S.P.Mitra, J. - (1.) This is a Reference under Section 66(1) of the Indian Income-tax Act, 1922. The assessment years are 1958-59 and 1959-60, the corresponding previous years being the Bengali years ended on the 13th April 1958 and the 13th April 1959. On April 24, 1957, the respondent executed a deed of trust conveying certain stocks and debentures as well as his interest in landed properties valued in all at Rs. 4,98,000/- to his brother J.N. Chowdhury who was to hold such properties in trust for the benefit of J.N. Chowdhury's wife and 2 daughters, one married and the other a minor. On the same day J.N. Chowdhury created a similar trust involving assets and properties of the same nature and value as covered by the respondent's trust, appointing the respondent as the trustee for the benefit of the respondent's wife and his major son.
(2.) In the assessments for the aforesaid two years, the Income-tax Officer observed that these mutual transfers were made with a view to avoid the income from the assets and properties concerned being taxed in the hands of the transferors. According to the Income-tax Officer, the result of these transfers was that neither the respondent nor his brother had lost anything by such transfer and looked at from the point of view of mutuality of the transactions the assessee could be treated to have purchased certain assets from his brother for the benefit of his own wife and son and instead of paying in cash for the properties he had paid in kind. For these reasons, the income-tax Officer applied the provisions of Section 16(3) of the 1922 Act and included the income from the assets given in trust to the respondent's brother in the assessment of the respondent.
(3.) Before the Appellate Assistant Commissioner, the respondent contended that the provisions of Section 16(3) applied only to the case of transfer of assets by an individual, directly or indirectly, to his wife or minor children. But since in the present case the assets had been transferred to a trust of which the trustee was the assessee's brother and the beneficiaries were the wife and children of the assessee's brother, the provisions of Section 16(3) had no application. The Appellate Assistant Commissioner was of the view that as between the two brothers, the cross-transactions had to be looked at as a whole and taking into account, the fact that the date of the trust deeds was the same and the trust properties were of identical nature and value, the wife and the son of the respondent derived the same benefit as the wife and the children of his brother. The Appellate Assistant Commissioner said that one transfer had obviously constituted the consideration for the other. He held that the arrangement made by the two brothers by executing the two trust deeds constituted one disposition with the result that in effect the respondent had merely transferred his own assets to his wife and son. The Appellate Assistant Commissioner's conclusion was that barring the income of the trust which was receiveable by the major son of the respondent, the rest was assessable in the hands of the respondent in terms of the provisions of Section 16(3) (b) of the Act.;