KALI PRASAD SINGH Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) IN this case the assessee is Shri Shri Kali Prasad Singh who is the holder of an impartible estate called Jharia Raj. On 21st Aug., 1947, the assessee created a permanent mokarri lease in favour of his wife Rani Usha Debi, with regard to a property called Jharia Hat. The fixed annual rental was Rs. 101 and the Rani was given the right to enjoy the usufruct of the Hat and to sell and make gift of the land upon which the Hat was located. The question in this case refers to the income received by the Rani from Jharia Hat for the accounting years 1354 and 1355 Bengali Samvat. For these two accounting years the net amounts of income received by the Rani were Rs. 7,728 and Rs. 15,889. The ITO took the view that these amounts were taxable in the hands of the assessee under the provisions of S. 16(3)(a)(iii) of the IT Act. The ITO was of the opinion that the Raj had made a transfer of assets in favour of his wife and there was no adequate consideration within the meaning of S. 16(3)(a)(iii). An appeal was taken on behalf of the assessee to the AAC who held that the transaction came within the ambit of s.(16)(1)(c) of the Act. But the AAC rejected the claim of the assessee for exemption on the ground that "the assessee derived direct and indirect benefit from the income of the settlement" and that in spite of the settlement "the assessee had full control over the management of the property and the enjoyment of its income". The AAC also remarked that "the assessee's wife was joint with the assessee and was completely subservient to him". The matter eventually came before the Tribunal who expressed the view that the transaction was hit by s. 16 (3)(a)(iii) of the Act and there was no adequate consideration and the income was rightly included in the total income of the assessee for being taxed. In this state of facts the Tribunal has submitted the following question of law for the opinion of the High Court :

(2.) ON behalf of the assessee Mr. Dutt put forward the argument that the view taken by the Tribunal was wrong and that the transaction of the mokarri lease was not a transfer of assets within the meaning of S. 16(3)(a)(iii) of the Act. The contention of the learned counsel was that the assessee had made a transfer to Rani Usha Debi of the right of collecting rent from the Jharia Hat on a permanent basis. It was contended by the learned counsel that the Rani was not granted any right in the property apart from the right of collecting rent and the mokarri lease executed by the assessee was not tantamount to a transfer of assets within the meaning of S. 16(3)(a)(iii). In my opinion the argument advanced by Mr. Dutt cannot be accepted as correct. The question turns upon the legal effect of the mokarri lease executed by the assessee on the 21st Aug., 1947, in favour of Rani Usha Debi. The operative part of this document is in the following terms :