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TMI Blog1992 (11) TMI 69X X X X Extracts X X X X X X X X Extracts X X X X ..... s of section 64(1)(vii) or section 64(2) are riot applicable in the assessee's case and the income accruing or arising to the spouse, minor children or the Hindu undivided family is not chargeable to tax in the assessee's hands ? " The three questions referred in I.T.R.C. No. 23 of 1990 pertain to the assessment year 1981-82 and they are as follows : " 1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the provisions of sections 64(1)(vii) and 64(2) are not applicable to the interest income accruing to the Hindu, undivided family on account of the deposit made with the firm to make an addition to the individual income of the assessee ? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the provisions of section 40(b) of the Income-tax Act are not applicable to the income earned by the Hindu undivided family on the deposit made with the firm ? 3. Whether, on the facts and in the circumstances of the case, the interest income earned by the Hindu undivided family on account of the deposit made with the firm should be treated as the income of the assessee applying the principle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so that the income accruing therefrom was to be taken as the income of the partner himself, (b) under section 64(2), the income accruing to the joint family should be deemed to have accrued to the partner, (e) in the alternative, the loan was not a transfer at all so that the income accruing to the wives, minor children and joint families should be deemed to be the income of the partners under section 64(1)/section 60 and (d) consequently, section 40(b) applied to the facts of the case and the income which accrued or should be deemed to have accrued to the partner should be added to the income of the partner and consequently should be disallowed in computing the total income of the firm. The Tribunal observed that in the case of one of the partners, M. Ananda Rao, the matter had come up to the Tribunal for the assessment years 1969-70 and 1970-71 and the Tribunal in I.T.A. Nos. 415 and 416/Bang/1971-72 dated August 1, 1972, had rejected all the contentions of the Revenue and that order had become final. The Tribunal, therefore, was of the opinion that there was no need to differ from the same. The Tribunal also held that the contentions of the Revenue were not tenable in any view o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... retroactive, in the sense retroactivity is normally understood. Explanations are to be applied in the manner in which, normally, a 'legislative Explanation ' is understood. " Hence the first question in I.T.R.Cs. Nos. 45 to 65 of 1989 and the second question in I.T.R.C. No. 23 of 1990 are answered in the affirimative and against the Revenue. Re : Sections 64(1)(vii) and 64(2): Learned counsel for the Revenue contended that the loan resulted in a transfer, and, therefore, in all these cases, the loans advanced by the individual partners to their respective spouses, minor children or the HUF came within the purview of section 64 of the Income-tax Act. It is necessary to note that in no case the genuineness of the transaction has been doubted by the Revenue ; the plea is raised purely as a question of law on the assumption that loan transactions were genuine. Therefore, the only question to be considered is whether loan is a " transfer ". The expansive definition of the term transfer " under section 63 does not govern the provisions of section 64 this is quite clear from the opening clause of section 63. Though section 64 is in the same Chapter along with sections 60 to 65 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... page 6, the Supreme Court held thus: "The contention that there was no transfer at all in this case is not sound. The shares were previously held by Mr. Tulsidas Kilachand for himself. After the declaration of trust by him, they were held by him not in his personal capacity but as a trustee. No doubt, under sections 5 and 6 of the Indian Trusts Act, if the declarer of the trust is himself the trustee also, there is no need that he must transfer the property to himself as trustee , but the law implies that such a transfer has been made by him, and no overt act except a declaration of trust is necessary. The capacity of the declarer of a trust and his capacity as trustee are different and, after the declaration of trust, he holds the assets as a trustee. Under the Transfer of Property Act, there can be a transfer by a person to himself or to himself and another person or persons. In our opinion, there was in this case a transfer by Mr. Tulsidas Kilachand to himself as a trustee, though there was no formal transfer. The assessee also stresses the words any person or association of persons' in section 16(3)(b) and contends that such a person must be other than the husband who trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... For the purpose of the application of section 16(3), it must be assumed that the title to the transferred shares vested in the wife and the dividends belonged to her. When, therefore, those monies are taken by the husband to recoup what he had paid to Mr. Jackson, it follows that what Mr. Murthi did was only to give a loan or temporarily to accommodate his wife to meet the demands of the assignor. Being only a loan, the payments cannot amount to a transfer of assets. There is no prohibition against a husband advancing monies to his wife for the acquisition of property by her. Whether in such cases there was a loan by the husband to the wife or whether it was merely a camouflage to cover a case of transfer of assets is a question of fact." (emphasis supplied here). The underlined sentence clearly brings out the real position in law that a loan is not a transfer. In CIT v. Keshavlal Lallubhai Patel.[1965] 155 ITR 637(SC), the assessee had thrown all his self-acquired properties into the common hotchpot of the HUF. Subsequently, there was an oral partition. The question was whether there was an indirect transfer of the properties allotted to the wife and minor son in the partitio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1982] 133 ITR 550 are distinguishable. It was found as a fact that there was no lawful agreement of loan between the assessee and his minor son. Tile decision of the Madras High Court in R. K. Murthi's case [1961] 42 ITR 379 was referred to as to the nature of a loan ; the Delhi High Court did not dissent from the view expressed by the Madras High Court. The loan was held to be a contract by the Delhi High Court and such a contract with minor was not possible. However, at page 557, the following observation is found : " Nor can the transaction be viewed as one of loan by the father in his individual capacity to himself acting as the guardian of the minor son. It is quite true, as Shri Harihar Lal points out, that the law recognises different capacities in which an individual can function. Ali individual may act in certain matters in his own individual capacity. He may act as an agent or a trustee or a guardian or a partner or a shareholder or a director and so on. But the concept of 'capacity' cannot be equated to a concept of 'legal personality'. A contract of loan requires two persons. There cannot be a loan by the same person to himself merely because he functions in two diffe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that, where the karta of a HUF is partner in a firm representing his HUF along with his wife, and his minor children are admitted to the benefits of partnership in that firm, the share income of the wife and minor children cannot be assessed to tax in the hands of the karta in his individual status. The approach to a fiscal statute is stated, at page 180, thus : " So far as the fiscal statutes are concerned, we must remember one more principle. The provisions in a fiscal statute are not to be so construed as to furnish a chance of escape and a means of evasion. In case of doubt, the fiscal statute should be construed in favour of and beneficial to the subject. " We repeat that the genuineness of the transaction was not challenged by the Revenue and in fact the Revenue admitted the bona fide character of the advances in question. The finding given in respect of the earlier year also has been accepted by the Revenue, as noted by the Appellate Tribunal. Before us, the arguments were purely theoretical. As we are of the view that a " loan " is not a " transfer ", section 64 is not at all attracted to the transactions. The question necessarily has to be answered in the affirmati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the face of it a device to evade tax ; the intended effect of this on the fiscal purpose of taxation should not be ignored by the court. The argument is very attractive. It looks to be a strange transaction when looked at in the manner suggested by learned counsel for the Revenue. Why should an individual advance money to his own HUF of which he is the karta on a low rate of interest and thereafter invest the same money as karta of the HUF at a higher rate of interest ; why not invest the money directly and earn a higher interest are the questions anyone would naturally ask. However, the question was not raised in this manner by the Income-tax Officer anywhere. Till the matter reached this court, the genuineness of the transaction as such was not doubted. No material is placed to show that the higher interest earned by the HUF escaped income-tax. The taxable income of the assessee attracts the highest rate of income-tax. There is nothing to indicate the tax levied on the HUF ; it is not the case of the Revenue that the HUF does not pay any tax. The actual tax that is lost to the Revenue by the alleged device adopted by the assessee is not known. It is quite likely that, in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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