SHAH ZAMAN BABAR, J.---This is a reference under section 66(I) of the Income-tax Act, 1922, by the Income-tax Appellate Tribunal, Pakistan, Lahore, which arises from the matter of Income-tax assessm ent of Messrs Khan Bahadur Mian Firoze Shah Kakakhel (now dead and represented by his legal representatives) for the years 1956-57 and 1957-58.
2. The facts of the case, in brief, are as under :- By a Tamliknama executed on 19th May 1955, and registered on 7th July 1955, K. B. Mian Firoze Shah transferred certain house properties in favour of his four sons, including his two sons Ajmal Shah and Tajammul Shah, then minors. The literal translation of the relevant portion of the Tamliknama is as follows :- "I, Khan Bahadur Mian Feroze Shah son of Khan Bahadur Mian Rahim Shah (deceased) case Kaka Khel, am resident of Saddar Bazar Nowshera Cantt., Tehsil Nowshera, District Peshawar. I have grown old and infirm. Residential property being on the one hand large and on the other hand situated at different stations, I am unable personally to manage for its repairs, letting out and collecting rent etc. Ultimately this property of nine is to devolve upon my heirs. My heirs are a few wives and children from a few of my wives. If this property of mine goes into the hands of my heirs jointly, its division will not only be difficult but it is possible that disputes may arise among them leading to litigation. Therefore, I willingly and in agreement with and in the interest of my all heirs who are majors personally and for minors through their mothers keeping in view the division almost according to the Islamic Law of inheritance the following property situated in Nowshera Cantt."
3. K. B. Mian Feroze Shah (hereinafter called the assessee) furnished returns for the assessment years of 1956-57 and 1957-58. The assessee declared the gross annual letting value of the property at Rs. 93,483 for the year 1956-57 including the annual letting value at Rs. 37,015 of the property transferred to the two minors by the gift. He also declared the gross annual letting value of the property for the year 1957-58 at Rs. 1,51,419 including the actual letting value of Rs. 31,836 of the properties of the two minors.
4. The Income-tax Officer of Nowshera Circle, Peshawar, District Rawalpindi Division, by his order dated 10-1-1958 (Exh. A, pages 6 to 10 of the print book) and assessment order dated 10-1-1958 (Exh.
P. B. At pages 10, 11 and 12) ordered that the income from the properties transferred to the minor sons viz. Mian Ajmal Shah and Tajammul Shah will continue to be assessed on the assessee under section 16(3) until his two minor sons also attained majority. He based this conclusion on his finding "Transfer has been affected through regular gift deeds which have been registered with the Sub- Registrar, Nowshera. Deeds were written on 19th May 1955 but are effective from Ist April 1955.
Reason for the transfer of property was stated to be unmanageable nature of property, assessee's advance age and danger of litigation amongst his heirs after his death. These by no means represent adequate consideration in respect of the last two sons who happen to be minor. If the assessee with his vast experience found the property unmanageable how could he except his minor sons-being still their guardian-to exercise proper control over it."
5. The assessee preferred two appeals to the Appellate Assistant Commissioner of Income-tax, Rawalpindi. Both the appeals were disposed of with one order (Exh. P. C., pages 13 to 15), dated 17th of July 1958. The Appellate Assistant Commissioner was of the view that the appellant (assessee) has been able to prove that the consideration for which the property was transferred to the minors was adequate and, therefore, the provisions of section 16(3) (a) (iv) will not apply in his case. Thus he held that the transfer in favour of the minor sons was for adequate consideration and as such the income of the minors assessed in the hands of the appellant (assessee) should be excluded from the appellant---s total income.
6. The Income-tax Officer, Nowshera took two appeals before the Income-tax Appellate Tribunal, Pakistan, Lahore. Both the appeals were decided by a single order dated 3-11-1960 (Exh. D, pages 18 to 2J). The learned Tribunal allowed the appeal and set aside the decision of the Appellate Assistant Commissioner for both the years and restored that of the Income tax officer, holding: --- "In our opinion the provisions contained in section 16(3)(a)(iv) are clearly attracted in the present case. The transfer in favour of the minor children cannot be held to have been made for adequate consideration. The provision contained in the third proviso to section 16(1)(9c) has no application to the facts of the case. In any case, section 16(3) which is the special law will govern the instant case.
That being the position, the Income-tax Officer was justified in including the income from property which had been transferred to the minor children in the assessee's total income. The Appellate Assistant Commissioner's decision is unsustainable and must be vacated."
7. Consequent to the Income-tax Appellate Tribunal's order dated 3-11-1960, the assessee then applied to the Income-tax Appellate Tribunal, Pakistan, Lahore (copy Exh. P, pages 24-25) for reference under subsection (1) of section 66 of the Income-tax Act to the High Court on a question of law proposed in para. 4 of the application. The Tribunal in the statement of the case dated 22-3- 1961 (pages 1 to 5) held the opinion that a question of law arises out of the Tribunal's order and the respondent also concede that a reference to the High Court is called for. Thus the only one comprehensive question, quoted below, was referred under section 66(1) of the Income-tax Act: -- - "Whether, in the facts and circumstances of the case, the Income-tax Officer was justified in including the income from property transferred by the assessee to his minor children by the Tamliknama dated the 19th May 1955, in the total income of the assessee."
8. Arguments of the learned counsel for the assessee and the Department heard.
9. The learned counsel for the applicant (assessee) posed two-fold attack against the inclusion of the income of the property transferred to the two minors, namely, Mian Ajmal Shah and Tajammul Shah for assessing the letting values of the properties of the assessee. He argued, firstly, that the case of the minors is covered by section 16(1) (c), proviso 3 of the Income-tax Act. Section 16(1) (c), proviso 3 reads as under: --- ---16(1) In computing the total income of an assessee--
(a) ---------------------------------
(b) ---------------------------------
(c) all income arising to any person by virtue of a settlement or disposition whether revocable or not from assets remaining the property of the settler or disposer, shall be deemed to be income of the settler or disposer, and all income arising to any person by virtue of a revocable transfer of assets shall be deemed to be income of the transfer: Provided --------------------------------- Provided further that this clause shall not apply to any income arising to any person by virtue of a settlement or disposition which is not revocable for a period exceeding six years or during the lifetime of the person and from which income the settlor or disposer derives no direct or indirect benefit but that the settlor shall be liable to be assessed on the said income as and when the power to revoke arises to him."
The learned counsel also strenuously argued that in the present case of assessment the provisions of section 16(3) (a) (iv) are not attracted because the gift in favour of the two minor children by the assessee was for adequate consideration.
10. Both these contentions were also raised before the Income-tax Appellate Tribunal, Pakistan, Lahore. The Tribunal dealt with both the questions in the order dated 3-11-1960, reproduced below "The matter is so simple that it should not detain us long. Section 16(3) postulates that the transfer in favour of the wife or the minor children is valid and real. All that is laid down there is that the income derived by the transferees from the properties so transferred would be comput--ed as the income of the transferor and this in no way implies that those transfers are in any way invalid. As was pointed out by Din Muhammad and Sale. JJ. In In re : Sardarni Narain Kaur and others (1943) 111 T R 448, the validity of such transfers is assumed in the provision itself and it is only on that basis that proper effect can be given to this legislative enactment. If the transfer is not real or valid, the transferor continues to be the owner of the property and there is no question of bringing in aid the provisions of section 16(3)."
4. The decision of the Appellate Assistant Commissioner that the transfer should be taken to have been made for adequate consideration is equally untenable. One should have thought that the matter was concluded by the authorities, but surprising though it may appear to be, the Appellate Assistant Commissioner has formed his own opinion in disregard of the case-law. As far back as 1941 it was pointed out by a Full Bench of the Patna High Court in R.I Bahadur H. P. Benerjee v.
Commissioner of Income-tax, Bihar and Orissa ((1941) 9 I T R 137) that the law draws a clear distinction between "good consideration" and adequate consideration. In the course of the judgment Harries, C. J. Made the following observation "The wife's income will only be assessed in her hands if it arises from assets transferred for adequate consideration, that is consideration which is sufficient or reasonable having regard to the value of what is transferred. It must be equal or nearly equal in magnitude or extent to what has been transferred. If natural love and affection is held to be adequate consideration then the subsection becomes, to all intents and purposes, a dead letter"
The decision was followed by our own High Court in the case reported as In re: Sardarni Narain Kaur and others that the transfer in favour of wife or a minor child which is intended to be taken out of the scope of the section must be a transfer which involves a monetary consideration and not a mere sentimental consideration. It was pointed out in that case that the term consideration as used in this sub-clause couldn---t be said to have been used in its ordinary sense of motive or reason but in its legal signification only. In the present case the transfer is a gift simpliciter.
Whatever the motive or the reason for the transfer may have been, it was not made for a consideration, much less adequate consideration.
5. It must be said to the credit of the assessee's counsel that he did not pursue the line of reason adopted by the Appellate Assistant Commissioner but in his arguments he relied on the third proviso to section 16(1) (c) of the Act in support of his case. The material portion of the section provides as follows "In computing the total income of an assessee-
(c) 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 Income-tax (Amend--ment)
Act, 1939, from assets remaining the property of the settlor or disposer, shall be deemed to be income of the settlor or disposer, and all income arising to any person by virtue of a revocable transfer of assets shall be deemed to be income of the transferor Provided further that this clause shall not apply to any income arising to any person by virtue of a settlement or disposition which is not revocable for a period exceeding six years or during the lifetime of the person and from which income the settlor or disposer derives no direct or indirect benefit but that the settlor shall be liable to be assessed on the said income as and when the power to revoke arises to him."
It is contended that since in the present case the settlement or disposition was not revocable for a period exceeding six years or during the lifetime of the settlor or disposer and from which income he (the settlor) derives no direct or indirect benefit, the disposer shall be liable to be assessed on the income of the property as and when the power to revoke arises to him and not otherwise. The scope of section 16(1) (c) and of the proviso has been misunderstood. Section 16(1) (c) forms an exception to the general rule in section 3 that a person is taxed on his own income and not on the income of others. The provisions of subsection (1) cover all cases of transfers of income and also covers cases of revocable transfers of assets. Subsection (3) covers the further cases of irrevocable transfers assets where the income accrues to the wife or the minor child of the transferor (Sundaram, 7th Edition, page 723). Certain cases can fall under either of these subsection and therefore, be caught under either of them. In Re: Dr. T. M. A. Pak. ((1954) 25 1 T R 75), the income of the properties covered by a trust deed was included by the Department in the total income of the assessee under section 16(3) (b) and section 16(3) (a) (iv). The assessee's contention that the matter was within the purview of the third proviso to section 6(1) (c) of the Act, and that, therefore, the income from the trust properties should not have been included in computing the total income of the assessee, was repelled. In the course of the judgment Satyanarayana Rao, J. Observed as follows :- "The trust is undoubtedly for the benefit of the minor children of the assessee. It was an absolute trust and was also irrevocable. No proprietary interest was reserved by the assessee and his wife for themselves. In order to bring the transaction under the third proviso to section 16(1) (c) of the Act, it has to be considered whether it falls in the first place, within the main clause (c). Clause (c) consists of two parts; the first part relates to income which accrues to a person under settlement, whether it is revocable or not, but the assets from which the income arises remain the property of the settlor. 1n other words, the settlement or the covenant relates only to the income of the property, the settlor all along continue to be owner of the property or the assets from which the income accrues. The second part relates to transfer of the assets from which the income arises under a revocable transfer. In either event the income is treated as the income of the settlor. The exception created by the third proviso relates to settlement or disposition which is not revocable for a period exceeding six years or during the lifetime of the donee. There is also a further qualification that from the income of such property the settlor should derive no benefit, directly or indirectly. In the present case the trust is absolute and irrevocable. The settlor does not retain in himself the ownership of the asset or the property. Clause (c) therefore has no application and the third proviso to that clause cannot be invoked by the assessee. As pointed out in one of the decisions cited, the proviso may be relied on whether the transaction in question falls under the first part of clause (c) or the second part. Vide D. R. Shahanure v. Commissioner of Income-tax, Bombay-- (1946) 14 1 T R 781. If section 16(1) (c) is ruled out, there remain section 163) (a) (iv) and section 16(3) (b). The Appellate Tribunal held that either or both of the clauses would apply to the situation. We think that section 16(3) (b) would undoubtedly apply to the facts of the present case, as the income arises from assets which have been transferred to the Syndicate and the transfer was not for any consideration."
The position is precisely the same in the present case. Here we have got a case of irrevocable transfer of assets to which section 16(1) (c) or the proviso cannot be held to be applicable. In any case, the provisions of section 16(I) (c) read with the proviso cannot be taken to override the express provisions of section 16(3) (a) (iv). In A. R. Rangachary v. Commissioner of Income-tax, Madras ((1955) 28 1 T R 528), it was pointed out that the income settled on the wife and the minor daughter could be aggregated with the assessee's income under section 16(3) (a) (iii) as this section is a special provisions and prevails over the general provision contained in section 16(1) (c) read with the third proviso. In the course of the judgment Rajagopala Ayyangar,
3. Made the following observation: "Terns of section 16(3) (iii).-Section 16(1) (b) is a general provision applicable to all transfers in favour of any individual. The former provision, however is a special one, and takes into account the peculiar relationship between the assessee and the transferee, and having regard to that relationship directs aggregation on the footing that they really constitute one unit, notwithstanding their separate identity. In these circumstances, section 16(3) (a) (iii) will prevail over and override the exemption from aggregation granted by section 16(1) (c) read with the third proviso. `Again, on the footing that there was a transfer of an asset, a question was raised as to whether even an irrevocable transfer satis--fying the requirement of the third proviso to section 16(1)X), would not fall within the mischief of section 16(3) (a) (iii) so as to permit the inclusion of the income received by the transferee with the income of the assessee in the case of the wife and the unmarried daughter, the contention of Mr. Rama Rao Saheb, the learned counsel for the Department being that as section 16(3) (a) (iii) is a provision applicable even to out and out transfers in favour of certain relations of the assessee, there can be no reason for excepting transfers satisfying the requirement of the third proviso to section 16(1)(c) from t1ae scope of section 16(3) (a) (iii). In view of our conclusion as regards the nature of the interest transferred, this question does not arise, but we are clearly of the opinion that if there was a transfer of an asset, notwithstanding the transfer or the settlement satisfying the terms of the third proviso, the aggregation of the income of the wife and the unmarried daughter under Annexures A and A-2 would be justified and upheld by reason of the express (sic)."
We uphold the finding of the learned Tribunal.
11. The learned counsel for the assessee could not dispel that section 16(1) (c) as it is not applicable to the assessee's case. We, however, stress that proviso 3 to section 16(1) (c) come to his aid. We agree with the Tribunal's finding that the provisions of section 16(1) (c) read with proviso 3 cannot be taken to override the express provisions of section 16(3) (a) (iv). A We are further of the view that as conceded by the learned counsel for the assessee-applicant, section 16(1) (c) does not apply to his case. The provisions contained in proviso 3 to this subsection will also not be of any help to the assessee in its application to his case.
The application of proviso has been dealt with in~ "The Interpretation of Statutes " by N. S. Bindra, 4th Edition, 1965, at pages 48 and 49. The Commentator comments.
"Proviso.--The proper function of a proviso is to except and deal with a case which would otherwise fall within the general language of the main enactment, and its effect is confined to that case.
There is no magic in the words of a proviso. The proper way to regard a proviso is as a limitation upon the effect of the principal enactment . . . . . . . . . A proviso, which is in fact and in substance a proviso, can only operate to deal with a case which but for it would have fallen within the ambit of the section to which the proviso is a proviso. The section deals with a particular field and the proviso excepts or takes out or carries out from the field a particular portion, and therefore it is perfectly true that before a proviso can have any application the section itself apply. It is equally true that the proviso cannot deal with any other field than the field, which the section itself deals with.
When the language of the main enactment is olear and unambiguous, a proviso can have no repercussion on the interpretation of the main enactment, so as to exclude from it by implication what clearly falls within its terms.
A proviso is to be strictly construed and it has no existence apart from the provision which it is designed to limit or qualify. Generally speaking a proviso is intended to restrain the enacting clause and to except something which would have otherwise been within it or in some measure to modify the enacting clause."
We are also in full agreement with the views of the learned Tribunal that the provisions contained in section 16(3) (a) (iv) are clearly attracted to the present case. Section 16(3) (a) (iv) lays as under :- "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 the spouse or minor child of such individual as arises directly or indirectly-
(i) ------------------------------
(ii) ------------------------------
(iii) ------------------------------
(iv) from assets transferred directly or indirectly to the minor child, not being a married daughter, by such individual otherwise than for adequate consideration, and ----------------------------- -------------------------------------------------------------Thus under this provision of the Income-tax law and the computation of total income of any individual for the purpose of assessm ent, there shall be included so much of the income of the minor child of such individual as arises directly or indirectly from assets transferred, directly or indirectly to the minor child by such individual when the transfer is for adequate consideration.
Section 122 of the Transfer of Property Act defines the gif and lays :- 11 Gift is the transfer of certain existing movable or immov--able property made voluntarily and without consideration, by one person, called the donor, to another called the donee, and accepted by or on behalf of the donee. "
"Consideration contemplated by section 122 (T. P. Act) is valuable consideration, that is consideration either of money or of money's worth. Consideration of an expectation of spiritual or moral benefit, or consideration of love and affection are not contemplated by section 122."
The transfer in question in favour of the minors was a gift simpliciter and whatever the motive or the reasons for the transfer c may have been, it was not made for a consideration, much less, adequate consideration.
12. In conclusion, the question of law referred to us and quoted above, is answered in the affirmative in favour of the Department against the assessee, with costs.
KHAN QAISAR KHAN, J.-I agree with the conclusion arrived at by my learned brother and would like to add the following Section 16, subsection (1), clause (e) has two parts. The first part refers to income arising by virtue of settlement or disposition whether revocable or not from assets remaining the property of the settlor or disposer and the second part refers to revocable transfer of assets.
The instant case is not covered by any of the two parts because the assessee in this case has transferred the assets and not the income, and then transferred the assets irrevocable.
Since clause (c) does not apply in the instant case, the question of the assessee taking benefit of the third proviso to the said clause, therefore, does not arise. Besides, even this third proviso does not cover the case of the assessee in the instant case. This proviso refers to income from irrevocable settle--ment or disposition mentioned in the first part of clause (c) and the transfer by the assessee in the present case is not of the type mentioned in the first part of clause (c).
2. So far as subsection (3), clause (iv) of section 16 is concerned, the assessee had to show that he had made the transfer of the assets to his minor children for consideration and that that consideration was adequate. In the instant case the transfer was by means of a gift and gift is always without consideration. The reason given in the deed of transfer by the assessee for making the gift was not a consideration for the gift but a motive for the gift. Transfer for consideration means that the transferor should get something in return. In the instant case the assessee did not get any consideration in return much less adequate consideration. I would, therefore, also answer the question in the affirmative.
S. Q.