TULSIDAS KILACHAND vs. THE COMMISSIONER OF INCOME-TAX, BOMBAY CITY I.

CIVIL APPEAL No. 134/1959Supreme Court[1961] 3 S.C.R. 35103 January 1961Bench: 3 JudgesAuthor: J.L. KAPUR, M. HIDAYATULLAH, J.C. SHAH S.C.R. SUPREME COURT REPORTS8 pages
AI SummaryDismissed

What did the Supreme Court hold?

The Supreme Court held that on a true construction of the deed, there was a transfer of shares by the husband to himself as a trustee for the benefit of his wife. Although the husband was the same individual, in his capacity as a trustee, he was regarded as a person distinct from the transferor. Therefore, Section 16(3)(b) was applicable. The Court further held that the words 'adequate consideration' in Section 16(3) denoted consideration other than mere love and affection, which, in the case of a wife, might be presumed but was not sufficient to meet the statutory requirement for avoiding tax. Consequently, the case fell within Section 16(3)(b) and not the third proviso to Section 16(1)(c). The dividend income was liable to be included in the assessee's total income. The appeals were dismissed.

What were the facts?

The assessee, Tulsidas Kilachand, made a declaration of trust on March 15, 1951, holding 244 shares of Kesar Corporation Ltd. and 120 shares of Kilachand Dovchand & Co. Ltd. in trust to pay the income to his wife for seven years or her death, whichever was earlier. The trust was not revocable. In the year of account 1951, dividend income of Rs. 30,404 was received. The assessee claimed this income was not taxable in his hands under the third proviso to Section 16(1)(c) of the Indian Income-tax Act, 1922. The Income-tax Officer rejected this claim, and subsequent appeals to the Appellate Assistant Commissioner and the Tribunal also failed. The High Court upheld the Tribunal's decision, finding Section 16(3)(b) applicable. The matter reached the Supreme Court.

What were the issues?

1. Whether, on a true construction of the deed of declaration of trust dated March 15, 1951, there was a transfer of assets to the wife or to any person for the benefit of the wife, making Section 16(3)(a)(iii) or Section 16(3)(b) of the Indian Income-tax Act, 1922, applicable. The assessee argued there was no transfer of assets, only a creation of a trust where dividends were payable to the wife, and thus these sections were not applicable. The revenue contended that a transfer had occurred. 2. If a transfer of assets occurred, was it for adequate consideration? The assessee argued that love and affection constituted adequate consideration, making Section 16(3)(a)(iii) or Section 16(3)(b) inapplicable. The revenue argued that 'adequate consideration' excluded mere love and affection. The assessee also relied on the third proviso to Section 16(1)(c), arguing the income was not liable to be included in his total income.

Which sections of the Income-tax Act were involved?

Section 16(1)(c), Section 16(3)(a)(iii), Section 16(3)(b)

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3 S.C.R. SUPREME COURT REPORTS 351 TULSIDAS KILACHAND v. THE COMMISSIONER OF INCOME-TAX, BOMBAY CITY I. [And connected appeals] (J. L. KAPUR, M. HIDAYATULLAH and J. C. SHAH, JJ.)

Income Tax-Holder of shares becoming trustee for the benefit of wife-Liability to tax of such shareholder-" Adequate considera- tion", meaning of-Indian Income-tax Act, I9Z2 (II of 1922), SS. I6(I)(c), I6{J)(a)(iii), l6(J)(b).

By a deed dated March s. 1951, the appellant made a decla- ration of trust in favour of his wife as follows: "I.. ....... hereby declare that I hold 244 shares ............ upon trust to pay the income thereof to my wife ......... for a period of seven years from the date hereof or her death (whichever event may be earlier) · and I hereby declare that this trust shall not be revocable". In the year of account, 1951, a sum of Rs. 30,404 was received as dividend income on those shares and the appellant claimed before the income-tax authorities that this sum was not liable to be included in his total income in view of the third proviso to s~ r6(r)(c) of the Indian-Income-tax Act, 1922, but this claim was rejected on the ground that th~ case was covered either by s.

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