1961 (4) TMI 124 - HC - Income Tax

Summary

Issues Involved:

1. Whether the throwing of self-acquired property into the Hindu undivided family hotch-pot and subsequent partition constitutes an indirect transfer of property under Section 16(3)(a)(iii) and (iv) of the Indian Income-tax Act, 1922.

Issue-wise Detailed Analysis:

1. Indirect Transfer of Property:

The primary question addressed in the judgment is whether the act of throwing self-acquired property into the Hindu undivided family (HUF) hotch-pot and the subsequent partition among family members constitutes an indirect transfer of property under Section 16(3)(a)(iii) and (iv) of the Indian Income-tax Act, 1922.

a. Transfer of Assets to HUF:

The court examined whether the act of the assessee, who put his self-acquired properties into the HUF hotch-pot, constituted a transfer. The assessee argued that no transfer occurred when he placed his properties into the hotch-pot, and even if it did, it was not a transfer to his wife or minor son within the meaning of Section 16(3)(a)(iii) and (iv). The court referred to the principles of Hindu law, which allow a member of a HUF to convert his self-acquired property into joint family property by a clear expression of intention, such as an affidavit. The court cited the Andhra Pradesh High Court's observation that no formalities are required for such a conversion.

b. Definition of Transfer:

The court considered various interpretations of the term "transfer." The Advocate-General argued that the word "transfer" in Section 16(3) should be interpreted broadly to include the act of placing property into the HUF hotch-pot. The court referred to Burrow's Words and Phrases and the decision in Gathercole v. Smith, which suggested that "transfer" is a broad term encompassing various means by which property can be passed from one person to another.

c. Legal Precedents:

The court examined the Patna High Court's decision in Sardar Bahadur Indra Singh v. Commissioner of Income-tax, which held that property cannot become joint family property by mere expression of intention unless transferred by means recognized by law. The court also considered the Madras High Court's decision in Stremann v. Commissioner of Income-tax, which held that converting separate property into coparcenary property does not amount to a transfer.

d. Court's Conclusion:

The court concluded that the act of throwing self-acquired property into the HUF hotch-pot and the subsequent partition did not constitute a transfer within the meaning of Section 16(3)(a)(iii) and (iv). The court reasoned that when property is transferred to a HUF, income arising from it accrues to the family as a whole, not to individual members. Therefore, there is no transfer to the wife or minor child of the assessee within the meaning of the relevant sections. The court emphasized that the two transactions-throwing property into the hotch-pot and partitioning the joint family properties-are separate and genuine, and neither constitutes a transfer by the assessee to his wife or minor son.

Final Judgment:

The court answered the question in the negative, ruling that the throwing of self-acquired property into the HUF hotch-pot and subsequent partition does not constitute an indirect transfer of property under Section 16(3)(a)(iii) and (iv) of the Indian Income-tax Act, 1922. The Commissioner of Income-tax was ordered to pay the costs of the reference.