# COMMISSIONER OF INCOME-TAX, GUJARAT v. KESHAVLAL LALLUBHAI PATEL

- **Citation:** [1965] 2 S.C.R. 100
- **Court:** Supreme Court of India
- **Decided:** 1964-11-09
- **Bench:** K. SUBBA RAo, J. C. Shah, s. M. Sumi
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/commissioner-of-income-tax-gujarat-v-keshavlal-lallubhai-patel-3293
- **Pages:** 6

## Headnote

Income Tax Act, 1922 (11of1922)-Self-acquired property thrown int.?
11.UF. Hotchpotch-Thereafter partition effected amongst member•·
H.U.F.-Whether property transferred to wife and minor son amounted
toindirect transfers under· s. 16(3) (a) (iiiQ and (iv).
Until the assessment year 1952-53, the assessee was assessed as an iruh·
vidual.
On April 18, 1951, he swore an affidavit to the effect that he
was throwing all his self-acquired properties into the common hotchpotch
of the Hindu undivided family consi•ting of hi1Melf arul hill two soru;. t
one a major and the other a minor. On June 12, 1951, an oral partition""'
effected between the several members of thia undivided family, and as :i
result some of the properties were transferred to the uses.sce'5 wife and his
1ninor son.
c
For the assessment year 1952-53, the a'iSes.'iee claimed that assessment
.,hould be made taking into account the conversion of his .cit-acquired
property into joint family property and the subsequent partition.
The
Appellate Tribunal confirmed the orders o[ the Income-tax Officer and the
Assistant Appellate Commissioner disallowing the claim of the a"<SesSee on
the ground that throwing into the hotchpotch one's self-acquired property
and a subsequent partition among the members of the Hindu undivided
family was an indirect transfer of property within the meaning of s. 16( J)
D
of the Income-tax Act, 1922. However, upon a reference made to it. the
High Court \Vas of the view that the above transactions did. not amoW1t
lo a direct or indirect lransfer within the meaning of s. 16(3)(a)(iii) and
(i\') of the Act.
HELD: The two condilions that must be satisfied before s. Jn(:I)(>)
(iii) or (iv) can apply are-
(i) Assets must be transferred by the husband to the '<\'ifc or the min•lr
child; and
(ii) They m,..;I he transferred directly or indirectly.
Only the word 'transfer' occurs in s. 16(3)(a)(iii) and (iv) and a
comparison with the language of s. 16(3) (c) shows that here it ha.• been
t1scd in the strict sense and not in the sense of 'including: every means hy
F
which property may be passed from one to another'. [103 D-0]
G
Plti/ip John Plasket Thomas v. Cl.T. Calcutta, [1964] 2 S.C.R. 430
referred to.
Although the expression 'directly or indirectly' is intended to take in
indirect U'llosfers, there must still be a transfer and the word 'indirectly'
does not destroy the significance of the word 'transfer'.
Even
if the
•ct of throwing self-acquired property into the hotchpotch is regarded u
a traOJfcr, the partition of Joint Hindu family property is not a transfer
H
in the strict sense and the provisions of s. 16(3) (a) (iii) and (iv) are th=-
fore not attracted. [104 A, G; 105 C-D)
C.l.T. v. C. M. Kothari, [l964] 2 S.C.R. 531. distinlluished.
'
A
B
c
D
C. I. T. V. K. L. PATEL ($ikri, J.)
101
Gutta Radhakristnayya v. Gutta Sarasamma, l.L.R. ( 1951) Mad. 607,
M. K. Streman v. CJ.T. Madras, 41 I.T.R. 297 and Jagan Nath \'. State
of Punjab, (1962) 64 P.L.R. 22, approved.
Patti Executors v. Commissioners of Inland Revenue, 32 T.C. 211,
referred to.
ClvJL APPELLATE JURISDICTION ; Civil Appeal No. 1022 o[
1963.
Appeal from the judgment and order dated April 28, 1961
of the Gujarat High Coun in Income-tax Reference No. 16 of
1960.
K. N. Rajagopa/a Sastri and R. N. Sachthey, for the appellant.
A. V. Viswanatha Sastri, J. P. Pandit, T. A. Ramachandran,
J. B. Dadachanji, 0. C. Mathur and Ravinder Narain, for the
respondent.
The Judgment of the Coun was delivered by
Sikri, J. This is an appeal on certificate granted by the Gujarat
High Coun under s. 66A(2) of the Indian Income Tax Act, 1922,
hereinafter referred to as the Act, and involves the interpretation
of s. 16(3)(a)(iii) ands. 16(3)(a)(iv) of the Act.
The facl~
are not in dispute and it is not necessary to record the findings of
E
the Income Tax Officer and the Assistant Appellate Commissioner.
It is sufficient to extract the relevant facts from the order of the
Appellate Tribunal.
The respondent. Keshavlal Lal

## Text

COMMISSIONER OF INCOME-TAX, GUJARAT
A
v.
KESHAVLAL LALLUBHAI PATEL
November 9, 1964
[K. SUBBA RAo, J. C. SHAH AND s. M. Sumi. JJ.]
Income Tax Act, 1922 (11of1922)-Self-acquired property thrown int.?
11.UF. Hotchpotch-Thereafter partition effected amongst member•·
H.U.F.-Whether property transferred to wife and minor son amounted
toindirect transfers under· s. 16(3) (a) (iiiQ and (iv).
Until the assessment year 1952-53, the assessee was assessed as an iruh·
vidual.
On April 18, 1951, he swore an affidavit to the effect that he
was throwing all his self-acquired properties into the common hotchpotch
of the Hindu undivided family consi•ting of hi1Melf arul hill two soru;. t
one a major and the other a minor. On June 12, 1951, an oral partition""'
effected between the several members of thia undivided family, and as :i
result some of the properties were transferred to the uses.sce'5 wife and his
1ninor son.
c
For the assessment year 1952-53, the a'iSes.'iee claimed that assessment
.,hould be made taking into account the conversion of his .cit-acquired
property into joint family property and the subsequent partition.
The
Appellate Tribunal confirmed the orders o[ the Income-tax Officer and the
Assistant Appellate Commissioner disallowing the claim of the a"<SesSee on
the ground that throwing into the hotchpotch one's self-acquired property
and a subsequent partition among the members of the Hindu undivided
family was an indirect transfer of property within the meaning of s. 16( J)
D
of the Income-tax Act, 1922. However, upon a reference made to it. the
High Court \Vas of the view that the above transactions did. not amoW1t
lo a direct or indirect lransfer within the meaning of s. 16(3)(a)(iii) and
(i\') of the Act.
HELD: The two condilions that must be satisfied before s. Jn(:I)(>)
(iii) or (iv) can apply are-
(i) Assets must be transferred by the husband to the '<\'ifc or the min•lr
child; and
(ii) They m,..;I he transferred directly or indirectly.
Only the word 'transfer' occurs in s. 16(3)(a)(iii) and (iv) and a
comparison with the language of s. 16(3) (c) shows that here it ha.• been
t1scd in the strict sense and not in the sense of 'including: every means hy
F
which property may be passed from one to another'. [103 D-0]
G
Plti/ip John Plasket Thomas v. Cl.T. Calcutta, [1964] 2 S.C.R. 430
referred to.
Although the expression 'directly or indirectly' is intended to take in
indirect U'llosfers, there must still be a transfer and the word 'indirectly'
does not destroy the significance of the word 'transfer'.
Even
if the
•ct of throwing self-acquired property into the hotchpotch is regarded u
a traOJfcr, the partition of Joint Hindu family property is not a transfer
H
in the strict sense and the provisions of s. 16(3) (a) (iii) and (iv) are th=-
fore not attracted. [104 A, G; 105 C-D)
C.l.T. v. C. M. Kothari, [l964] 2 S.C.R. 531. distinlluished.
'
A
B
c
D
C. I. T. V. K. L. PATEL ($ikri, J.)
101
Gutta Radhakristnayya v. Gutta Sarasamma, l.L.R. ( 1951) Mad. 607,
M. K. Streman v. CJ.T. Madras, 41 I.T.R. 297 and Jagan Nath \'. State
of Punjab, (1962) 64 P.L.R. 22, approved.
Patti Executors v. Commissioners of Inland Revenue, 32 T.C. 211,
referred to.
ClvJL APPELLATE JURISDICTION ; Civil Appeal No. 1022 o[
1963.
Appeal from the judgment and order dated April 28, 1961
of the Gujarat High Coun in Income-tax Reference No. 16 of
1960.
K. N. Rajagopa/a Sastri and R. N. Sachthey, for the appellant.
A. V. Viswanatha Sastri, J. P. Pandit, T. A. Ramachandran,
J. B. Dadachanji, 0. C. Mathur and Ravinder Narain, for the
respondent.
The Judgment of the Coun was delivered by
Sikri, J. This is an appeal on certificate granted by the Gujarat
High Coun under s. 66A(2) of the Indian Income Tax Act, 1922,
hereinafter referred to as the Act, and involves the interpretation
of s. 16(3)(a)(iii) ands. 16(3)(a)(iv) of the Act.
The facl~
are not in dispute and it is not necessary to record the findings of
E
the Income Tax Officer and the Assistant Appellate Commissioner.
It is sufficient to extract the relevant facts from the order of the
Appellate Tribunal.
The respondent. Keshavlal Lallubhai Patel, hereinafter referred
to as the assessee. was assessed till the assessment year 1952-53
11
(Accounting year ending March 31, 1952) as an individual,
On April 18. 1951. he swore an affidavit before the Deputy Nazir,
District Coun, Ahmedabad, throwing all his self-acquired properties
mentioned in the affidavit, into the common hotchpotch of the
Hindu undivided family, consisting of himself and his two sons.
The assessee had a wife and two sons, one a major and the other
G
a minor.
However, no entries in the books were passed.
On
June 12, 1951, an oral pattition was effected between the several
members of the Hindu undivided family, and consistent with this
pattition, entries in the books were made.
A joint declaration was
made by the assessee, his wife and the major son on June 26, 195 l,
before the District Coutt. Later, a joint statement was made on
H
December 5. 1951, before the Revenue Court.
Properties were
transferred thereafter in accordance with this arrangement to the
names of the several members of the family.
l02
SUPREME COURT REPORTS
[ 1965] 2 S.C'll..
For the assessment year 1952-53, the assessee claimed that
A
.assessment should be made taldng into consideration the con~
sion of the self-acquired into joint family property and the subsequent partition.
The Appellate Tribunal confirmed the orders of
··the Income Tax Officer and Assistant Appellate Commi>sioner
disallowing the claim of the assessee on the ground that "throwing
.into the hotchpotch one's self-acquired property, and a .subsequent
B
partition amongst the members of the Hindu undivided family is
an indirect transfer of the property within the meaning of s. 16(3)
of the Act."
The Appellate Tribunal, at the instance of the
as~essce, referred the following question to the High Court :
'"Whether on the facts and circumstances of this case
c
the throwing into the hotchpotch of the applicant's selfacquired property and the subsequent partition among the
members of the Hindu undivided family is an indirect
transfer of property so far as the wife and minor son are
concerned, within the meaning of Section 16(3) (a) (iii)
and (iv) of the Income Tax Act?"
D
The High Court answered the above question' in favour of
the assessee.
As
~lated above, it granted a certificate under
s. 66A (2) of the Act.
Mr. Rajagopala Sastri, the learned counsel for the Revenue,
urges before us that it is a clear case of indirect transfer by the
E
.assessee, withins. 16(3)(a)(iii) ands. 16(3)(a) (iv) of the Act.
He does not dispute the genuineness of the transactions. He says :
Look at the position antecedent to the affidavit dated April 18.
19 51.
The property in dispute belonged to the assessee. Then
look at the position after the partition.
The properties come to
be held by the wife and the minor son.
These two facts, according
F
to him, show that there was a transfer, and it was an indirect tran~-
fer because the joint Hindu family had been utilised only as a
conduit pipe by the assessee to transfer properties to the wife and
the minor son.
Section 16 ( 3 )(a) (iii) and (iv) read as follows :
"16(3)-In computing the total income of any
individual for the purpose of assessment, there shall be
included-( a) so much of the income of a wife or minor
child of such individual as arises directly or indirectly-
(iii) from assets transferred directly or indirectly to
the wife by the husband otherwise than for adequate
G
H
(
C, I. T. V. K. L. PATEL (Sikri, },)
IO:l
A
consideration or in connection with an agreement lo Jive
apart; or
B
c
D
E
F
G
JI
(iv) from asselS transferred directly or indirectly lo
the minor child, not being a married daughtet, by such
individual otherwise than for adequate consideration; .. "
Mr. Viswanatha Sastri, the learned counsel for the assessec,
.:ontends that in this case there is no transfer in the strict sense.
and as it is a taxing statute, the provisions should be construed
strictly.
He says that neither the act of throwing the self-acquired
-property into the hotchpotch, nor the partition of joint family
property was a transfer within the meaning of s. 16(3)(a)(iii)
ors. 16(3 )(a)(iv). If the legislature wanted to rope in these acts,
it could have used another word, such as 'arrangement'.
Apart from authority, looking at the language of s. 16( 3) (a)
(iii), following two conditions must be satisfied before the said
provision can be applied :
( l ) Assets must be transferred by the husband to
the wife;
(2) TQe assets must be transferred directly or
indirectly.
Two questions arise : Is the word 'transfer' used in the technical
sense or in the popular sense?
And, secondly. what is comprehended in the word 'indirectly' ?
Some assistance is derived in ascertaining the meaning of the
word 'transfer' by looking at the language of s. 16 ( I )( c). In
that clause, the legislature uses the words 'settlement', 'disposition' and 'transfer', and in the expr~ssion 'settlement or disposition'
is included 'any disposition, trust, covenant, agreement or arrangement'.
In this clause, the word 'transfer' is clearly used in the
strict sense. If the legislature were minded to include an arrangement or agreement, not amounting to transfer, in s. 16(3)(a)
(iii), it could have used these words.
It seems to us that the word
'transfer' has been used in the strict sense and not in the sense of
'including every means by which the property may be passed from
one to another'.
This conclusion is reinforced by the consideration that, as observed by this Court in Philip John Plmket Thomas
v. Commissioner of Income-Tax, Calcutta('), s. 16(3) "creates an
artificial income and must be construed strictly."
(I) [1964] 2 S.C.R. 480.
104
SUPREME COURT REPORTS
(1965] 2 S.C.ll.
Coming now to the expression 'directly or indirectly' there
A
does not seem to be any doubt that the legislature meant to rope
in indirect transfers.
One example is furnished by Commissioner
of Income Tax v. C. M. Kothari(').
But there must still be a
transfer of assets.
The word 'indirectly' does not destroy the significance of the word 'transfer'.
Mr. Rajagopala Sastri relies strongly on the decision of this
Court in Commissioner of Income Tax v. C. M. Kothari('). But
in our opinion that case is clearly distinguishable and does not
assist us . in this case.
In that case, C. M. Kothari and his sons
were both desirous of putting Rs. 30,000 in the hands of their wives
B
to enable them to buy a share in a house.
Instead of directly
C
gifting the amount, they hit upon the following device : C. M.
· Kothari would gift Rs. 30,000 to the daughter-in-law and the son
would gift Rs. 30,000 to the mother.
This Court held that it was
a palpable device and a trick and the two cross transactions
amounted to an 'indirect transfer' within s. 16 ( 3 )(a)( iii) . In
effect, this Court held that the father used his son as a conduit pipe D
and the son used his father as a conduit pipe to gift R~. 30,000
each.
Mr. Sastri relies on the words "chain of transfers" used by
Hidayatullah, J., in the following sentence :
"A chain of transfers, if not comprehended by the
word 'indirectly' would easily defeat the object of the law
E
which is to tax the income of the wife in the hands of
the husband, if the income of the wife arises to her from
assets transferred by the husband."
But in the context they refer to the cross-gifts, if we may so call
the two gifts of Rs. 30,000 each. Thesi: are transfers in the strict
sense of the term.
In the present case there are no cross-gifts.
F
We have, on the other hand, in this case, a throwing of property into
the hotchpotch and a partition of the JHF property. As will be
pointed out later, the latter at any rate is not a transfer at all.
This takes us to the facts of this case, and the question arises
whether there· is any transfer of assets in the strict sense.
There. G
is some difference of opinion whether the act of throwing selfacquired property into the hotchpotch is a transfer or not.
We
need not settle this controversy in this case.
Let us assume that
it is.
But, is a partition of joint Hindu family property a transfer
in the strict sense ? We are of the opinion that it is not.
This
was so held in Gutta Radhakristnayya v. Gutta Sarasamma.(')
H
Subba Rao, J., then a Judge of the Madras High Court, after
(I) [19641 2 S.C.R. S31.
(2) I.L. R. [I 9SI] Mad. <07.
C, l. T. v. K. L. PATEL (Sikri, /.)
IU5
A exami1.1ing several authorities, came to the conclusion that "partition is .really a process in and by which a joint enjoyment is transfomi.ed into an enjoyment in severalty. Each one of the sharers
had an antecedent title and therefore no conveyance is involved
in the process as a conferment of a new title is not necessary." The
Madras High Court again examined the question in M. K.
B Stremann v. Commissioner of Income Tax, Madras( 1 ) with reference to s. 16(3) (a) (iv). It observed that "obviously no question of
transfer of assets can arise when all that happens is separation in
status, though the result of such severance in status is that the
property hitherto held by the coparcenary is held thereafter' by the
C separated members as tenants-in-common.
Subsequent partition
between the divided members of the family does not amount either
to a transfer of assets from that body of the tenants-in-common to
each of such tenants-in-common".
The Punjab High Court came to the same conclusion in
Jagan Nath v. The State of Punjab('). Agreeing with these authoD rities, we hold that. when the joint Hindu family property was partitioned, there was no transfer of assets within s. 16 ( 3) (a) (iii) and
(iv) to the wife or the minor son.
Mr. Rajagopala Sastri finally contended that we must look at
the substance of the transaction.
But as pointed out by Lord
E . Normand in Pottf Executors v. Commissioners of Inland
Revenue(') "the Court is not entitled to say that for the purposes
of taxation the actual transaction is to be disregaroed as "machinery" and that the substance or equivalent financial results are the
relevant consideration. It may indeed be said that if these loose
principles of construction had been liberally applied, they would
F in many instances have been adequate to deal with tax evasion and
there would have been less frequent cause for the intervention of
Parliament."
In the result the apeeal fails and is dismissed with costs.
A. ppeal dismissed.
(I) (1961) 41 I.T.R. 297.
(2) (1962) 64 P.L.R. 22.
(3) 32 T.C. 211.
L3Sup./65-8