Transfer of assets by husband to the wife.

Rajagopalan, J. — The two questions that are referred to this Court under section 66(1) of the Income-tax Act were:

(1) Whether there was material for the Appellate Tribunal to hold that the income arising to Mrs. C. M. Kothari and Mrs. D.C. Kothari from the property arose indirectly out of the assets transferred indirectly by their husbands so as to attract the provisions of section 16 (3) (a) (iii)?

(2) Whether the aforesaid dividend income is agricultural income within the meaning of section 2 (1) and consequently exempt?

The expression “aforesaid” in question No. 2 has obviously no relation to the income referred to in question No. 1, It may not be necessary to set out the relevant facts to answer the second of the questions. The law on the subject has been settled by the decision of the Supreme Court in Mrs. Bacha F. Guzdar v. Commissioner of Income-tax1, and the question is answered in the negative and against the assessee.

To answer the first question the following relevant facts have been taken from the statement of the case submitted by the Tribunal. C. M. Kothari and his sons D. C. Kothari and H. C. Kothari were partners, who constituted the firm Kothari and Sons. C. M. Kothari had a six annas share, while each of the sons had a five annas share. The firm entered into an agreement to purchase a house at Madras, and on 7th October, 1947, it paid the vendor an advance of Rs. 5,000 from out of the funds of the partnership. This amount was debited to the personal accounts of the three partners. The father was debited with Rs. 1,800, while each of the sons was debited with Rs. 1,600. The sale, however, on 24th October,. 1957, was in favour of Mrs. C. M. Kothari, Mrs. D. C Kothari and H. G. Kothari.. Each of the three contributed Rs. 28,333-5-4 to make up the consideration for the sale, Rs. 90,000 plus expenses less Rs. 5,000 already paid as advance to the vendor.

To enable the ladies to pay their shares of the purchase price G. M. Kothari paid Rs. 30,000 to his daughter-in-law, Mrs. D.C. Kothari, by a cheque, dated 13th November, 1947. This amount was paid out of the partnership funds and was duly debited to the personal account of C. M. Kothari. D. C. Kothari paid to his mother, Mrs. C. M. Kothari, Rs. 30,000 by two cheques, the first, dated 24th October, 1947, for Rs. 27,000 and the second for Rs. 3,000, dated 13th November, 1947. These also came in the first instance from the partnership funds, and the amount was duly debited to the personal account of D. C. Kothari.

Mrs. C.M. Kothari and Mrs. D.C. Kothari paid the vendor by cheques they drew on their respective banking accounts. The sale and payments were on 24th October, 1947, but Mrs. D.C. Kothari received Rs. 30,000 only by 13th November, 1947, and during that period the bank allowed her account to be overdrawn. In addition to the payments due to the vendor, the ladies had to reimburse C. M. Kothari and D.C. Kothari their shares of the advance of Rs. 5,000 that had been paid to the vendor. On 24th October, 1947, the date of the sale, Mrs. CM. Kothari paid the firm Rs. 1,800 and Mrs. D. C Kothari Rs. 1,600 which were credited in due course, Rs. 1,800 to the personal account of G. M. Kothari and Rs. 1,600 to that of D. C. Kothari. Thus Mrs. CM. Kothari had to pay Rs. 200 more than the other two purchasers, Mrs. D.C. Kothari and H. C. Kothari.

The rent income from the property was shared equally by the owners, Mrs. CM. Kothari, Mrs. D.C. Kothari and H.C Kothari, during the accounting periods of the assessees, C M. Kothari and D.C. Kothari, corresponding to the assessment years 1948-1949 to 1951-1952. The Income-tax Officer included in the assessable income of each of the two assessees the rent income received by his wife. The Income-tax Officer held that the purchase itself was benami and that the income really accrued to the beneficial owners of the property, C. M. Kothari and D. C. Kothari. As an alternative basis the Income-tax Officer applied the provisions of section 16

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