Income Tax Appellate Tribunal - Madras
Shantha Balachander And S.B.S. Raman ... vs First Wealth-Tax Officer on 8 October, 1987
ORDER
K.A. Thanikkachalam, Judicial Member
1. These appeals filed by the assessee relate to the assessment years 1978-79 to 1981-82. Since the question involved in these appeals is common, they are taken up together and disposed of by this common order for the sake of convenience.
2. According to the facts appearing in this case, the assessee was formerly the owner of the property at No. 30, Archbishop Mathias Avenue, Madras. It was a self-acquired property. Subsequently, it was thrown into the common hotchpot of the Hindu undivided family and thereby was impressed with the character of Hindu undivided family property. The Hindu undivided family consisted of the assessee, his wife and his major son. Subsequently, by way of a partition deed dated November 2, 1977, the said property was partitioned among the members of the Hindu undivided family by which the ground floor was allotted to the assessee's major son, Shri S.B.S. Raman. The said partition deed provided that a sum of Rs. 1,250 per month shall be paid by the son, S.B.S. Raman, to Mrs. Shantha Balachander, his mother and wife of the assessee, by way of maintenance and, as a security therefor, a charge was created on the ground floor of the said property which was allotted to Shri S.B.S. Raman in the abovesaid partition. Thus, Shri S.B.S. Raman came to be the owner of the ground floor of the building and the eastern half of the land and site adjoining the same as per the partition deed dated October 31, 1977, as mentioned in schedule 'B'. The assessee herein was allotted 'A' schedule property in the said deed which consisted of the first floor of the building and the western half of the land. The Wealth-tax Officer was of the view that the value of the right to maintenance for life of his spouse payable by the major son of the assessee is part of the converted property and is, therefore, a deemed asset transferred to the spouse of the assessee which can be treated as an asset in her hands transferred by the husband but includible in the husband's hands under the provisions of section 4(lA)(c) of the Wealth-tax Act, 1957. The value of such right was fixed at Rs. 1,80,000. The order of the Wealth-tax Officer on this point runs as under :
"As per Clause (4) of the partition deed dated October 31, 1977, whereby the assessee effected partition of 'converted property', it was provided that the party of the third part, Sri S.B.S. Raman (assessee's son) shall from out of his share allotted under the deed make due arrangement for maintenance of the party of the second part, i.e., Mrs. Shantha Balachander (wife of the assessee), to her satisfaction by payment of a sum of not less than Rs. 1,250 per month during her lifetime. Full details in this regard are found discussed in the1 assessee's income-tax assessment order dated February 28, 1981, for 1978-79.
Mrs. Shantha, the assessee's wife, is one of the three parties to the said partition of 'converted property', the other two being the assessee and his son, Mr. S.B.S. Raman. It is clear from the recitals in the deed that the share allotted to her by virtue thereof was in the form of maintenance for her life being put under a legal obligation cast on her son, S.B.S. Raman, with specification as to the manner in which such obligation is to be discharged. I have, therefore, no doubt in holding the view that the value of such maintenance for life of his spouse by his son is nothing but a part of the converted property partitioned and, therefore, is a deemed asset includible in the wealth of the assessee and assessable in his hands within the meaning of the provisions of Section 4(1A)(c) of the Wealth-tax Act, 1957. I accordingly fix its value at Rs. 1,80,000 as indicated in the deed of partition itself and include the same in the assessee's wealth. "
3. This was the view taken by the Wealth-tax Officer in all the assessment years under consideration. Aggrieved, the assessee filed appeals before the Appellate Assistant Commissioner in all the assessment years under consideration.
4. Before the Appellate Assistant Commissioner, the assessee's representative contended that the Wealth tax Officer was not correct in including a sum of Rs. 1,80,000 in each of the assessment years under Section 4(1A)(c) of the Wealth tax Act. It was further submitted that the Wealth-tax Officer has erred in coming to the conclusion that the value of such maintenance for life of his spouse by the son is nothing but a part of the converted property partitioned and, therefore, is a deemed asset includible in the net wealth of the assessee. Another submission made by the assessee's learned representative was that the charge created for the payment of maintenance is not an interest in property and, therefore, the provision of Section 4(1A)(c) is not applicable. According to the learned representative, the maintenance charge payable is independent of the property partitioned and the obligation cast on the son has no nexus with the income from the partitioned property and, therefore, there is no transfer within the meaning of Section 4(1)(a)(i) of the Wealth tax Act. Lastly, it was submitted that the maintenance charge payable to the wife is in discharge of the obligation of the husband under Section 18(1) of the Hindu Adoptions and Maintenance Act and, therefore, even if there be a transfer, it is for valid consideration and hence the said provisions are not applicable. After hearing the parties, the Appellate Assistant Commissioner confirmed the view taken by the Wealth-tax Officer on this point. Aggrieved, the assessee is in appeal before us in all the assessment years under consideration.
5. Before us, learned counsel appearing for the assessee submitted that the Appellate Assistant Commissioner had erred in sustaining the inclusion of Rs. 1,80,000 under Section 4(1A)(c) of the Wealth-tax Act. It was further submitted that the Appellate Assistant Commissioner is not correct in coming to the conclusion that the value of the maintenance received by the wife of the assessee is property received by her under Section 4(1A)(c). Again, it was submitted that under Section 4(1A)(c) of the Act, the wife ought to have received any portion of the converted property and having regard to the provisions of the partition deed among the members of the family, the Appellate Assistant Commissioner ought to have observed that the assessee's wife is not in receipt of any such converted property. Another submission made by learned counsel for the assessee was that the charge created for the maintenance of the wife does not amount to interest in property and hence the provision of Section 4(1A)(c) of the Wealth tax Act does not apply to the case of the assessee. The alternative submission of the assessee was that even assuming that there is a transfer of such property, the value adopted by the Wealth tax Officer at Rs. 1,80,000 is incorrect as the interest in the property, if any, is only a life interest and has to be valued accordingly and that the value adopted amounting to Rs. 1,80,000 is excessive and has to be reduced in accordance with the law. The learned Departmental Representative submitted that the maintenance amount paid to the wife cannot be considered to be an annuity. Reliance was placed on the decision in the case of 135 ITR 641 (sic). The learned Departmental Representative further placing reliance on the partition deed contended that the amount specified to be payable by way of maintenance to the assessee's wife is independent and on that score also, it is not an annuity. The learned Departmental Representative also relied upon an earlier order of the Tribunal in the case of the same assessee in income-tax proceedings in I.T.A. Nos. 844 to 847(Mds)/ 84 dated January 25, 1985, for the assessment years 1978-79 to 1981-82 and contended that there is a nexus between the share allotted to the son and the maintenance allowance payable to the assessee's wife. Accordingly, the learned Departmental Representative supported the order passed by the Appellate Assistant Commissioner on this point.
6. We have heard the rival submissions made by the parties. We have also set out the facts in detail. Clause 4 of the partition deed dated October 31, 1977, states "that the second party, namely, the assessee's wife, shall be entitled to maintenance of Rs. 1,250 per month and the same shall be provided by the assessee's son till the lifetime of the assessee's wife. For this purpose, the property mentioned in 'B' schedule which was allotted to the son shall stand as security". It further provided that "in the event of increase in the cost of living warranting a corresponding increase in the amount of maintenance, his son shall be liable to pay the increased maintenance as prescribed therein".
7. On a reading of Sub-section (1A) along with Clauses (c) and (d) of the Explanation to Section 4 of the Wealth-tax Act, the following propositions emerge :
(i) Where an individual, being a member of a Hindu undivided family, has converted his separate property into property belonging to the Hindu undivided family after 31st day of December, 1969 ; and
(ii) Such conversion is effected through the act of impressing the separate property with the character of property belonging to the family or by throwing it into the common stock of the family ;
the separate property so converted into joint family property is, for the purpose of Section 4(1A), known as the converted property and for the purpose of computing the net wealth of the individual under this Act for any assessment year commencing on or after April 1, 1972, but before April 1, 1976 :
(a) the individual shall be deemed to have transferred the converted property, through the family, to the members of the family for being held by them jointly ;
(b) the converted property or any part thereof, in so far as it is attributable to the interest of the individual in the property of the family, shall.be deemed to be assets belonging to the individual and not to the family.
8. For this purpose, the expression "interest of the individual in the property of the family" means the proportion in which the individual would be entitled to share the property of the family if there had been a total partition in the family on the relevant valuation date of the family, for the assessment year for which assessment is to be made on the individual -- Explanation (d).
9. In the case of Dattatreya Shanker Mote v. Anand Chintaman Datar [1974] 2 SCC 799, it was held as under (at page 809) :
" Mortgages are dealt with in Chapter IV where mortgage is defined in Section 58(a) as the transfer of an interest in specified immovable property for the purpose of securing the payment of money advanced or to be advanced by way of loan. Different kinds of mortgages are also specified in that section of which Clause (b) states what a simple mortgage is, namely : --
Where, without delivering possession of the mortgaged property, the mortgagor binds himself, personally to pay the mortgage money, and agrees, expressly or impliedly, that, in the event of his failing to pay according to his contract, the mortgagee shall have a right to cause the mortgaged property to be sold and the proceeds of sale to be applied, so far as may be necessary, in payment of the mortgage-money, the transaction is called a simple mortgage and the mortgagee a simple mortgagee.
A charge on the other hand under Section 100 of the Act is neither a sale nor a mortgage because it creates no interest in or over a specific immovable property but is only a security for the payment of money. "
10. Similarly, in the case of Altaf Begam v. Brij Narain, AIR 1929 All 281 ; ILR 51 All 612, the court held as under (at page 285 of AIR 1929 All) :
" Now there is a clear distinction between a mortgage and a charge, the former being a transfer of an interest in immovable property as a security for the loan, whereas the latter is not a transfer, though it is none the less a security for the payment of an amount."
11. In the instant case, the son of the assessee was allotted a portion of the property with an obligation to pay maintenance to his mother for her lifetime. For this purpose, a charge was created on the property allotted to the son of the assessee. The question now is whether such charge created on the property will amount to transfer of an interest in the converted property. According to the above-said two decisions, a charge created on the immovable property should be considered only as a security and it will not amount to creating an interest in the property. Therefore, even if, according to the above-said partition deed, a portion of the property was allotted to the son and the son was asked to pay maintenance to his mother, it will lead to the conclusion that the assessee has not transferred any interest to his wife in the converted property. That is why Section 4(1A)(c) will not be applicable to the facts of this case. The obligation of the son to pay maintenance to his mother has no nexus to the portion of the converted property allotted to the son. Therefore, viewed in any angle, the value of maintenance payable by the son to his mother cannot be included in the net wealth of the assessee. The decision rendered by the Appellate Tribunal in the case of the same assessee cited supra relates to the interpretation of the provisions of Section 64(2)(iv) of the Income-tax Act, 1961. In the present case, inasmuch as we came to the conclusion that the maintenance payable by the son to his mother has no nexus with the converted property allotted to him and no part of the converted property allotted to the husband was transferred to the wife, we are unable to agree with the contention put forward by the learned Departmental Representative that the value of maintenance is includible in the net wealth of the assessee. In that view of the matter, we set aside the order passed by the authorities below on this point and allow the appeal filed by the assessee in all the assessment years under consideration.
12. In view of the above said conclusion arrived at by us, the other alternative grounds raised by the assessee need not be considered.
13. In the result, the appeals are allowed, T.V.K. Natarajachandran, Accountant Member
14. I have gone through the order proposed by my learned Brother but I am unable to agree with his decision. Hence, I am recording my note of dissent. According to my learned Brother, the charge on the share of immovable property allotted to the assessee's son in the family partition to secure the maintenance granted to the assessee's wife neither creates any interest therein nor is there any nexus to it. Therefore, he concluded that the assessee has not transferred any interest to his wife in the converted property and Section 4(1A)(c) is not applicable so as to include the value of the maintenance in the net wealth of the assessee. For coming to this conclusion, reliance was placed on the decisions of the court on the import of the words " mortgage " and " charge " under the Transfer of Property Act, 1882. In my opinion, the approach of my learned Brother is purely general and academic ignoring the special provisions of the Wealth-tax Act and the object of the legislation. The totality of the circumstances of the transaction leading to the provision of maintenance and the object of the legislative amendment are dominant factors which are required to be taken into account for deciding the point under consideration.
15. The assessee had thrown his self-acquired property into the common hotchpot of the Hindu undivided family consisting of himself, his wife and son, on August 1, 1974. In other words, the assessee converted the self-acquired property into property belonging to the family through the act of impressing such separate property with the character of property belonging to the family. On October 31, 1977, there was a partition of the immovable properties of the Hindu undivided family. In the partition, evidenced by a deed of partition, Mrs. Shanta Balachander insisted upon making due provision for her future maintenance from out of the Hindu undivided family property. Therefore, the assessee and his son agreed for the same. As per the partition deed, the son of the assessee shall, from out of his share of joint family property allotted to him (Schedule B) make due arrangement for her maintenance for life to her satisfaction by payment of a sum of not less than Rs. 1,250 per month. As per clause 4 of the deed, she is entitled to maintenance at the rate of Rs. 1,250 per month for life and the property in Schedule B shall stand as security for it. The maintenance allowance is to be increased with the increase in the cost of living index at the rate of Re. 1 per point. As per clause 5, each of the parties to the partition including Mrs. Shanta Balachander released and relinquished his/her interest and conveyed each separately, his/her interest and conveyed to each separately his/her right, title and interest therein.
16. From these facts, it is clear that Mrs. Shanta Balachander received the aforesaid benefit from the converted property through the partition dated October 31, 1977, in lien of a right for maintenance out of the Hindu undivided family properties. The conversion of self-acquired property into Hindu undivided family property took place after December 31, 1969, and as per Clause (a) of Section 4(1A), the assessee shall be deemed to have transferred the converted property, through the family, to. the members of the family for being held by them jointly. After April 1, 1976, the converted property or part thereof shall be deemed to belong to the individual and not to the family so long as there is no partition of such property between the members of the family. As per Clause (c) which is relevant to this case, the converted property or any part thereof which is received by the spouse shall be deemed to be assets transferred indirectly by the individual to the spouse and the provisions of Sub-section (1) of Section 4 shall apply accordingly.
17. While interpreting the words " transfer by the individual directly or indirectly otherwise than for adequate consideration for the immediate or deferred benefit of the individual, his or her spouse or minor child in terms of Clause (iii) of Section 4(1)", the courts have held that this clause applied irrespective of the quantum or nature of interest that is created for the benefit of the spouse or minor child. It was also held that there is no reason to restrict the application of the word " benefit" to transfer which vests in the spouse or minor child absolute or full ownership in the property transferred. The benefit created may extend to enjoyment of property itself or its income only for a certain period. In all such cases, the value of the benefit created should be included in the net wealth of the transferor. Applying the same principle, I am of the opinion that the value of the maintenance provided to Mrs. Shanta Balachander shall be deemed to be an asset transferred indirectly to the spouse by the individual without adequate consideration or under an agreement to live apart. Let us consider the relevant provisions in the allied Acts. Section 2(xxii) of the Gift-tax Act defines " property" to include any interest in property, movable or immovable. Section 2(xxiv) of the same Act defines " transfer of property" to include any disposition, conveyance, assignment, settlement, delivery, payment or other alienation of property and, without limiting the generality of the foregoing, includes the creation of the trust in property, the grant or creation of any lease, mortgage, charge, easement, licence, power, partnership or interest in property, etc., including any transaction entered into by any person with intent thereby to diminish directly or indirectly the value of his own property and to increase the value of the property of any other person. In this case the assessee obtained the properties mentioned in Schedule 'A' and had the maintenance been charged on his share of property, the need for such charge would become unnecessary as the husband is expected to maintain his wife or the inclusion of value of such interest in the husband's net wealth would be made feasible. The obligation to pay a specified sum towards maintenance is not, in my opinion, an independent obligation of the son as such totally unconnected with his share of the converted property or the right of Mrs. Shanta Balachander for maintenance out of Hindu undivided family property in general or the share of the property allotted to the assessee's son in particular. It is needless to reiterate the fact that the partition deed provides that the son shall pay the amount out of his share in the joint family property obtained from partition. There is also a charge created thereon. In the circumstances, the maintenance allowance granted in fact and in law represents her share of property in the Hindu undivided family property because she is not entitled to get a share of property in the same way as a son would get according to the Hindu law applicable to the Hindu undivided family in Southern India. Any common man with ordinary prudence would consider it to be so. The parties to the partition are very closely related to one another. In the circumstances, the question whether any interest is created in the immovable property by creating a charge thereon is germane in the realm of transfer of such interest in the general law of transfer of property according to which property "is a bundle of right-".
18. Clause (c) of the Explanation to Section 4 of the Wealth-tax Act, 1957, defines " property " to include any interest in property, movable or immovable, the proceeds of sale thereof and any money or investment for the time being representing the proceeds of sale thereof and where the property is converted into any other property by any method, such other property. It would appear that instead of granting straightaway the life interest to Mrs. Shanta Balachander in Schedule 'B' property and thereafter to be enjoyed by the assessee's son absolutely, the life interest was granted indirectly obviously with an angle for tax planning. If that were so, it would be a case of transfer without adequate consideration or under an agreement to live apart and would fall within the mischief of Section 4(1).
19. The word " transfer" is defined in Section 63 of the Income-tax Act, 1961, and Clause (a) of the Explanation to Section 4 of the Wealth-tax Act, 1957. They include any disposition, settlement, trust, covenant, agreement or arrangement. In view of these allied statutory provisions, it can be said to be a transfer by way of agreement or arrangement. Taking into account the relationship between the parties to the partition, she can be said to be the life-interest holder of the property in Schedule 'B'. Thus there is a nexus between the maintenance allowance provided and the converted property. In the case of Durga Prasad Mote [1971] 82 ITR 540 at page 545, the Supreme Court has ruled that while looking at the documents, the taxing authorities are not required to put on blinkers but the surrounding circumstances and the realities of the recitals made in the documents are to be considered. This dictum is squarely applicable to this case also. The " McDowell principle " is also to be applied (McDowell and Co. Ltd. v. CTO [1985] 154 ITR 148 (SC).
21. There is also another aspect which requires to be highlighted. The partition came closely on the heels of the amendment of Section 4(1A) made by the Taxation Laws (Amendment) Act, 1975, with effect from April 1, 1976, especially in Clause (b) and by insertion of Clause (c). The newly inserted Clause (c) speaks only of " property " and not " asset ". According to this clause, if any converted property or any part thereof is received by the spouse out of partition, partial or total, it shall be deemed to be assets transferred indirectly by the individual to the spouse and the provisions of Sub-section (1) of Section 4 shall apply. Thus, after April 1, 1976, if the converted property remained without partition, it shall be deemed to be asset belonging to the individual. In a case of partition of such converted property, the share received by the spouse or minor child would be deemed to be an asset transferred indirectly by the individual to the spouse or minor child as the case may be. The special provisions contained in Section 4(1A) of the Wealth-tax Act overrides any other provisions in the Wealth-tax Act or any other law for the time being in force including the general law of transfer of property. This is clear from the non obstante clause contained in Section 4(1A) of the Wealth-tax Act, 1957. Thus the picture that emerges from a consideration of the several statutory provisions having a bearing on the subject is that the value of maintenance received by Mrs. Shanta Balachander is includible in the net wealth of the assessee deeming it to be an asset.
22. When once it is held to be includible, the question of valuation arises. The deed itself puts the value of maintenance for life at Rs. 1,80,000 which is an undisputed fact for the purpose of the Stamp Duty Act. The valuation shown for one enactment cannot be different from that for another enactment as both are concerned with the valuation of maintenance allowance granted for life. Hence the value adopted by the Wealth-tax Officer is in order and does not call for any interference. Further, the alternate contention of the assessee also cannot be countenanced because the partition deed does not show that Smt. Shanta Balachander is given a life interest in the property shown in Schedule 'B' as such. Therefore, the alternate contention also has no force and has to be rejected.
23. In this connection, it is relevant to advert to the order of the Tribunal in the income-tax matter for the assessment years 1978-79 to 1981-82 in the assessee's own case in I. T. A. Nos. 844 to 847/Mds/84, dated January 25, 1985. The maintenance amount received by Mrs. Shanta Balachander was sought to be assessed under Section 64(2)(b) of the Income-tax Act, 1961, in the hands of the assessee. In that order, the Tribunal held that maintenance was an integral part of the partition ; that it was stipulated to be paid out of the joint family property allotted to the son of the assessee ; that the amount received by the wife was referable to the said property arid could be said to be derived from the said property ; that the charge involved creation of a right of payment out of specified property and there was a nexus to it. The commentary of Mulla on the Transfer of Property was cited to show that in a " charge " no right is created but the right is something more than a personal obligation and it is a "jus ad rem ", i.e., a right to payment out of the property specified. The Tribunal also pointed out that Section 64(2)(c) does not require that the spouse or minor child should receive any share or interest in the property which is the subject matter of partition. The aforesaid findings and conclusion of the Tribunal in the income tax matter would apply with equal force in the wealth tax matter under consideration as the income of an asset and the value of an asset are both interrelated aspects of the same property in the same manner as obverse and converse of the same coin. For these reasons the orders of the Appellant Assistant Commissioner are upheld. The appeals filed by the assessee are dismissed.
ORDER OF THIRD MEMBER T.N.C. Rangarajan, Vice-President
24. In these appeals, there being a difference of opinion between the Members who first heard the case, it has been referred under Section 24(11) of the Wealth-tax Act, 1957, read with Section 255(4) of the Income-tax Act, 1961, to the Third Member. The questions proposed for the opinion of the Third Member are as follows :
" 1. Whether there is a nexus between the right of maintenance received by Smt. Shantha Balachander and the converted property which is the subject matter of partition dated October 31, 1977?
2. Whether the right of maintenance or amount received by Smt. Shanta Balachander is part of converted property which is the subject matter of the partition dated October 31. 1977?
3. Whether the value of the right to maintenance is to be included in the net wealth of the assessee under Section 4(1A)(c) of the Wealth-tax Act, 1957?"
25. The admitted facts are as follows. The assessee was the absolute owner of a property at No. 30, Archbishop Mathias Avenue, Madras. It was his self acquired property. On August 1, 1974, the assessee executed an affidavit by which he declared his intention to impress this self acquired property with the character of Hindu undivided family property. Thereafter, the property was held as that of the Hindu undivided family consisting of the assessee, his wife and son. On October 31, 1977, a registered deed of partition was executed by which 1/2 share of the land and the first floor of the building was given to the assessee and the other 1/2 share of the land and the ground floor of the house was given to his son. The document recited that, at the time of partition, the wife "insisted upon due provision being made for her future maintenance from out of the joint family property and funds". Clause 4 of the document provided that the son shall pay a sum of Rs. 1,250 per month to his mother for her lifetime as maintenance and for the purpose of securing that payment, the property allotted to him shall stand as security therefor.
26. While making the income tax assessment for the assessment year 1978-79, the Income-tax Officer came to the conclusion that the wife became entitled to the maintenance only as a result of the partition deed and, therefore, that income had to be added to the total income of the assessee under Section 64(2)(b) of the Income-tax Act, 1961. This was confirmed on appeal not only by the Commissioner of Income-tax (Appeals) but also by the Appellate Tribunal. In the order of the Appellate Tribunal dated January 25, 1985 in I.T.A. Nos. 844 to 847/Mds/84 for the assessment years 1978-79 to 1981-82, it was held that Section 64(2) did not require that the spouse or minor children should receive any share or interest in the property which is the subject-matter of partition, to tax that the income derived by such spouse could be added under that section (sic). The Tribunal, accordingly, held that the maintenance allowance received by the assessee's wife was referable to and could be said to be derived from the property forming the subject-matter of partition, i.e., the share allotted to the son, as there was a nexus created by virtue of the various clauses in the partition deed. Accordingly, the addition made under Section 64(2)(c) was sustained on the ground that the provisions of Section 64(1)(iv) were attracted. It was stated that a reference is pending in the High Court on that issue.
27. In the wealth-tax assessment for the assessment year 1978-79, a similar addition was made under Section 4(1A)(c). The Wealth-tax Officer stated that, by virtue of the partition deed, the wife was given a share of the property in the form of maintenance and the value of that share had to be added to the net wealth of the assessee. Similar additions were made for the subsequent assessment years. On appeal, by a common order for the assessment years 1978-79 to 1981-82, the Appellate Assistant Commissioner upheld the addition on the ground that the provision for maintenance was in fact the share of the wife cast as a legal obligation on the son. He held that it was a deemed asset transferred by the assessee to his spouse includible in his hands under Section 4(1A)(c).
28. When the appeal was first heard, the learned Judicial Member came to the conclusion that the charge created on the share allotted to the son was only a security and did not amount to an interest in the property. He also held that the obligation to pay maintenance by the son had no nexus to the portion of the property allotted to him. He noted that, in the decision of the Tribunal in the income-tax proceedings also, there was a finding that there was no nexus between the converted property and the payment of maintenance by the son to the mother. Thus, he concluded that the value of the maintenance payable by the son to the mother could not be added to the net wealth of the assessee. On the other hand, the learned Accountant Member disagreed by stating that the spouse had derived benefit which was not independent of the converted property. He was also of the view that the provision for maintenance amounted to an indirect transfer by the assessee to his spouse which was specifically brought to tax by the deeming provisions of Section 4(1A).
29. Before me, it was contended on behalf of the assessee that no asset had in fact been given to the spouse under the document and since the converted property was held only by the assessee and the son, there was no justification for adding the maintenance paid by the assessee to the net wealth of the assessee. On the other hand, it was contended on behalf of the Revenue that, consistent with the decision in the income-tax assessment, the provision for maintenance must be treated as property indirectly transferred to the wife without consideration and was rightly treated as a deemed asset assessable in the hands of the assessee.
30. I have considered the submissions of both sides and I have perused the partition deed. Section 4(1A) of the Wealth-tax Act, 1957, reads as follows :
"4. Net wealth to include certain assets. -
(1A) Where, in the case of an individual being a member of a Hindu undivided family, any property having been the separate property of the individual has, at any time after December 31, 1969, been converted by the individual into property belonging to the family through the act of impressing such separate property with the character of property belonging to the family or throwing it into the common stock of the family or been transferred by the individual, directly or indirectly to the family otherwise than for adequate consideration (the property so converted or transferred being hereinafter referred to as the converted property), then notwithstanding anything contained in any other provision of this Act or in any other law for the time being in force, for the purpose of computing the net wealth of the individual under this Act for any assessment year commencing on or after April 1, 1972,--
(a) the individual shall be deemed to have transferred the converted property, through the family, to the members of the family for being held by them jointly ;
(b) the converted property or any part thereof shall be deemed to be assets belonging to the individual and not to the family ;
(c) where the converted property has been the subject-matter of a partition (whether partial or total) amongst the members of the family, the converted property or any part thereof which is received by the spouse or minor child of the individual on such partition shall be deemed to be assets transferred indirectly by the individual to the spouse or minor child and the provisions of Sub-section (1), shall, so far as may be, apply accordingly :
Provided that the property referred to in Clause (b) or Clause (c) shall, on being included in the net wealth of the individual, be excluded from the net wealth of the family or, as the case may be, the spouse or minor child of the individual."
31. This section provides that first, there must be a transfer by the individual to the family otherwise than for adequate consideration, second, there must be a partition and third that the property or part of it must be received by the spouse of the assessee which will then be deemed to be an asset transferred indirectly by the individual to the spouse. The section further provides that, where a property is converted from individual to joint family property, it shall be deemed to have been transferred through the family to the members of the family for being held by them jointly. I find that the facts of this case do not establish at the outset that there was a transfer of the property by the individual to the family otherwise than for adequate consideration in respect of the provision for maintenance of the spouse. Even though the entire property was impressed with the character of Hindu undivided family, that conversion in so far as the right of the wife to be maintained was concerned, was not without consideration. In view of Clause (a) of Sub-section (1A) of Section 4, when we deem a portion of the property to have been transferred to the wife, that portion would not be without consideration. The Andhra Pradesh High Court has held in the case of CGT v. Vallum Venkateswara Rao [1980] 123 ITR 54 that there is always a legal obligation to maintain the wife and setting apart a property is only a crystallisation of that right and such a transfer would not amount to a gift because, it will not be a transfer without consideration. In the present case also, the assessee was obliged to maintain the wife whether he held the property in his individual capacity or he held it after conversion as the karta of the Hindu undivided family. She had the right to be maintained even before and that right continued even after conversion. No right was created by the conversion of the property from individual to Hindu undivided family property.
32. Secondly, even though there was a partition, no asset was actually transferred to the spouse under the deed of partition. The right of the spouse to receive maintenance was only recognised and declared. All that was done by clause 4 of the document was to secure the maintenance to which she was already entitled but it was quantified at Rs. 1,250 per month. The partition deed itself did not assign any asset to her as she did not derive a right to receive maintenance by that document, since that right already existed in her favour. Therefore, when no part of the converted property was received by the spouse, it is not possible to deem the maintenance which was being paid by the son to the mother as her asset indirectly transferred by the assessee to his spouse. I am, therefore, convinced that the transaction does not fulfil either of the two conditions required by Section 4(1A) so as to include the value of the maintenance right as an asset includible in the net wealth of the assessee.
33. It was submitted on behalf of the Revenue that this conclusion will be inconsistent with the decision in the income-tax proceedings and the Bench will not have the jurisdiction to come to a different conclusion on the same facts. I am unable to accept this contention because, firstly, the provisions of the Wealth tax Act deal with the asset whereas the Income-tax Act deals with the income and the subject-matter of the dispute is, therefore, quite different. Secondly, the Tribunal has itself held in the income tax case that no part of the converted property was given to the spouse and yet the maintenance received by her should be treated as income indirectly derived from the converted property. The finding in the present case that no part of the converted property was given to the spouse is, therefore, not inconsistent with the finding given in the income-tax proceedings. Thirdly, the question whether the spouse had a preexisting right to maintenance and, therefore, it could not be regarded as an asset transferred by the assessee to his spouse did not come up for consideration in the income tax proceedings and hence the issue has to be decided in this case.
34. I find that, for the reasons given by me, I am in agreement with the decision of the learned Judicial member that there was no justification for making an addition under Section 4(1A)(c) of the Wealth-tax Act, 1957. In that view, the orders of the authorities below are set aside and the addition made under Section 4(1A) shall stand deleted from the net wealth for all the assessment years under consideration.
35. In view of the foregoing discussion, my answers to the questions posed are, (i) there is no nexus between the right to maintenance received by Smt. Shantha Balachander and the converted property as already held by the Tribunal in the income tax proceedings ; (ii) the right to maintenance or the amount received by Smt. Shantha Balachander was not part of the converted property which was the subject-matter of the partition deed dated October 31, 1977; and (iii) the value of the right to maintenance cannot be included in the net wealth of the assessee under Section 4(1A)(c) of the Wealth-tax Act. The matter will now go before the regular Bench for the disposal of the appeals in accordance with the opinion of the majority.
ORDER T.N.C. Rangarajak, Vice-President
36. In these appeals on a difference of opinion between the Members, the matter was referred to the Third Member under Section 24(11) of the Wealth-tax Act, 1957. The Third Member has agreed with the view of the learned Judicial Member. Hence, conformably with the decision of the majority of the Members who have heard the case, the addition made under Section 4(1A)(c) of the Wealth-tax Act is deleted from the net wealth of the assessee for all the assessment years under consideration. The Wealth-tax Officer is directed to re-compute the net wealth. The appeals are allowed.