L G BALAKRISHNAN Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) SECTION 16(3)(a)(iv) of the Indian Income-tax Act reads :

(2.) IN this reference we are concerned with the applicability of the above provision to the fact and circumstances of the case. The assessee is one L. G. Balakrishnan, who had declared his status as a Hindu undivided family with one minor son. The accounting year is the year ended 31st March, 1958, and the assessment year is 1958-59. IN computing the assessable income the Additional INcome-tax Officer, Coimbatore, included a sum of Rs. 933 as the assessees income but it was objected to by him. The INcome-tax Officer claimed to include this amount, as in his view the income arose out of a transfer of assets by the assess which fell within the mischief of section 16(3)(a)(iv) of the Act. IN the course of the scrutiny of the accounts of the firm of Messrs. L. G. Balakrishnan and Brothers, the INcome-tax Officer found the following deposits : (1) Rs. 50,000 credited to Kumari Vanitha, minor daughter of Varadarajulu; (2) Rs 50,000 credited to Chitra, minor daughter of Ramamurthi; (3) Rs. 50,000 credited to Vijayakumar, minor son of Balakrishnan. The INcome-tax Officer found that these gifts were really in the nature of cross gifts. On the 1st February, 1958, Balakrishnan withdrew from the firm a sum of Rs 50,200. Of this, a sum of Rs. 50,000 was alleged to have been credited by him in favour of Vanitha, minor daughter of Varadarajulu, who redeposited the money with the firm. Varadarajulu withdrew from the firm a sum of Rs. 50,100 on 3rd February, 1958, and purported to make a gift of Rs. 50,000 to minor Chitra, daughter of his brother, Ramamurthi, who is turn redeposited the money with the firm. Ramamurthi withdrew Rs. 50,000 on the 4th February, 1958, and gifted Rs. 50,000 to Vijayakumar, the minor son of Balakrishnan and who also redeposited the money in the firm. According to the book entries each one of the minor children of the three brothers got by way of gift a sum of Rs. 50,000. The tenor of the entries was to make it appear that there was no direct gift or transfer of assets by any of the three brothers in favour of their respective minor children. The INcome-tax Officer was of the opinion that though there was no direct transfer of assets by the father to his minor child, there was an indirect transfer within the meaning of the said expression in section 16(3)(a)(iv). He, therefore, subjected the income of Rs. 933 to tax in the hands of Balakrishnan. This sum of Rs. 933 admittedly arose by way of income from the sum of Rs. 50,000, credited in the firms accounts in the name of Vijayakumar, the minor son of Balakrishnan.

(3.) THE decision in C. M. Kothari v. Commissioner of Income-tax has been very much relied upon by the assessees learned counsel. THE facts of that case were as follows : K and his two sons, D and H were the partners of a firm. THE firm entered into an agreement for the purchase of a house and paid an advance of Rs. 5,000 out of the partnership funds, but this amount was debited to the personal accounts of the partners, K being debited with Rs. 1,800 and D and H each being debited with Rs. 1,600. THE sale of the house was in favour of Mrs. K, Mrs. D and H each of whom paid the vendor Rs. 28,333-5-4 to make up the purchase price of Rs. 90,000 less the advance of Rs. 5,000. To help the ladies to pay their share of the purchase price K made a gift of Rs. 30,000 to his daughter-in-law, Mrs. D, by cheque out of the partnership funds, and D made a similar gift of Rs. 30,000 to his mother, Mrs. K, by cheque out of the partnership funds. THE amounts were respectively debited to the personal accounts of K and D. In order to reimburse their shares of advance Mrs. K. Paid the firm by cheque Rs. 1,800, which was credited to the personal account of K and Mrs. D paid Rs. 1,600 which was credited to the personal account of D. THE Tribunal found that the purchase was not benami but held that the rent income arising from the property to Mrs. K and Mrs. D arose to them from assets indirectly transferred by their husbands and should be included in the assessment of K and D under section 16(3)(c)(iii) of the company of the Income-tax Act. This court held that the fact that there were cross-gifts either by itself or taken with the fact that the gifts were simultaneous in point of time did not establish that each transfer constituted the consideration of the other, and that the transfers were mutual. It was further held that there was no material on record to justify the conclusion that the transfer of assets effected by K in favour of his daughter-in-law, Mrs. D. constituted an indirect transfer by D of his assets to his wife or that the transfer of his assets effected by D in favour of his mother constituted an indirect transfer by K to his wife, and that therefore the provisions of section 16(3)(a)(iii) did not apply. We do not think that the above case lays down any general principle of law that cross-gifts or mutual transactions are as a class outside the mischief of section 16(3)(a)(iv) of the Act. We may refer to the following observations of Rajagopalan J. at page 327 :