1963 (7) TMI 90 - HC - Income Tax

Summary

Issues Involved:
1. Inclusion of income from properties settled on the petitioner's wives in the petitioner's total agricultural income.
2. Application of Section 9(2)(a)(iii) of the Madras Agricultural Income-tax Act, 1955.
3. Adequate consideration in the context of property transfer.
4. Applicability of the third proviso to Section 9(1) of the Act.

Detailed Analysis:

1. Inclusion of Income from Properties Settled on the Petitioner's Wives:
The petitioner objected to the inclusion of the income of his two wives arising from lands settled by him upon them in his total agricultural income. The department overruled this objection, citing Section 9(2)(a)(iii) of the Act. The petitioner argued that the properties settled upon his wives were no longer his and that they alone were entitled to enjoy the income from these properties. The court noted that the properties described in Schedules A and B of the settlement deed were directed to be enjoyed by the two wives for their lifetime, with the remainder going to the petitioner's brother's grandchildren.

2. Application of Section 9(2)(a)(iii) of the Madras Agricultural Income-tax Act, 1955:
Section 9(2)(a)(iii) was the central provision relied upon by the department. This section includes in the total agricultural income of an individual the income of a wife or minor child arising directly or indirectly from assets transferred to the wife by the husband otherwise than for adequate consideration or in connection with an agreement to live apart. The court acknowledged that there was a transfer of assets by the petitioner to his wives and that the possession by the petitioner was in his capacity as a trustee, not as the owner.

3. Adequate Consideration in the Context of Property Transfer:
The court examined whether the transfer was for adequate consideration, which is crucial under Section 9(2)(a)(iii). The petitioner contended that the maintenance arrangement for his wives constituted adequate consideration. However, the court noted that love and affection do not amount to "adequate consideration" as required by the section. Citing the Supreme Court's decision in Tulsidas Kilachand v. Commissioner of Income-tax, the court emphasized that "adequate consideration" excludes mere love and affection. The court concluded that the settlement was essentially a voluntary gift motivated by love and affection, not an arrangement for maintenance necessitated by any legal obligation.

4. Applicability of the Third Proviso to Section 9(1) of the Act:
The petitioner argued that the third proviso to Section 9(1) should apply, which would exclude the income from being taxed if the settlement was irrevocable for a period exceeding six years or during the lifetime of the transferee. The court rejected this argument, stating that Section 9(2)(a)(iii) is a special provision that specifically addresses transfers between husbands and wives. The court held that the third proviso to Section 9(1) does not apply to cases falling under Section 9(2)(a)(iii), as the latter is designed to prevent tax avoidance through transfers to spouses.

Conclusion:
The court dismissed the petition, affirming the decision of the Commissioner of Agricultural Income-tax. It held that the income from the properties settled on the petitioner's wives should be included in the petitioner's total agricultural income under Section 9(2)(a)(iii) of the Madras Agricultural Income-tax Act, 1955. The court also ruled that the third proviso to Section 9(1) does not mitigate the application of Section 9(2)(a)(iii). The petition was dismissed with costs, and counsel's fee was set at Rs. 100.