force on December 21, 1956, subsequent to the execution of these settlement deeds. But, as held by the Supreme Court in Nanak Chand v. Chandra Kishore Aggarwal, , the Act is one to amend and codify the law relating to adoptions and maintenance among Hindus and the law prior to the Act in respect of maintenance of children was substantially similar. There can be no doubt, therefore, that the assessee was under an obligation to maintain his children and to educate them according to his status. We are unable to agree with the Tribunal and the Appellate Assistant Commissioner that the assessee had provided maintenance for his children far beyond his means or extravagantly. It is not the province of the income-tax authorities as to where and how the assessee had to educate his children. There is no warrant or authority for the observation made by the Tribunal and the Appellate Assistant Commissioner that the father is under an obligation to provide only the minimum education and not the best possible. As already stated, the finding of the authorities below is that the income from the properties so settled were more or less fully utilised for the educational expenses of the children. The relevant portion of the document also reads as follows :
"Whereas the settlor is under a legal and imperative duty to maintain the settlees according to their status in life and in the standard of comfort to which they are accustomed and to give them suitable education ;
Whereas the settlor is anxious and desirous of making even during his lifetime adequate provision in fulfilment of his legal obligation to the settlees:
Now that in pursuance of the said-desire and the legal duty and obligation cast on him by law.
The settlor as owner of the property hereby conveys by way of settlement to the settlees the properties mentioned fully described in the schedule hereunder written.
The settlees shall enter into possession of the properties forthwith and hold the same absolutely with full rights of ownership.
This settlement is executed in consideration of and in fulfilment of the duty and obligations of the settlor and is irrevocable. The settlees shall hereafter have no further claim towards the expanses of their maintenance education, etc., against the settlor."
8. We have, therefore, to proceed to decide the question on the basis that the document was executed for the purpose of providing the educational expenses and maintenance of the minor children. The question, therefore, for consideration is whether the transfer was otherwise than for adequate consideration within the meaning of Section 16(3)(a)(iv) of the Income-tax Act. The provision will have to be understood with reference to the object of the section. As held by the Supreme Court in Balaji v.
Income-tax Officer, Special Investigation Circle, Akola, and Sevantilal Maneklal Sheth v. Commissioner of Income-tax, the section is intended to prevent avoidance of tax or reducing the incidence of, tax on the part of the asses-see by transfer of his assets to his wife or minor child. Having regard to this object we have to consider the meaning of the word" adequate consideration" in the provision. The word "consideration" has not been defined in the Act. The Indian Contract Act defines "consideration" as :
"When, at the desire of the promisor, the promisee or any other person has done or abstains from doing, or does, or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise."
9. Section 25 of the Indian Contract Act provides that an agreement made without consideration is void unless it is expressed in writing and registered under the law for the time being in force for the registration. of documents and is made on account of natural love and affection between parties standing in a near relation to each other. Thus, natural love and affection may support and validate a contract or an agreement. Tulsidas Kilachand v. Commissioner of Income-tax, considered this question with reference to section 16(3)(a) and (b) where also a similar expression occurs. The following passage in that judgment may be usefully quoted:
"Reliance has been placed only upon love and affection. The words 'adequate consideration '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 love and affection. They may be good consideration to support a contract, but adequate consideration to avoid tax is quite a different thing."
10. In Potti Veerayya Sresty v. Commissioner of Income-tax, the Andhra Pradesh High Court considered the question whether the consent given by a wife to her husband for adopting a son could form adequate consideration for the transfer. While holding that that would not be "adequate consideration", the court observed :
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
Income-tax Act is quite a different thing...... 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.
11. In a series of cases, it has also been held that natural love and affection may be good consideration to support a contract but that would not be an adequate consideration within the meaning of the phrase in the Income-tax Act. Reference may be made in this connection to Rai Bahadur H. P. Banerjee v. Commissioner of Income-tax, [1941J 9 ITR 137 (Pat) [FB]. and In re Sard ami Narain Kaur, [1943] 11 ITR 448 (Lah). In P.J. P. Thomas v. Commissioner of Income-tax, [1962] 44 ITR 897 (Cal), it was held that though the marriage may be 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 consideration marriage cannot be regarded as "adequate consideration" within the meaning of Section 16(3)(a)(iii).
12. The learned counsel for the assessee relied on S. Viswasom v. Commissioner of Income-tax, [1963] 50 ITR 503 (Ker). That was also a case where a father made a settlement of properties in favour of his minor children. The documents stated that the settlor was under the legal imperative duty to maintain the set-tlees according to their status in life and in the standard of comfort to which they are accustomed and give them suitable education, and in fulfilment of the obligation and duty of the settlor, he was irrevocably settling the properties specified therein. The Division Bench of the Kerala High Court held that the transfer was for adequate consideration and did not fall within the purview of Section 16(3)(a)(iv). There was not much of discussion in the case. The correctness of this judgment was considered by a Full Bench of the Kerala High Court in Commissioner of Income-tax v. P. M. Paily Pillai, [FB]. The Full Bench pointed out that the decision in S. Viswasom v. Commissioner of Income-tax related to a Christian father settling the properties on the minor children as in the Full Bench case. But the Division Bench in S. Viswasom v. Commissioner of Income-tax overlooked that there is no enforceable legal obligation on the part of a Christian father to maintain his minor children. After noting that there was not much of discussion in S. Viswasom v. Commissioner of Income-tax it was held that love and affection cannot be adequate consideration. The Full Bench also held that as a minor son had no contracting capacity, he could not have made any valid promise to give up his right to seek maintenance.
13. A consideration of these cases would show that in order to take the case out of the provisions of Section 16(3)(a)(iv), the consideration must be a valuable consideration and the use of the word "adequate" before the word "consideration" implies that the valuable consideration should be measurable in terms of money or money's worth. In other words, if the consideration could not be measured in terms of money or money's worth and there is no objective measure for assessing the adequacy, it would not satisfy the provisions of the section, though for purposes of enforcing the agreement or contract, there was consideration within the meaning of the Contract Act. The learned counsel for the assessee contended that the liability to maintenance is a financial obligation and that it could be measured in terms of money. In fact, Section 23 of the Hindu Adoptions and Maintenance Act, 1956, sets out the facts and circumstances, which the courts shall have regard to in fixing the amount of maintenance. It may be the quantum depends on the evidence, but it cannot be said that the liability could not be measured in terms of money and that, therefore, the transaction is supported by adequate consideration. So ran the argument of the learned counsel for the assessee. The argument, of course, is attractive. But we are unable to accept the submission of the learned counsel. What is transferred is the property and not the income from the property alone. The property had been transferred irrevocably and for ever, though the liability to maintain is only so long as the son is a minor or unable to maintain himself within the meaning of the Hindu Adoptions and Maintenance Act. By executing this document, we are also unable to hold that the assessee is relieved from his obligation. If the property is lost, or does not yield any income, the assessee could not plead that he was not liable to maintain the son any longer; nor could the minor relieve himself of his right to be maintained by any contract with the father, as such a contract will not be binding on him. At best, the settlement amounts only to a provision for maintenance. Even without such a settlement, the assessee could have appropriated the income from the properties settled for the maintenance and educational expenses of the minor sons. By adopting this device, though the asseesee derives the entire income, and spends for his own legal obligations, he wants to escape the liability to tax on that income. It is this device to reduce the tax which the section intends to prevent. We are, therefore, of opinion that the income derived from the properties settled were liable to be included in the total income of the assessee.
14. For the assessment year 1961-62, the relevant provision applicable is Section 16(3)(a)(iv). For the assessment year 1962-63, the relevant provision is Section 64(iii) of the Income-tax Act, 1961. But the provisions are, in pari materia and there is no difference in substance. Though the provisions applicable for these two assessment years are different, the question referred specifies only Section 16(3)(a)(iv). But we see from the order of the Income-tax Officer that for the assessment year 1962-63, he has invoked the provisions of Section 64(iii). Since the law in respect of both the provisions is the same, there is no need for discussing Section 64(iii) separately. Our opinion expressed above covers the question both in regard to Section 16(3)(a)(iv) of the Indian Income-tax Act, 1922, and Section 64(iii). of the Income-tax Act, 1961.