Tapuriah Jain & Associates

H.H. Maharani Manekaraje Pawar vs Income-Tax Officer

Income Tax Appellate Tribunal - Indore

H.H. Maharani Manekaraje Pawar vs Income-Tax Officer on 23 September, 1985

Equivalent citations: 1986 15 ITD 545 Indore

Bench: A Prakash, M Agarwal

ORDER M.C. Agarwal, Judicial Member

1. This is an assessee's appeal challenging the addition of a sum of Rs. 74,098 as capital gains arising out of the transfer of certain shares by the assessee to his wife.

2. We have heard the learned counsel for the assessee and the learned departmental representative and have perused the record.

3. The facts are that the assessee's first wife instituted a petition under Section 10 of the Hindu Marriage Act, 1955, against the assessee in the year 1977 when she was 68 years of age and the assessee was 73 years of age claiming judicial separation from the assessee on the ground of long desertion and she also claimed that movable and immovable properties worth Rs. 10 lakhs be given to her out of the properties of the assessee for her maintenance. This petition which was moved in November 1977 was decided in terms of a compromise according to which the claim for judicial separation was decreed and for the maintenance of the wife the assessee gave her a house known as 'Manharganj Kothi, Dewas' worth Rs. 2,10,500 and 5,852 equity shares of Union Carbide valued at Rs. 24 per share, 1,637 equity shares of Chemicals and Fibres valued at Rs. 26 per share and some other properties including cash amounting to Rs. 2 lakhs. According to the ITO, the aforesaid equity shares were purchased at a lesser price and were transferred to the wife at a value of Rs. 1,83,000 and, therefore, there was a capital gain of Rs. 74,098. The assessee had contended that in the circumstances of the case, there was no capital gain. This contention did not find favour with the learned ITO as well as with the learned Commissioner (Appeals) and the assessee is thus now before us.

4. Section 45 of the Income-tax Act, 1961 ('the Act') provides that any profits or gains arising from the transfer of a capital asset effected in the previous year shall be chargeable to income-tax under the head 'Capital gains' and shall be deemed to be the income of the previous year in which the transfer took place. It was conceded on both sides that the joint stock shares held by the assessee and transferred to the wife were the capital assets of the assessee. The learned counsel for the assessee, however, contended that the transaction in question did not amount to a transfer and it was in fact a family settlement in which the wife was given a certain share of the assessee's properties. On the facts of the present case, we are unable to accept that it is a case of a family settlement. Admittedly, the assessee was the exclusive owner of the shares in question. It was admitted that the assessee was being assessed to income-tax in the status of an individual. It, therefore, cannot be contended that the assessee's wife had any interest in these shares. The question of a family settlement comes in when there is a dispute between admitted co-sharers or persons claiming a share in the properties although their rights may be disputed by the other co-sharers. In the present case, the wife was not claiming any right of sharing the assesees's properties as a co-sharer. Her claim was for maintenance and it was in lieu of maintenance that the properties in question were transferred by the assessee to her. The right of a wife for maintenance is an incident of the status or estate of matrimony and a Hindu is under a legal obligation to maintain his wife. The obligation to maintain the wife is personal in character and arises from the very existence of the relations between two parties. Therefore, when certain property is transferred to the wife in settlement of a claim for maintenance, it cannot, in our view, amount to a family settlement because there is no dispute between co-sharers and the other persons are not interested in the dispute. The learned counsel for the assessee relied upon Ram Charan Das v. Girja Nandini Devi AIR 1966 SC 323 in which it was held that the transaction of a family settlement entered into by the parties who are members of a family bona fide to put an end to the dispute among themselves is not a transfer. It is also not a creation of an interest. It was further observed that in a family settlement each party takes a share in the property by virtue of independent title which is admitted to that extent by the other parties. These observations have no application to the facts of the present case. As already stated the assessee did not claim any independent title to a share in the properties owned by the assessee. What she claimed was maintenance and it is in lieu of maintenance that the assessee transferred certain properties to her. We, therefore, hold that the doctrine of family settlement did not apply to the facts of the present case. Admittedly the assessee transferred the aforesaid shares to his wife in connection with the agreement to live separately and divested himself of any rights in the said property. The result, therefore, is that there was a complete transfer of the said shares. Therefore, it is also established that there was a transfer within the meaning of Section 45.

5. The last ingredient required by Section 45 is that a profit or gain should arise from the transfer of the capital asset. It is this ingredient which, in our view, is lacking in the present case. In consideration of the transfer of the shares and other properties the assessee did not receive anything material. The shares have been transferred in consideration of an agreement to live apart and not to claim any other right in the assessee's remaining properties. Such a consideration cannot be valued in terms of money and, therefore, it cannot be said that in consideration of the transfer of the shares the assessee received anything which was of the value of Rs. 1,83,000. As a matter of fact, such a consideration is no consideration in the strict sense of the term as contemplated in the law of contracts. That is probably the reason why in Section 64(1 )(iv) of the Act, the words used are ' in connection with an agreement to live apart'. The Legislature has avoided the word 'consideration' and has used the word 'connection' probably because the consideration for which a person settles property under an agreement to live apart is not a legal consideration in the strict sense of the word. In the present case, what the assessee did was merely that he described the value of the shares at Rs. 1,83,000 while transferring them to the wife in the compromise decree. It is not a case in which a claim for Rs. 1,83,000 may have been decreed against the assessee and in satisfaction of that decretal debt the assessee transferred these shares in full discharge of that debt. Had that been so, it could certainly be said that the assessee has received a benefit of Rs. 1,83,000 as a liability to that extent had extinguished but in the present case the wife wanted certain shares and they have been given to her. The mere fact that their value has been estimated or mentioned at Rs. 1,83,000 cannot mean that the assessee has received a material benefit to that extent. We are, therefore, of the opinion that on the facts and circumstances of the present case no capital gains can be said to have arisen to the assessee and, therefore, the amount of Rs. 74,098 could not be added to the assessee's income as capital gains.

6. In the result, the appeal is allowed and the sum of Rs. 74,098 is deleted from the assessee's income.