1977 (9) TMI 7 - HC - Income Tax

Summary

Issues Involved:
1. Validity of the pre-nuptial agreement under Canadian law.
2. Application of Section 64(1)(iii) of the Income-tax Act, 1961.
3. Definition and scope of "adequate consideration" under Section 64(1)(iii).
4. Inclusion of wife's income in the assessee's total income.

Issue-wise Detailed Analysis:

1. Validity of the Pre-nuptial Agreement under Canadian Law:
The assessee, Vivian Bose, entered into a pre-nuptial agreement with Miss Irene Mott, a Canadian lady, on August 20, 1930. This agreement stipulated that the assessee would transfer all his assets into joint ownership with his wife, with rights of survivorship. The agreement was necessary under Canadian law for Miss Irene Mott to acquire a half share in her husband's properties and to maintain her rights in her Canadian properties. The Tribunal emphasized that the validity of the pre-nuptial agreement was not questioned by the revenue.

2. Application of Section 64(1)(iii) of the Income-tax Act, 1961:
During the assessment years 1967-68 and 1968-69, the Income Tax Officer (ITO) included the income from properties transferred to the wife in the assessee's income under Section 64(1)(iii) of the Act. This section mandates that income arising directly or indirectly to the spouse from assets transferred by the individual otherwise than for adequate consideration should be included in the individual's total income.

3. Definition and Scope of "Adequate Consideration" under Section 64(1)(iii):
The Tribunal initially held that the transfers were for adequate consideration, emphasizing that the promise to marry constituted valid consideration. However, the High Court analyzed the meaning of "adequate consideration" in depth, referencing judicial precedents:

- Supreme Court in Tulsidas Kilachand v. CIT [1961] 42 ITR 1: Distinguished between "good consideration" (love and affection) and "adequate consideration," stating that adequate consideration excludes mere love and affection.
- Calcutta High Court in P. J. P. Thomas v. CIT [1962] 44 ITR 897: Held that marriage, though a good consideration, cannot be considered adequate as it lacks measurable value in terms of money.
- Andhra Pradesh High Court in Potti Veerayya Sresty v. CIT [1972] 85 ITR 194: Asserted that adequate consideration must be measurable in terms of money or money's worth.

The High Court concluded that the promise to marry, while valid consideration for a contract, does not constitute adequate consideration under Section 64(1)(iii) because it is not measurable in monetary terms.

4. Inclusion of Wife's Income in the Assessee's Total Income:
The High Court held that the properties transferred to Miss Irene Mott were not for adequate consideration. Therefore, the income arising from these properties should be included in the assessee's total income under Section 64(1)(iii) for the relevant assessment years.

Conclusion:
The High Court concluded that the Tribunal erred in holding that the transfer of immovable properties by the assessee to his wife was for adequate consideration. Consequently, the income from the properties so transferred was includible in the total income of the assessee under Section 64(1)(iii) of the Income-tax Act, 1961. The assessee was directed to pay the costs of the revenue.