[1979] 118 ITR 989 (BOM.)

HIGH COURT OF BOMBAY

Commissioner of Income-tax

v.

Vivian Bose

KANTAWALA, CJ.

AND CHANDURKAR, J.

IT REFERENCE NO. 83 OF 1973

SEPTEMBER 29, 1977

 

JUDGMENT

Kantawala, C.J.—Vivian Bose, the assessee, was married to Miss Irene Mott, a Canadian lady, on December 18, 1930. It is common ground that, under the Canadian law, there must be a pre-nuptial agreement between the couple to the effect that the lady would acquire, after marriage, one-half share in the properties of her husband. Unless Miss Irene Mott could acquire such a right in the properties of the assessee, she could not have any right in her properties in Canada. The assessee, therefore, entered into a pre-nuptial agreement with Miss Irene Mott on August 20, 1930. This agreement, inter alia, provided that the assessee should transfer into the joint and several names of his wife and himself with rights of survivorship between them all his accounts, securities, shares and properties of every sort and kind of which he shall happen to be possessed in his own right at the date of the marriage. The agreement further provided that whatever properties might be acquired by the assessee after the date of the said marriage in his own exclusive right shall either be acquired in the joint and several names of his wife, Irene, and himself or shall as soon thereafter as possible be transferred to their joint and several names, with rights of survivorship between them.

On December 5, 1938, one Bimal Kumar Bose sold one-third share in the vacant plot bearing Khasara No. 217/1 situate on the Hennessee Road, Nagpur, to the assessee and his wife for Rs. 4,334. The total consideration therefore was paid by the assessee. On November 23, 1940, the assessee, who had inherited the adjoining plot of land situate on Hennessee Road, being a part of Khasara No. 217/ 1, transferred the same to himself and his wife. In this sale deed, the vendor described himself as the "trustee" of the plot and the vendees as the "beneficiaries". This transfer was also stated to be in pursuance of the pre-nuptial agreement dated August 20, 1930.

In the course of assessment proceedings for the assessment years 1967-68 and 1968-69, the assessee contended that even if it is considered that the immovable properties were transferred after his marriage, the transfer being for adequate consideration, the revenue could not include his wife's income in his hands under section 64(1)(iii) of the I.T. Act, 1961 (hereinafter referred to as the Act). The ITO rejected the said contention of the assessee and added the income of the property belonging to the wife of the assessee in the hands of the assessee under section 64(1)(iii) of the Act. This order was upheld by the AAC in appeal.

In second appeal before the Tribunal, it was sought to be urged on behalf of the assessee, firstly, that by sale deed dated December 5, 1938, B.K. Bose had sold the plot jointly to the assessee and his wife. In other words, the assessee had not transferred this plot to his wife and, accordingly, the income arising to the wife of the assessee from the said plot could not be assessed in the hands of the assessee under section 64(1)(iii) of the Act. Secondly, it was contended that the sale deed dated November 23, 1940, though between the assessee and his wife, in fact evidenced a transaction between a trustee and a beneficiary and not between husband and wife and, therefore, the provisions of section 64(1)(iii) were not attracted. Lastly, it was contended that even if the properties in question were considered to have been transferred by the assessee to his wife, the transactions were effected for adequate consideration, viz., promise to marry, and as such the same were not hit by section 64(1)(iii). On the other hand, it was sought to be contended on behalf of the revenue that the provisions of section 64(1)(iii) were applicable not only to cases where the assets were directly transferred by the assessee to his spouse but also to those involving indirect transfers. According to the revenue, the transfers of properties evidenced by the sale deeds dated December 5, 1938, and November 23, 1940, fall within the ambit of section 64(1)(iii). It was urged that there was no consideration for this transfer and as such the revenue was justified in including in the income of the assessee the income of his wife arising from the properties in question. The Tribunal accepted some of the contentions on behalf of the assessee and held that the provisions of section 64(1)(iii) were not attracted. The Tribunal held that since the sale deed dated December 5, 1938, was executed between B.K. Bose on the one hand and the assessee and his wife on the other, it could not be said that it was the assessee who had transferred the property to his wife by this deed. The Tribunal rejected the contention of the assessee that he had transferred the property referred to in the sale deed dated November 23, 1940, to his wife as a trustee and not as a husband. However, proceeding on the assumption that the properties in question had been indirectly transferred by the assessee to his wife, the Tribunal held that the case of the assessee will go out of the ambit of section 64(1)(iii) as the property as transferred to the wife pursuant to the provisions contained in the pre-nuptial agreement dated August 20, 1930. The Tribunal emphasised the fact that the validity of the pre-nuptial agreement was not even doubted by the revenue. The Tribunal pointed out that even past consideration is good consideration for a valid transfer and the promise of Miss Irene Mott to marry the assessee constituted a good and valid consideration for transferring the property in question by him to her. The Tribunal relied upon the meaning of the word "adequate" given in Webster's New World Dictionary as "equal to requirement or occasion, sufficient, suitable". The Tribunal, accordingly, held that the transfers of the immovable properties in question were effected for adequate consideration and as such the income of the wife of the assessee from these properties is not liable to be assessed in the hands of the assessee under section 64(1)(iii) for each of the assessment years in question.

For these two assessment years, 1967-68 and 1968-69, from this order of the Tribunal, the following question has been referred to us for our determination:

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the transfer of the immovable properties by the assessee to his wife was for adequate consideration and the income from the properties so transferred was not includible in the total income of the assessee under section 64(1)(iii) of the Income-tax Act, 1961?"

Mr. Joshi on behalf of the revenue contended that having regard to the provisions of section 64(1)(iii) as existing during the relevant year, in computing the total income of any individual, there shall be included all such income as arises directly or indirectly to the spouse of such individual from the assets transferred directly or indirectly to the spouse by such individual otherwise than for adequate consideration or in connection with an agreement to live apart. He submitted that immovable properties transferred pursuant to the deeds dated December 5, 1938, and November 23, 1940, were properties transferred by the assessee to his wife otherwise than for adequate consideration and the income arising from these properties was to be included in the income of the assessee. He submitted that the expression "adequate consideration" used in section 64(1)(iii) cannot be equated to "good consideration". According to his submission, there is a well recognised distinction in the meaning of the expression "adequate consideration" and "good consideration" and the mere fact that there is "good consideration" for the transfer of the property by itself will not be sufficient to come to the conclusion that the properties are transferred for "adequate consideration". He urged that transfer of immovable property pursuant to the provisions of a pre-nuptial agreement between the assessee and Miss Irene Mott may be a transfer for "good consideration"; but it cannot be regarded as a transfer for "adequate consideration". By the expression "adequate consideration", according to his submission, it is meant such consideration value of which can be measured in terms of money or money's worth. A promise to marry, according to his submission, cannot be regarded as a consideration the value of which can be measured in terms of money or money's worth and, therefore, when the properties were transferred pursuant to a promise to marry, it cannot be said that they were transferred for adequate consideration. According to his submission, the Tribunal was in error in taking the view that as the properties were transferred pursuant to the pre-nuptial agreement, they were transferred for "adequate consideration" and the income from these properties was not liable to be included in the income of the assessee under section 64(1)(iii). Mr. Thakur, on the other hand, on behalf of the assessee submitted that it is not merely pursuant to a pre-nuptial agreement or a promise to marry that the movable properties are transferred to Miss Irene Mott. He urged that Miss Irene Mott was a Canadian lady and under the Canadian law it was necessary that the "would be bridegroom" enters into a pre-nuptial agreement with the "would be bride" in order that she acquires half share in all the properties of the assessee after marriage. Law in that country, he urged, was that unless she has half share in the properties of the husband, the assessee, she could not have any right on her Canadian property. She had a bank account in Canada which she could not have otherwise operated in the absence of the agreement to that effect after marriage. He, therefore, submitted that in view of this special provision of the Canadian law, the Tribunal was right in taking the view that the properties were transferred by the assessee to his wife for "adequate consideration" and, therefore, her income from these properties was not liable to be included in the income of the assessee.

Section 64(1)(iii), as existing for the relevant assessment years, provides as under:

"64. (1) In computing the total income of any individual, there shall be included all such income as arises directly or indirectly—...

(iii) subject to the provisions of clause (i) of section 27, to the spouse of such individual from assets transferred directly or indirectly to the spouse by such individual otherwise than for adequate consideration or in connection with an agreement to live apart."

In view of the finding of the Tribunal that pursuant to the deeds dated December 5, 1938, and November 23, 1940, the immovable properties are either directly or indirectly transferred by the assessee-husband to the wife, the question arises whether such a transfer was for "adequate consideration". If the transfer is for adequate consideration, then, naturally, the income of the wife from the properties cannot be includible in the income of the husband; but if these properties are transferred otherwise than for adequate consideration in favour of the wife, then the income of the wife in respect of those properties will be includible in the income of the husband during the relevant assessment years.

Question then arises what is meant by "adequate consideration". Is this expression to be equated to "good consideration" or "valid consideration" or does it mean "consideration the value of which can be measured in terms of money or money's worth" as contended on behalf of the revenue? The provisions of section 64(1)(iii) have come up for consideration both before the Supreme Court and the other High Courts on more than one occasion and there are judicial pronouncements upon the meaning of the expression "adequate consideration" either occurring in this section or in the corresponding section of the Indian I.T. Act, 1922. It would be relevant in view of this position to refer to the relevant judicial pronouncements to which our attention has been drawn.

In Tulsidas Kilachand v. CIT [1961] 42 ITR 1, the Supreme Court had occasion to construe the meaning of the expression "adequate consideration" as occurring in section 16(3)(b) of the Indian I.T. Act, 1922 (corresponding to section 64(1)(iii) of the I.T. Act, 1961). The Supreme Court then points out that the words "adequate consideration" in section 16(3)(b) of the I.T. Act, denote consideration other than mere love and affection, which, in the case of a wife, may be presumed. When the law insists that there should be "adequate consideration" and not "good consideration", it excludes mere love and affection. They may be regarded as "good consideration" to support a contract, but "adequate consideration" to avoid tax is quite a different thing. This decision of the Supreme Court clearly indicates that there is a well recognised distinction between the expression "good consideration" and "adequate consideration". Love and affection may be regarded as good consideration ; but the same cannot be regarded as adequate consideration.

The Calcutta High Court had also an occasion to consider the provisions of section 16(3) of the Indian I.T. Act, 1922, in the case of P.J.P. Thomas v. CIT [1962] 44 ITR 897. In this case, the Calcutta High Court has taken the view that the provisions of section 16(3)(a)(iii) of the Indian I.T. Act, 1922, will apply even to cases where property was transferred to a prospective wife before the marriage in consideration of the marriage which is intended to take place. In that case, the Calcutta High Court held that where a person transfers some property to a woman " in consideration of the forthcoming marriage " between them, and the marriage takes place, the income accruing to the wife from the property after the marriage can be included in the husband's income under the provisions of section 16(3)(a)(iii) of the Indian I.T. Act, but not under the provisions of section 17(1)(a) inasmuch as the transfer becomes irrevocable as soon as the marriage takes place. According to the Calcutta High Court, though the marriage may be good and valuable consideration for transfer of property to a lady who agrees to marry the transferor, since it is not possible to determine the adequacy of such consideration, marriage cannot be regarded as "adequate consideration" within the meaning of section 16(3)(a)(iii). Mukharji J., who spoke for the court, at page 907 observes:

"Even if marriage can be a valuable consideration for a transfer of assets, even then in order to avoid the addition, the husband has to show that the consideration was adequate. Now, in this case apart from the facts, the question would arise, can marriage, even considered as a valuable consideration which will support transfer of assets, ever be judged on that basis? It is unquestioned that section 16(3)(a)(iii) of the Act exempts the husband from the wife's income if it arises from transfer of assets made by the husband to the wife on adequate consideration. Could marriage by itself be ever an adequate consideration? The word 'adequate' in this context appears to exclude marriage itself as a valuable consideration because there can be no objective measure for assessing adequacy of marriage as a valuable consideration. It is quite true that a woman may not marry a man unless the man secures her financially before marriage and in such an event the financial and monetary consideration is enough consideration to support a contract but that does not solve the difficulty in the interpretation of section 16(3)(a)(iii) of the Act because the adequacy of such consideration is put down as a test. What will induce a woman to feel financially secure before she marries a man cannot be a justiciable concept by either the income-tax authorities or the Income-tax Tribunal or even by this court. It is also difficult to dissociate from such monetary consideration how much of it is affected by the question of natural love and affection which are excluded from its consideration. The price that a spouse might put on her marriage may be a matter of her own assessment but it can never provide a dependable test for courts, Tribunals or taxing authorities for interpreting the adequacy of the consideration involved...Therefore, as an ante-nuptial arrangement of this nature where marriage is put forward as valuable and financial consideration itself, it is not possible to determine the adequacy of such consideration and hence in the context of the expression 'adequate consideration' in section 16(3)(a)(iii) of the Income-tax Act, it is not possible to include marriage within the expression 'adequate consideration'."

We may, however, point out that this matter went further in appeal before the Supreme Court and the decision of the Calcutta High Court has been overruled by the Supreme Court in its judgment reported in Philip John Plasket Thomas v. CIT [1963] 49 ITR (SC) 97. The judgment has been reversed on the ground that in order to attract the application of section 16(3)(a)(iii) of the Indian I.T. Act, 1922, the relationship of husband and wife must subsist not only at the time of accrual of income from the assets but also when the transfer of assets is made. The words "wife" and "husband" in section. 16(3)(a) must be taken in their primary sense which is clearly indicative of a marital relationship. The provisions of section 16(3)(a)(iii) were not attracted in that case as a transfer of property was made at a time when the transferee was not the assessee's wife. However, at page 110, the Supreme Court has declined to express any opinion upon the interpretation put by the Calcutta High Court on the expression "adequate consideration".

A similar question came up for consideration before the Andhra Pradesh High Court in more than one decision. In the case of Potti Veerayya Sresty v. CIT [1972] 85 ITR 194 (AP), when assets were transferred by a husband to the wife upon her giving consent to adopt a son, a question arose whether such assets were transferred for adequate consideration. While considering the meaning of the expression "adequate consideration", the Andhra Pradesh High Court has pointed out that good consideration to support a contract under the provisions of the Indian Contract Act is one thing and "adequate consideration" to avoid tax under the IT. Act is quite a different thing. Even assuming for a moment that giving consent to her husband for adopting a boy formed a legal and valid consideration for the transfer, still it cannot be said that it has brought any benefit to the assessee in terms of money or money's worth. Since the law insists that the consideration for transfer must be adequate, there must be some means to measure the adequacy of the consideration. That is to say, the consideration that supports the transfer should be one the value of which can be measured in terms of money or money's worth. To the same effect meaning has been assigned to the expression "adequate consideration" by the Andhra Pradesh High Court in the case of CWT v. Khan Saheb Dost Mohd. Alladin [1973) 91 ITR 179 (AP). At page 186, it is pointed out:

" 'Adequate consideration' cannot be equated to sufficient consideration, good consideration or valid consideration ; it means something more than good or valid consideration. Natural love and affection may be regarded as good consideration as seen from the provisions of section 25 of the Indian Contract Act which states that an agreement without consideration is void. However, such consideration cannot be termed as 'adequate consideration' which means valuable consideration. In other words, adequate consideration must be held to be valuable consideration which can only be measured or tested on the basis of money's worth. 'Adequate consideration', within the meaning of section 4(1)(a)(i) (of the Wealth-tax Act, 1957), must, in our judgment, be construed as valuable consideration capable of being compared and measured with money or money's worth. Where a transfer is gratuitous or made only out of natural love and affection but not for any valuable consideration measurable in money or money's worth, it is not for adequate consideration within the meaning of section 4(1)(a)(i) of the Act."

It is not controverted by Mr. Thakur that there is no decision of any other High Court where a different meaning has been assigned to the expression "adequate consideration". This being the position, ordinarily, section 64(1)(iii) being an all-India statute, uniformity of construction by the various High Courts is eminently desirable and the considered opinion of the High Courts should be followed unless there are overriding reasons for taking divergent views. It is clear from the decision of the Supreme Court in Tulsidas Kilachand's case [1961] 42 ITR 1 as well as from the decision of the Calcutta High Court in P.J.P. Thomas' case [1962] 44 ITR 897, that natural love and affection or even a promise to marry may be good consideration for a contract but it cannot be regarded as adequate consideration. As stated by the Andhra Pradesh High Court, "adequate consideration" means that type of consideration, the value of which can be measured in terms of money or money's worth. A mere promise to marry, though it may be good consideration to support the validity of a contract, cannot be regarded as one for adequate consideration. Simply because the immovable properties were transferred having regard to the obligations of the assessee under the pre-nuptial agreement, it is not possible for us to take the view that the said properties were transferred for adequate consideration as understood in law.

Question then arises whether having regard to the fact that Miss Irene Mott was a Canadian lady and under the Canadian law she would have lost her right in the property held in Canada, can it be said that there was adequate consideration for the transfer? What section 64(1)(iii) requires is that the transfer by the husband to the spouse must be for adequate consideration in order that the income of the property so transferred may not be includible in the income of the husband. The only consideration in favour of the husband for transfer is the obligation arising under the pre-nuptial agreement. The preservation of right of the wife under the Canadian law in respect of a property in Canada is not a consideration in favour of the husband at all because the transfer is not a consideration in favour of the husband at all. That may be a motive for entering into a pre-nuptial agreement ; but since it is not consideration in favour of the husband for transfer, it is not possible for us to take the view that, such being the position in Canadian law, the transfer by the husband of the properties in favour of the wife pursuant to the provisions of the pre-nuptial agreement was for adequate consideration as that expression is understood in law.

Accordingly, the question referred to us is answered as under:

"The Tribunal was not right in holding that the transfer of the immovable properties by the assessee to his wife was for adequate consideration and the income from the properties so transferred was not includible in the total income of the assessee under section 64(1)(iii) of the Act."

The assessee shall pay the costs of the revenue.