# COMMISSIONER OF INCOME-TAX, MADRAS v. C. M. KOTHARI, MADRAS (DEAD), AND AFTER HIM HIS LEGAL REPRESENT A TI VE

- **Citation:** [1964] 2 S.C.R. 531
- **Court:** Supreme Court of India
- **Decided:** 1964
- **Bench:** S. K. Das, A. K. Sarkar, M. Hidayatullah
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/commissioner-of-income-tax-madras-v-c-m-kothari-madras-dead-and-after-him-his-2944
- **Pages:** 7

## Headnote

Income '!'ax-Income from property in the name of wife-,-
Money coming into the haw• of wife from husband iwirectlylVhether income
of wife to be included into that of husband-
"Transf<rred directly or indirectly to the wife," Meaning oflndiJn Income-tax Act, 1922 (11of1922), •· 16 (3) (a) (iii).·
Messrs Kothari and Sons is a firm of stock brokers. The
firm consisted of Shri C. M. Kothari and his two sons, Shri
D. C. Kothari and Shri H. C. Kothari. The firm entered into
an agreement for the purchase of a house and the earnest money
was paid by it. Later on, the house was bought in the name
of Mrs. C. M. Kothari, Mrs. D. C. Kothari and Shri H. C.
Kothari. The house was bought for Rs.
90,000/- and both
Mrs. C. M. Kothari
and Mrs. D. C. Kothari received
Rs. 30,000 each from the firm. In the case of Mrs. C. M.
Kothari, she got that amount in the form of birthday gift and
Diwali gift from her son, D. C. Kothari. Mrs. D. C. Kothari
also received Rs. 30,000 from the firm as a gift from Shri
C. M. Kothari, h.er father-in-law. The Income-tax Officer
assessed the income of Mrs. C. M. Kothari and Mrs. D. C.
Kothari from the said house as the income of their husbands.
The appeals of the assessees were dismissed by the Appellate
Assistant Commissioner and the Tribunal. The Tribunal
confirmed the finding of the Income Tax Officer that the two
ladies had acquired their shares in the huuse out of the assets
of their husbands indirectly transferred to them. Boweyer,
the Tribunal did not hold that the transaction was benami. ·
The Tribunal referred the case to the High Court for
opinion whether the income arising to Mrs. C. M. Kothari
and Mrs. D. C, Kothari from the property arose out of the
assets transferred indirectly by their husbands ·so as to attract
the provisions of s. 16 (3) (a) (iii) of the Income-tax Act, 1922.
The High Court answered .. the reference in. the negative, The
Conunissioner of Income-tax,
Madras, can1e to this·Court in
appeal.
._ ..
)963
·~:Mar-eh 2r;·
··1.:·
r
JJfJ
c ..... iui..,,.J
lnenu•ta, MUr&J
v.
C. M. K11U.i
532 SUPREME cotJRT REi>ORtS [1064] Vot.
Held that the answer given by the High Court must be
set uide and the reference made by the Tribunal must be
answered in the affirmative. The object of law 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 to her by her
husband.
In the present ease, the son transferred the assets
to hil mother and the father-in-law transferred his assets to his
daughter-in·law. The term "indirectly" is intended to cover
such tricks.
If two transfers al"<' inter-connected and arc parts of the
aame transaction in such a way that it can be said that a
circuitous method has been adopted as a device to evade the
implications of s. !6 (3) (a) (iii), the case will fall within this
section. In the present ease, the device is palpable and the
two transferrers are so intimately connected that they cannot
but be regarded as a part of a single transaction.
ft was not
successfully explained why the father-in-law made a big gift to
his daughter-in-law and the son made an equally big gift to
his mother.
CIVIL APPELLATE JnusuICTION : Civil Appeals
Nos. 34 to 36 of 1962.
Appeals from the judgment and order dated
March 25, 1958, of the Madras High Court in Case
Referred No. 12 of 1954.
K. N. Rajagopal Sa8tri and R. N. Sachthey,
for the appellant.
R. Gopa/,akrishnan, for the respondent.
1963. March 26. The Judgment of the Court
was delivered by
HIDAYAl'ULLAH J.-
The High Court of
Madras in a Reference under s.66 (1) of the Indian
Income Tax Act, answered in the negative the
following question:-
"Whethcr there was material for the Appellate
Tribunal to hold that the income arismg to
Mrs. C.M. Kothari and Mrs. D. C. Kothari
from the property arose indirectly out of the
2 S.C.R.
SUPREME COURT REPORTS
533
assests transferred indirectly by their husbands so
as to attract the provisions of s.16 (3)(a)(iii)."
In our opm10n,
these
appeals by

## Text

...
2 s.c.R. · sui>R:E~E cbu1tr REPo:Rts
531
COMMISSIONER OF INCOME-TAX, MADRAS
v.
C. M. KOTHARI, MADRAS (DEAD),
AND AFTER HIM HIS LEGAL
REPRESENT A TI VE
(S. K. DAS, A. K. SARKAR and
M. HIDAYATULLAH JJ.)
Income '!'ax-Income from property in the name of wife-,-
Money coming into the haw• of wife from husband iwirectlylVhether income
of wife to be included into that of husband-
"Transf<rred directly or indirectly to the wife," Meaning oflndiJn Income-tax Act, 1922 (11of1922), •· 16 (3) (a) (iii).·
Messrs Kothari and Sons is a firm of stock brokers. The
firm consisted of Shri C. M. Kothari and his two sons, Shri
D. C. Kothari and Shri H. C. Kothari. The firm entered into
an agreement for the purchase of a house and the earnest money
was paid by it. Later on, the house was bought in the name
of Mrs. C. M. Kothari, Mrs. D. C. Kothari and Shri H. C.
Kothari. The house was bought for Rs.
90,000/- and both
Mrs. C. M. Kothari
and Mrs. D. C. Kothari received
Rs. 30,000 each from the firm. In the case of Mrs. C. M.
Kothari, she got that amount in the form of birthday gift and
Diwali gift from her son, D. C. Kothari. Mrs. D. C. Kothari
also received Rs. 30,000 from the firm as a gift from Shri
C. M. Kothari, h.er father-in-law. The Income-tax Officer
assessed the income of Mrs. C. M. Kothari and Mrs. D. C.
Kothari from the said house as the income of their husbands.
The appeals of the assessees were dismissed by the Appellate
Assistant Commissioner and the Tribunal. The Tribunal
confirmed the finding of the Income Tax Officer that the two
ladies had acquired their shares in the huuse out of the assets
of their husbands indirectly transferred to them. Boweyer,
the Tribunal did not hold that the transaction was benami. ·
The Tribunal referred the case to the High Court for
opinion whether the income arising to Mrs. C. M. Kothari
and Mrs. D. C, Kothari from the property arose out of the
assets transferred indirectly by their husbands ·so as to attract
the provisions of s. 16 (3) (a) (iii) of the Income-tax Act, 1922.
The High Court answered .. the reference in. the negative, The
Conunissioner of Income-tax,
Madras, can1e to this·Court in
appeal.
._ ..
)963
·~:Mar-eh 2r;·
··1.:·
r
JJfJ
c ..... iui..,,.J
lnenu•ta, MUr&J
v.
C. M. K11U.i
532 SUPREME cotJRT REi>ORtS [1064] Vot.
Held that the answer given by the High Court must be
set uide and the reference made by the Tribunal must be
answered in the affirmative. The object of law 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 to her by her
husband.
In the present ease, the son transferred the assets
to hil mother and the father-in-law transferred his assets to his
daughter-in·law. The term "indirectly" is intended to cover
such tricks.
If two transfers al"<' inter-connected and arc parts of the
aame transaction in such a way that it can be said that a
circuitous method has been adopted as a device to evade the
implications of s. !6 (3) (a) (iii), the case will fall within this
section. In the present ease, the device is palpable and the
two transferrers are so intimately connected that they cannot
but be regarded as a part of a single transaction.
ft was not
successfully explained why the father-in-law made a big gift to
his daughter-in-law and the son made an equally big gift to
his mother.
CIVIL APPELLATE JnusuICTION : Civil Appeals
Nos. 34 to 36 of 1962.
Appeals from the judgment and order dated
March 25, 1958, of the Madras High Court in Case
Referred No. 12 of 1954.
K. N. Rajagopal Sa8tri and R. N. Sachthey,
for the appellant.
R. Gopa/,akrishnan, for the respondent.
1963. March 26. The Judgment of the Court
was delivered by
HIDAYAl'ULLAH J.-
The High Court of
Madras in a Reference under s.66 (1) of the Indian
Income Tax Act, answered in the negative the
following question:-
"Whethcr there was material for the Appellate
Tribunal to hold that the income arismg to
Mrs. C.M. Kothari and Mrs. D. C. Kothari
from the property arose indirectly out of the
2 S.C.R.
SUPREME COURT REPORTS
533
assests transferred indirectly by their husbands so
as to attract the provisions of s.16 (3)(a)(iii)."
In our opm10n,
these
appeals by
the
Commissioner of Income-tax, Madras, must be
allowed.
Messrs Kothari and Sons is a firm of stock
brokers. In 194 7, the firm consisted of C.M. Kothari
and his two sons, D. C. Kothari and H. C. Kothari
Their respective shares were 6: 5: 5. On October
7, 194 7, the firm entered into an agreement for the
purchase of a house in Sterling Road, Madras, for
Rs.90,000, and the same day paid an advance of
Rs.5,000. This sum was debited in the books of
the firm to the accounts of the three partners
as follows:-
C. M. Kothari
D. C. Kothari
H. C. Kothari
(
Rs.1,800
Rs.1,600
Rs.I,600
Total. Rs.5,000
The transaction was completed on October
24, 1947. The sale deed, however, was taken in the
names of Mrs. C.M. Kothari Mrs. D.C. Kothari and
H.C. Kothari. The balance of the consideration was
paid to the vendors by the firm. Each of the two ladies
paid to the firm a cheque of Rs.28,333-5-4. Mrs. C.1\1:.
Kothari further paid a cheque of Rs.l,800, and Mrs.
D.C. Kothari paid another cheque of Rs. 1600
Thus the two ladies paid one-third share of Rs.85,000
and the amounts which were respectively paid by
their husbands as part of the earnest money.
H.C.
Kothari was debited with a further
sum
of
Rs.28,333-5-4. In this way, Mrs. C. M. Kothari
paid Rs.200 more than the other two, because her
h\isband had previously paid Rs.200 more than his
sons.
The share of the three vendees was however,
shown to be one-third e<1ch,
CommissitJIH• ef
lncom1•lu, Madru
v.
C. M. Kolh11tl,
Hii•J•tullah J,
1963
CQnitnisJiQntr of
/n,ornt·l4'!, .ft}~IJ
••
C. M. Kothari,
l/id•Jai1dla~. J.
534
SUPREME COURT REPORTS [1964) VOL.
The ladies issued the cheques on their accounts
into which were paid by the firm certain amounts
by cheques.
Into Mrs. C.M. Kothari's account was
paid an amount of Rs.2i,OOO which was debited on
October 24, UH 7 to D.C. Kothari. It was stated
to be a birthday gift by him to his mother.
On
November 13, 1947, another amount of Rs.
:~,0()()
was paid into 1\Irs. C. :VI. Kothari's account which
was debited to the account of D. C. Kothari as a
gift by him to his mother for Dcwuli. Similarly,
on November I 3, I!J47 :\frs. D. C. Kothari's account
with the bank was credited with a sum of Rs.:rn,ooo
by a cheque issued by the firm.
This was debited
to the account of C. M. Kothari and was shown as a
gift by him to his daughter-in-law.
In this way both
the ladies received from the firm Rs. 30,000 which
was the exact one-third share of the consideration
of Rs.90,000, but the amount was not paid by their
respective husbands, but by the son in one case, and
the father-in-law, in the other.
In the assessment years 1948-49, 19!>0-iil and
1951-1952, the Income Tax Officer assessed the
income from the one-third share of the house received
by Mrs. C.M. Kothari as the income of her husband.
Similarly, in the four assessment years 1948-49 to
1951-52, the income of l\1rs. D. C. Kothari from
this house was assessed as the income of her husband.
This was on the ground that because of the interchange of the money in the family, either the
purchases were made by the donors benumi in the
names of the donces, or alternatively, from asset5
transferred indirectly by the husband to the wife in
each case. The Income Tax Oflicer pointed out
that the birthday of Mrs. C.M. Kothari had taken
place earlier in the year and there was no occasion
to give a birthday I?res.e~t to ~er several months
later and on a date comc1dmg with the purchase of
this proper! y.
The Income Tax Officer also found
ihat in the pa.st, the father-ip-law had never give!)
2 s.c.R. SUPREME COURT REPORTS
535
such a big present to his daughter-in-law on Dewali
and this time there was no special circumstance to
justify it. The appeals of the assessee to the appellate
Assistant Commissioner failed as also those filed
before the Tribunal. The Tribunal, however, did not
hold that the transaction was benami but confirmed
the other finding that the two ladies had acquired
their share in the house out of. assets of the husbands
indirectly transferred to them. The Tribunal, however, stated a case for the opinion of the High Court,
and the High Court answered the question in the
negative.
As the question whether the two transactions
were benami does not fall to be considered, the only
question that survives is whether this case is covered
by s.16 (3) (a) (iii). This section reads 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 ......
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 consideration or in connection with an
agreement to live apart;"
The section takes into account not only transference
of assets made directly but also made 111directly. It
is impossible to state here what sorts are covered by
the word 'indirectly', because such transfers may be
made in different ways.
It is argued that the first requisite of the section
ii that th.e f!SSets rnustbe those of the husbapd anq
196'
Commissioner of
Income-taxJ Madr1s
••
C. M. Kothari
Hi<hy•tullall J.
1963
Cornmi.1jiontr af
/r,.- 11mt·tax, A1adrar
v.
C. Al. Koll1ari
Jlidc1;•atullali J.
536 SUPREME COURT REPORTS[I964)VOL.
that is not the case here.
It is tiue that the section
says that the assets must be those of the husband,
but it does not mean that the same assets should
reach the wife. It may be that the assets in the course
of being transferred, may be changed deliberately
into assets of a like value of another person, as bas
happened in the present case. A chain of transfers,
if not comprehended by the word 'indirectly' would
easily defeat the object of the law 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.
The present case is an
admirable instance of how indirect transfers can be
made by substituting the assets of another person who
has benefited to the same or nearly the same extent
from assrsts transferred to him by the husband.
It is next contended that even if chain transactions be included, then, unless there is consideration
for the transfer by the husband, each transfer must
be regarded as independent, and in the present case,
the Department has not proved that the transfers by
the son to the mother and by the father-in law to his
<laughter-in-law were made as consideration for each
other. We do not agree.
It is not necessary that
there should be consideration in the technical sense.
If the two transfers arc inter-connected and arc parts
of the same transaction in such a way that it can be
said that the circuitous method bas been adopted as
a device to evade implications of this section, the
case will fall within the section. In this case, the
device is palpable and the two transfers are so intimatelv connected that they cannot but be regarded
as pa~ts of single transaction. It has not been successfully explained why the father-in law made such a
big, gift to his daughter-in-law on the .occasion of
Diwali an? why the son made a ~lated gift, ~qually
big, to Im mother on the occas10n of her birthday
which took place several months before. These two
gifts match each other as regards the amount. The
2 s.a.R.
SUPRENIE COURT REPORTS
537
High Court overlooked the clear implication of
these fact as also the implication of
the fact
that though the three purchasers were to get
one-third share each,
Mrs. C. M. Kothari paid
Rs. 200 more than the other two and that each of the
ladies re-paid the share of earnest money borne by
their respective husbands.
An intimate connection
between the two transactions, which were prima f acie
separate, is thus clearly established and they attract
the words of the section, namely, "transferred directly
or indirectly to the wife".
In our opinion, the High Court was in error in
ignoring these pertinent matters. The High Court
also overlooked the fact that the purchase of the house
at first was intended to be in the names of three
partners of the firm.
No evidence was tendered why
there was a sudden change. It is difficult to see why
the ladies were named as the vendees if they did not
have sufficient funds of their own.
They could only
buy the property if some one gave them the money.
It is reasonable to infer from the facts that before
the respective husbands paid the amounts, they looked
up the law and found that the income of the property
would still be regarded as their own income if they
transferred any assets to their wives.
They hit upon
the expedient that the son should transfer the assets
to his mother, and the father-in law, to the daughterin-law, obviously failing to appreciate that the word
'indirectly' is meant to cover such tricks.
The appeals must, therefore, succeed.
The
answer of the High Court is
vacated, and the
question, answered in . the affirmative.
The respondent shall bear the costs of these appeals as also the
costs in the High Court.
One hearing fee.
Appeals allowed,
1963
Commissioner of
lncome·tax, Ma1ras
••
C. Af. Kothari.
Hidayatullah J.