KESHAVJI MORARJI Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) TWO questions have been referred to this Court by the Tribunal under S. 66(1) of the Indian IT Act and they are as follows :

(2.) THE assessee, Keshavji Morarji, transferred a sum of Rs. 5,00,000 to his son Jaysinh, on the 14th of June, 1952. Thereafter, on the 22nd of February, 1954, Keshavji made a settlement of Rs. 4,41,000 in favour of his minor grandchildren, who were the son and daughter respectively of his son, Jaysinh, under a deed dated 22nd of February, 1954. On the same day Jaysinh, the son of Keshavji, executed a trust deed settling a sum of Rs. 1,54,000 upon his three sisters, Indumati, Kusum and Dipika, the last of whom, that is, Dipika, was a minor. In the assessment of Keshavji and his son, Jaysinh, the ITO held that the simultaneous execution of the trust deeds by Keshavji and Jaysinh constituted indirect transfers of assets by Keshavji to his daughters and by Jaysinh to his children. He accordingly held that the income from these transfers had to be included in the total income of the assessees under S. 16(3) (a) (iv) of the IT Act. In the appeals filed by the assessees to the AAC, the view taken by the ITO with regard to the nature of these transactions was confirmed by the Appellate Asstt. CIT. He, however, held that the income which could be so included in the total income of the assessees would be only such as related to the interest in the assets conveyed in favour of the minors and not the income of the whole of the assets. The Tribunal confirmed the decision of the AAC and on applications made by Keshavji and Jaysinh under S. 66(1), it consolidated the two applications and drew up a statement of the case referring the two questions of law, which arose out of its order, to this Court. These two questions have already been set out at the beginning of this judgment. We will deal death the second question, the first ,because, in our opinionm, in view of our answer to the second question, the first question need not be answered. Before dealing with the same, we may, however, point out that the said question requires to be reframed. As it reads, it only relates to one of the two trusts, namely, the trust executed by Keshavji in favour of his grandchildren. Since the decision of the Tribunal and the question raised thereon relate to both the trusts, the question will have to be reframed as follows :

(3.) NOW , the only circumstance on which this contention of indirect transfers is based is that the two trust deeds were executed on the same day. In our opinion that circumstance alone will not be sufficient to establish that the trust deeds were executed each in consideration for the other and the simultaneous execution of the two deeds constituted but a single transaction whereby each of the settlors made provision for his own minor children. It may be pointed out that, at the date of the execution of the trust deeds, the settlements have been made out to properties, which belonged exclusively to each of the two settlors. The extent of property settled under the two trust deeds is also not the same. As has been pointed out by the Madras High Court in C.M. Kothari vs. CIT (1958) 34 ITR 317 (Mad), the fact that there are cross -gifts either by itself or taken with the fact that the gifts are simultaneous in point of time, does not establish that each transfer constitutes the consideration of the other and that the transfers are mutual. The facts in the Madras case, were much stronger than in the case before us because cross -gifts in that case were not only simultaneous but also for identical amounts. In the case before us, apart from the facts that the trust deeds were executed the same day, there does not appear to be any material circumstance from which the mutuality of the transfers can be inferred or they can be regarded as one being in consideration of the other.