JUDGMENT.
COLLITER AND BAJPAI, JJ.-This is a reference under Section 66 (2) of the Indian Income-tax Act.
The assessee is Gaya Prasad Tewari. The accounting year was from Asarh Sudi 3rd, S. 1992 to asarh Sudi 11th, S. 1993 and the assessment year was 1937-38. One of the items included by the Income-tax Officer in the income of the assessee was a sum of Rs. 600 consent and it was provided that the lady was to appropriate Rs. 50 a month from the income of the trust property by virtue of her office as Mukh Dharam Karta. Having regard to all the facts, we are of opinion that in the circumstances of this case the allowance of Rs. 50 a month was income which arose indirectly "from assets transferred directly or indirectly to the wife by the husband otherwise than for adequate consideration or in connectio wirh an agreement to live apart." It is, therefore, computable as part of the total income of the husband under Section 16 (3) (iii) of the Act; it is not salary arising out of employment, as claimed on behalf of the assessee.
It is next contended on behalf of the assessee that Section 16 (3) of the Act is not restrospective.
This sub-section was added by the Income-tax (Amendment) Act of 1937, which came into force on the 4th March 1937. The transfer was in 1922, but the income wirh which we are concerned was charged in the assessment year 1937-38. Section 5 of the Amending Act provides :
"The amendment made in the said Act by Section 2 shall not have effect in respect of any income chargeable to income-tax for any year ending before the 1st day of April 1937. "
This means that it shall have effect in respect to income chargeable to income-tax for any year, ending after the 1st of April 1937.
Learned counsel for the assessee concedes that the year referred to in this section is the year of assessment; and in our opinion this section of the amending Act makes it clear that the provisions of Section 16 (3) (iii) are applicable to the sum of Rs. 600, which became chargeable to income-tax in the year 1937-38. Learned counsel for the assessee pleads that the section is not applicable in the present case for the reason that the transfer was effected in 1922, i.e., long before the 1st April 1937; and in support of this contention he relies upon the analogy of sub-section (1) (c) of section 16, in which the words "whether effected before or after the commencement of the Indian Income-tax (Amendment) Act, 1933" occur.
It is true that no such clause finds place in sub-section (3) (iii), but the Legislature enacted a separate section in the amending Act which leaves no room for doubt as regards it intention. This Act is not5 concerned with the date of the transfer : it is concerned with the income arising from the property and chargeable to income-tax for any year commencing on or after the 1st April 1937. Section 16 (3) is wide enough to apply to income arising from transfers effected before the passing of the amending Act unless the income is chargeable for a year ending before the 1st April 1937. This view was taken by a Full Bench of the Patna High Court in Rai Bahadur H. P. Banerji v. Commissioner of Income-tax, BIhar & Orissa.
The question which the Commissioner has referred to us cannot be answered by a simple affirmative, for the language in which it is couched assumes that wifes allowance is "out of the income arising from the properties transferred to her by the assessee"; and these words beg the very question which is being propounded. In our opinion the sense of our reply should be that the item of Rs. 600 received by the assessees wife is liable to be assessed in the hands of the assessee under the provisions of Section 16 (3) (iii) of the Income-tax Act.
BRAUND. J.-This is a reference under, Section 66 of the Indian Income-tax Act (XI of 1922). The assessee is one Gaya Prasad Tewri, who, and whose wife Mussammat Chhemkali, are associated with a sxhool called the Shanti Balika Vidyalaya, in the follwoing circumstances.
Two houses at Cawnpore appeared to have been transferred by purchase from a third party to the wife by an instrument of transfer dated the 27th Februaray 1922. It has been found fas fact that, although the transfer of fthese houses was to the wife, the purchase price was paid by the assessee.
Between 1922 and 1929 the wife appeas to have started and carried on a school in one room of the two houses in question, while the remaining parts of the premises were let and yielded a rental income. By an instrument of trust, dated the 30 September, 1929, executed by the wife, she settled these two houses upon trusts wherof whe appointed six namedpersons, including her husband, as trustees, She recited that she was carrying on the school in one room of the premises and expressed a desire to perpetuate the management of the school by constituting a trust of it. The turstees were to stand possessed of the trust properties and to manage its affairs according to the trust instrument which included the following provisions. They were to nominate from amongst themselves a "Heald Manager or Mukh Dharam Karta" to manage the affairs and collect the income. There then followed a provision under whichthe settlor herself during her life was to be "Dharam Karta (Manager) " and was to manage the affairs of the trust, while her husband, the assessee, was to be her agent for the purpose of collecting rents, filing suits and protecting the trust property. For these services the assessee was to get out of the income of the trust property Rs 100 a month, while by a subsequent clause, the wife was to get Rs. 50 a month. It is this last mentioned sum that is in issue under reference. the actual terms of these provisions are contained i the following extracts from the trust deed :-
" (1) That the trustees shall nominate from amongst them a Head Manager or Mukh Dharam Karta to manage the affaris of the trust and collect the income arising out therefrom, providd that so long as I, the Executant, shall remain alive, shall be Dharam Karta (Manager) and shall be managing afffairs of trust to her best ability and on behalf of myself, the Executant Dharam Karta, my, the Executants husband Pandit Gaya Prasad Tewri shall be my agent and shall collect the rent of the trust property and on behalf of myself, the Executant Dharam Karta shall file suits for recovery of arrears of rent and lodge and defend all sort of suits and complaints in connection with trust property and shall have full power to take any action for the protection of the trust and in consideration of the services so rendered by him, he shall get Rs,. 100 (one hundred) permonth, and, after me my, (the executants) husband shall be the Mukh Dharam Karta (Head Manager)........................."
that does not appear to be avery artistic translation of the original and I venture to think that it is a pity that in matters of this kind translations are not better made. But it is sufficient to convey the sense of the disposition. By paragraph (3) it is provided that the Mukh Dharam Karta that is the wife.
"..... Shall manage the affairs of the trust,; lcollect inome arising out of it, file all sorts of suits in connection wijth turst property and defend on behalf of the trust all such kinds of suis and complainsts as whould be filed and lodged against the trustees. That the whole affairs of Shanti Balika Vidyalaya shall, for the expenditure of the said school, prepare a budget which shall be passed by the Committee and the expenditure shall be incurred accordingly."
Paragraph (4) provides for meeting of the trustee to be held once in every three weeks and for their proceeding to be recorde in a minute book.
By paragraph (5) it is provided :-
"That the Mukh Dharam Karta in view of the office held by him, shall be the President of the Trust Committee and he shall maintain a regular account of the income and assets of the trust property and the account shall be put up before the Trust Committee every third month and shall be passed by the turstees."
By paragraph (8) the Mukh Dharam Karta is made responsible for making arrangements for necessary repairs to the trust property, and for defraying the expenses, out of the income.
By paragraph (11) the Mukh Dharam Karta and her husband disclaimed all beneficial interest in the trust property.
By Paragraph (15), which is a material paragraph as far as this reference is concerned, the turst deed provides :-
"15 That the Mukh Dharam Karta shall get Rs, 50 per mensem as remuneration for the services that he or she shall render as a manager and this amount shall be paid out of the trusts income."
Those appear to me to be the material provisions of the trust deed and, to summarize them they amount to the appointment of the assessees wife during her lifetime as the Mukh Dharam Karta with ample powers of managements, which powers were in effect to be exercised by the assessee on his wifes behalf, so long as she remained the Mukh Dharam Karta. For this the assessee was to receive Rs. 100 a month, and his wife was to receive, as Mukh Dharam Karta, Rs. 50 a month out of the income of the trust. In addition to this, the assessee was allowed quarters free of rent.
In these circumstances, an assessment was made on the assessee in the tax year 1937-38 and in respect of the income receivable in the year beginning the 4th June 1935 and ending the 30th June 1936 made up, so far as is relevant to the present reference, of Rs, 1,200 representing hs allowance of Rs 100 a month, Rs, 120 representing the value of the rent free quarters, and Rs 600 representing the monthly allowance of Rs, 50 a month to his wife. It is in reference to the last mentioned that there is no evidence that the trust possessed any income other than the income derived from the rents of those parts of the premises which were available for letting.
The material provision of the Indian Income-tax Act (XI of 1922) is Section 16, as that section has been amended by the Indian Income-tax (Amendment) Act, 1937. As so amended, the relevant sub-section [sub-section (3)] reads thus :-
" (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 incividual 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 question that arises in this case, therefore, is whether, in the events which have happened, the monthly payments to the assessees wife of Rs, 50 a month out of the income of the trust can be said to arise directly or indirectly form the tw houses transferred by the assessee to his wife in 1922. For this purpose I am prepared to assume that the purchase of the property by the assessee in the name of his wife in 1922 was the equivalent of a transfer to her of that property within the meaning of the sub-section with which I am dealing. It has, moreover, been found as a fact by the Commissioner that, not only was it the husbands money that was paid for the purchase, but that also there is no evidence that it was in consideration of any agreement between the husband and the wife to live apart. The Income-tax Officer in the first instance, as I have already said, treated the income of Rs. 600 received by the wife as income assessable in the hands of the assessee and this assessment was maintained in appeal by the Assistant Commissioner. It then came to the High Court at the instance of the assessee.
There is a slight temptation to jump to the view that the reward for the services of the assessees wife under the trust deed is attributable primarily to her services rather than to the actual property out of which the income was derived. But on reflection and in the particular circumstances of this case, I am inclined to agree with the Assistant Commissioner that that is not so. It all depends, as I think, upon the true construction to the trust deed itself. If, on a true construction of the deed, the services of the assessees wife amounted to an independent employment and could be held to have had no relation to any former interest in the property, I, for myself, should have hesitated to hold that an allowance or salary in connection eith that service arose either directly or indirectly from the assets in question. At least, I should have desired to reserve further my opinion as to that. If, on the other hand, on a true construction of the deed, it should appear that the allowance under it reserved to the assessees wife was merely a means of reserving to her an interest in the income of the property, then I should feel little hesitation in arriving at the conclusion that it arose, indirectly at least, from the property itself. Reverting to the trust deed before us, I am inclined to think that the only proper conclusion is the payment of the income of Rs. 50 a month to the wife amounts only to a reservation to her of part of the income of the property. She is not herself a trustee and the case is therefore distinguishable from that of Baxendale v. Murphy in which Mr. Justice Rowlatt, in circumstances which otherwise were very similar to the present circumstances, held that a remuneration of 100 a year payable to a trustee was not remuneration but was an "annual payment" payable out of trust property. To that extent the present case is less unfavourable to the assessee than was that case. In In re J. Thorley, Lindley, L. J., held that a payment reserved to a trustee of 250 a year, while carrying on a testators business, was a legacy and not a salary or remuneration an hence was amenable to legacy duty. The foundation of the decision appears to meto be that, inasmuch as a trustee is under no obligation to assume that position and does so voluntarily, it much be taken that what he derives under the will is in the nature of a beneficial interest rather than in the nature of remuneration for services which he is not bound to render. They are however, both distinguishable from the present case, because, in the view I take upon the construction of this particular trust deed, the services to be rendered by the wife are nothing more than a cloak or the reservation to her of an interest in the property. It is true that she is named as the MUkh Dharam Karta, but her services are nominal in view of the fact that there are express provisions that they shall be performed for her by her husband who is also to be remunerated for his services. Were it possible by a device of this kind to exclude income from the charge of income-tax, it would, as it seems to me, be possible in almost any case for a man of property to settle it in such a way as by constituting himself a paid manager of it could evade paying tax on a substantial part of its income.
That, however, is not the only point taken on behalf of the assessee. He takes the further point that sub-section (3) of Section 16 of the Act does not apply at all. As I have already said, this sub-section was in traduced by an amendment by the Amending Act, 1937. By Section 5 of that Act it was provided :-
"5. The Amendment made in the said Act that is in the Income-tax Act of 1922 by Section 2 shall not have effect in respect of any income chargeable to income-tax for any year ending before the 1st day of April, 1937. "
The learned Advocate appearing for the assessee does not, as I understand him, argue that the income itself now assessed arose for any year ending before the 1st day of April, 1937, but that the operation of the amendment is excluded because the transfer itself to the wife by the assessee took place before the 1st April 1937. He puts it first on the general ground that, isasmuch as a taxing Act can never be construed to have a retrospective effect unless there are express words to that effect, it cannot be supposed in this case that the legislature has assumed to charge to income-tax which, at the time the transfer was made, and for many years thereafter, was immune from tax. He says that this is giving to the Act a retrospective effect and that, if the parties had known it, they would not, or might not, have carried out the transaction at all. Now, that in my view, disclosed a fundamental misconception. The Amending Act will not, as I see, it, by taxing this income have any retrospective effect at all. The Act does not tax the transaction, that is to say the transfer of 1922, at all. It taxes the income of the property in the hands of the wife by aggregating it with the husbands income. And it has been particularly careful by Section 5 to make it very plain that income is not to be taxed with retrospective effect. IN short, so far as income is concerned, there is nothing retrospective about it. It is true that the transfer which entitled the wife to receive this income took place long ago, but that, to my mind, is wholly immaterial. I am inclined to think that the argument is based upon the material misconception that there is some sort of common law right that, if at any time the ownership of property bearing income does not attract income-tax it is for ever entitled to be immune from tax. That, of course, is wholly untrue.
The other, and I think more substantial, ground upon which the assessee puts it is that, whereas in the subsequent amendment in 1939 of Section 16, sub-section (1), it has been expressly declared by sub-section (c) that the amendement is not to operate where the settlement or disposition referred to has been effected before or after the commencement of the Amending Act, the amendment of sub-section (iii) omits this provision. It is said that this points, by the omission of those words in the Amending Act of 1937, to a deliberate intention not to effect a transfer by a husband to a wife which took place before 1937. This argument is highly ingenious but it is one which I cannot accept. The reason why the Amendment of 1939 was careful to exclude a settlement of disposition effect before the commencement of the Amending Act, is, I think, obvious. the amendment was to the effect that is computing the total income of an assessee, all income arising to any person by virtue of a settlement or disposition whether revocable or not, and whether effected before or after the commencement of the Indian Income-tax (Amendment) Act, 1939, from assets remaining the property of the settlor or disponer were to be deemed to be income of the settlor or disponer. Now, in the Amending Act of 1939 which introduces this amendment there is no saving of income arising after the amendment. Had the legislature, therefore, not introduced the words "before or after the commencement of" the Amending Act, there would really have been a danger of the amendment becoming retrospective, because on the face of the amendment the income of any transaction, whenever it took place, might have been assessable. It was necessary, therefore for he Act to make it clear. So far, however, as sub-section (3) is concerned, the position is quite different. The Amending Act of 1937 in itself by Section 5 makes it abundantly clear that only future income is to be affected at all. It was not in the least necessary, therefore, to limit it in any way the transaction form which that future income should arise. That again involves the principle that a man has no common law right so to arrange his affairs that the income of his property is for every to be immune from the charge income-tax. Now is there anything either harsh or unreasonable in the legislature imposing for the future a tax on income, however its receipt may be manipulated, which under existing legislation is free from tax?
The same view has been taken in a Full Bench case in the Patna High Court in H. P. Banerji v. Commissioner of Income-tax although in that case the second of the two points taken before us by the assessee; was not, I think, discussed.
I desire before concluding this judgment to draw attention to the form in whcih the question has been stated by the learned commissioner. It is :-
" Whether in the circumstances of the case the allowance of Rs. 600 received by the assessees wife out of the income arising from the properties transferred to her by the assessee, is liable to assessed in his hands, in accordance with the provisions of Section 16 (3) (iii) of the Income-tax Act."
If it be predicated, as by the question it is, that the income arises from the properties transferred, then there can only be one answer. That, however, is obviously not what the learned Commissioner meant. And I see that, by this letter of the 29th September 1938, the assessee himself strongly protested against it. The answer I would give would be that-
"In the circumstances of the case referred to us the allowance of Rs. 600 received by the assessees wife out of the properties settled by the trust deed, dated the 30th of September 1929, and under clause (15) thereof is liable to be assessed in accordance with the provision of Section 16 (3) (iii) of the Income-tax Act."
ORDER.
The order of the Court was as follows :-
The answer to the question referred to us is as follows :-
In the circumstances of the case the allowance of Rs. 600 received by the assessees wife out of the properties settled by the trust deed dated the 30th September 1929, and under clause (15) thereof is liable to be assessed in the hands of the assessee in accordance with the provisions of Section 16 (3) (iii) of the Income-tax Act.
The assessee must pay the costs of this reference, and we fix the fee of the learned Advocate-General at Rs. 200. A copy of our judgment will be sent under the seal of the Court and the Signature of the Registrar to the commissioner of Income-tax.
Reference answered accordingly.