Kotval, C.J.
1. The following questions have been referred for our decision :
'(1) Whether, on the facts and in the circumstances of the case, the amounts representing the value of right shares renounced in favour of Willys were chargeable as gifts within the meaning of section 2(xii) of the Gift-tax Act as being without consideration in money or money's worth
(2) If the answer to the first question is in the affirmative, whether the amounts in question were exempt from Gift-tax under section 5(1)(xiv) of the Gift-tax Act ?'
2. The reference has been made in regard to three assessees who are brothers, namely, Keshub Mahindra, Suresh Mahindra and Harish Mahindra (hereinafter referred to as the Mahindras or Mahindra brothers or the assessees). The facts and the questions of law involved in regard to each assessee are the same and were also decided before the Tribunal by one order. The year of assessment is 1959-60 and the corresponding previous year is the year ended 31st March, 1959. The Mahindras were, during the relevant year of account, shareholders of the company known as Mahindra & Mahindra Ltd. (hereinafter referred to as the company). In this company Harish Mahindra held 80,000 shares. Suresh Mahindra 79,900 shares and Keshub Mahindra 78,700 shares. Between themselves they held 43.44% of the total capital of the company. Harish Mahindra and Keshub Mahindra were at all material times two of the directors of the company and Suresh Mahindra was an officer in the company.
3. The company did business of assembling and partially manufacturing motor vehicle knows as 'jeeps'. These motor vehicles are produced by Willys Motors Inc., motor manufacturers of the United States of America (hereinafter referred to as Willys). The export of these cars was made through a sister concern Willys Overland Export Corporation described as 'a Delaware corporation' with its principal offices in the State of Ohio, U. S. A. (hereinafter referred to as 'Export'). In order to avoid confusion, we have here adopted the an deviations used in the contract dated 9th October, 1957. In the contract dated 3rd December, 1956, and in the reference and the order of the Tribunal, the abbreviations are different.
4. The company was licensed to manufacture Willys four wheel drive vehicles on a progressive basis and were receiving technical assistance for such purpose by an agreement dated 23rd April, 1955, between the company, Export and Willys. On the 3rd December, 1956, the company entered into a agreement with Export under which the company contracted to purchase 888 jeeps in a completely knocked down (C. K. D.) condition and other vehicles for an aggregate price of $ 966,741.60. The price was to be paid in nine semi-annual instalment, the fist instalment to be paid on January 1, 1960, and the last instalment to be paid on January 1, 1964, along with the interest and the balance of the unpaid purchase price, on the same day the Mahindras, the assessees, wrote a letter to Export (annexure 'B') whereby the Mahindra agreed that they would jointly and severally transfer to Export 30,000 ordinary shares of the company on certain terms and conditions at the market value ruling on 8th November, 1956. The officer was to be accepted within 90 days of the latter, which was dated 3rd December, 1956, or alternatively, at the request of Export, to make available to them 30,000 ordinary shares, 'at the average of the market price during six month prior to the same'. This officer was to be accepted within 60 days of the request in writing made up 31st January, 1961, by Export. Export exercised the first option stated above, viz, to purchase 30,000 ordinary shares at the market price prevailing on 8th November, 1956, by their letter dated 6th March, 1957, by a subsequent letter dated 20th March, 1957, Export informed the Mahindra that the option was exercised by them in favour of Willys and that the shares would be 'Paid for by and registered in the name of and delivered to Willys Motors, Inc.'
5. On the 9th October, 1957, another agreement was entered on to between the company on the one hand Willys and Export on the other hand, by this agreement Export agreed to sell 798 vehicle in C. K. D. condition to the company and Export secured certain rights over the new issue of shares which the company was contemplating. We will presently refer to the terms of clauses 4 and 5 of the agreement dated 9th October, 1957, whereby these rights over the new issue of shares were obtained by Export and to the complementary letter written on the same date by the Mahindra to export.
6. The agreement dated 9th October, 1957, made provision for the supply of 504 trucks 294 Utility Vans (798 vehicle in all) for a sum of U. S. $ 1,207,903.20 as indicated in the schedule thereof. The first three clause of the agreement provide for the sale and the manner in which and the conditions on which the vehicle would be exported and for the payment of the purchase price by the company in rupees. Then clause 4 made provision for a loan by export to the company of U. S. $ 400,000. This loan was to be advanced 'after payment has been made of such aggregate purchase price less the rupee equivalent of the last four hundred thousand United states Dollars (U. S. $ 400,000) worth of C. K. D. vehicles shipped from new York' and after certain documents as contemplated in clause 9 were delivered to Export. The loan of $ 400,000 was to be secured for Export by a promissory note of the rupee equivalent of $ 400,000 and on certain other terms. There was also to be executed by the company in favour of Export a first mortgage to certain of certain assets of the company including the real estate, machinery and equipment
7. Clause 5 of the agreement provided for the acquisition by Export of the new capital which the company was contemplating to issue. Clause 5 provided as follows :
'(5) Export shall be entitled from time to time to convert the principal of the note specified in section (4) on the following terms :
(a) The company shall deliver to Export a written notice at least thirty (30) days in advance of any new of new issue of capital (including convertible loan stock) of the company after the date of this agreement and before the maturity date of the note specified in section (4).
(b) If Export delivers a notice of election at or before the maturity date of the note specified in section (4) the company shall arrange, not latter than six (6) months after such notice, for the allotment, issue and delivery by the company to export, subject to the rights of the existing shareholders as required by law, of the quantity of shares specified in said notice of election, at an issue price not exceeding the market value of the then existing relative class of shares on the date of issue price is fixed by the company's board of directors, and provided further that Export shall not be entitled to select to purchase shares with an aggregate issue price exceeding the unpaid principal of the not specified in section (4)
(c) The certificates of such shares, shall, subject to the company's articles of association, be in such denominations and registered in such company name as Export shall specify provided that Export shall not be entitled to specify the name of any company not affiliated with Export.
(d) The shares shall be fully paid, equity shares with full voting and pro rata dividend rights, unless and to the extent that Export selects to take preferred or other classes of shares.
(e) The obligation of the company to issue shares pursuant to the Export notice of election shall be subject to any required approval of the Government of India, and in the event the Government approves the issue to Export of lesser quantity of shares than specified in the Export notice of election, Export shall accept the quantity of shares approved on the terms stated in this agreement.
(f) Upon issuance and allotment of the shares, the principal not specified in section (4) shall be reduce pro tanto as each payment is credited under the allotment'.
8. In clause 7 provision was made for the consequence of default in the fulfillment of the agreement and it, inter alia, provided (vide sub-clause (d)) that in the event that the company shall violate or fail to perform any provision of the agreement and shall fail correct such violation or failure of performance within thirty days, then Export may, at its option, by notice to the company, (1) immediately terminate Export's commitment to sell the C K D vehicles, and (2) with respect to CKD vehicle already delivered, declare the unpaid portion of the purchase price of such CKD vehicle to be for with due any payable, and (3) in certain contingencies Export may also declare that the obligation of the company under the loan agreement shall be forthwith due any payable, 'the terms thereof notwithstanding.' This agreement itself was signed by one of the assessees, Keshub Mahindra, and by K. C. Mahindra who, we were informed, is the father of the three assessees and by Willys and Export.
9. Complementary to this agreement was a letter written to Export and signed by the three assessees which for the purposes of the question referred is of prime importance. The letter was as follows.
Bombay, 9th October, 1957,
Willys-Overland Export Corporation,
Willys Motors Inc.
Dear Sirs,
Please refer to our letter agreement dated the 3rd December, 1956, addressed to Willys Overland Export Corporation (hereinafter export) and our supplemental letter agreement of the same date granting certain options in regard to the acquisition of the shares of Mahindra and Mahindra Ltd. (hereinafter the Company).
By its letters dated March 6th, and March 20th, 1957, Export exercised in favour of Willys Motors Inc. certain rights under the said letter of agreement.
We understand that in view of the commitments for further financial assistance to the company undertaking by Export under the agreement entered into between Export land the Company dated of even date herewith in regard to the sale of 798 CKD vehicles, Export desire to revoke and be released from the exercise of the said option under the said letters.
We hereby jointly and severally agree in consideration of the execution of said agreement, that the said exercise of said option by Export be revoked and cancelled as if the same had never been exercised.
In further consideration of the execution of the said agreement of even date herewith, we and each of us jointly and severally hereby further agree for ourselves and our respective heirs, executors and administators.
(a) that in the event that Export exercises its election to acquire shares of the company out of any new issue of shares by the company in or to which we may be entitled legally to pre-emptive rights as shareholders of the company. We shall upon request by Export waive (or of necessary assign) such rights without charges in favour of Export or any company affiliated with Export which Export may specify.
(b) that we will exercise all voting rights which we are legally capable of exercising to ensured that a person designated by Export and acceptable to the board of the company from time to time shall be elected as director of the company for as long as any moneys remain outstanding payable by the company to Export or Wails Motors Ink. under the loan agreement dated 3rd December, 1956 and/or the said agreement of even date herewith or as long as Export and any company affiliated with Export 10% or more of the voting shares of the company, provided that, unless Export and its affiliated companies already own 10% or more of the then voting shares of the company, this obligation shall cease if :
(1) The company offers to export the unconditional right to subscribe to equity shares of said company to Rs. 2,000,000.00 as part of a general issue of shares to the public. Nothing contained herein shall modify or limit the right and duties of the parties under our two letters to you dated 3rd December, 1956. ....
Yours faithfully,
Sd/- Mahinder Singh
Secretary'.
Accepted
For Willys-Overland Export Corporation,
Constituted Attorney.
For Willys Motor Inc.
Vice President and Constituted Attorney.'
10. After these arrangements were made between the company, Willys and Export, the company issued right shares in 1958 in the proportion of 7 right shares to every 5 original shares held by the shareholders. Thereby the three assessees became entitled to the following right shares.
Harish Mahindra ...1,12,000Suresh Mahindra ...1,11,860Keshub Mahindra ...1,10,120
11. In fulfilment of their undertaking in their latter dated 9th October, 1957, the three Mahindras renounced in favour of Export 41,620 shares each. In addition it appears that they renounced 'certain shall number of shares in favour of their relatives and friends and each one of them also sold large lost exceeding, 50,000 shares to the Life Insurance Corporation of India at the rate of Rs. 2 per right shares. The stock market quotation of the right share was however about Rs. 4 per share during the relevant period of one month. We are not concerned in the present reference with the shares transferred to other parties, but with only the shares transferred by the three assessees to Export.
12. Now the Gift-tax Officer commenced proceeding under section 13(2) against all the three assessees in regard to the shares transferred to Export. The agreement and the letter dated 3rd December, 1956, were cancelled and a new deed was entered into on the 9th October, 1957. Later on, the Mahindras transferred to Export by virtue of their letter dated October 9, 1957, a large number of 'right shares were transfer led free of cost on the 11th September, 1958, and these without consideration. Therefore, they constituted a gift within the meaning of section 2(xii) of the Gift-tax. The Gift Tax Officer held :
'The benefactor in the deal was the assessee when he gave away the rights free. The beneficiary was Willys Inc. But the benefit did not go to the assessee but to Mahindra and Mahindra Ltd. There was no understanding in this regard between the company and the Mahindrs. It was a voluntary act of helping the company to get out of the situation. The company is a separate entity and the benefits, which ultimately accrued to the assessee, according to him, were not a known quantity and consideration if it all there was any, therefore was indeterminate, indirect and not in money's worth at the point of relinquishment of the rights.
The assessee could not establishment that there was a direct or in direct return against the free transfer of rights and no consideration was passed in terms of section 4(b) of the Gift-tax Act. The assessee's action might have tempted the company but this would not be valid consideration for the purpose of the Gift-tax Act. As the assessee is also not a dealer in shares as such, it cannot be said that the Gift was made in ordinary course of business and exempt under section 5(1)(xiv) as claimed by the assessee as an alternative argument. Under the circumstance the market value of 41,620 rights (he was saying this in the case of Harish Mahindra, the total shares transferred being 1,24,860) shall be treated as the value of gifts to be taxed.'
13. In appeal the Appellant Assistant Commissioner of Income-tax does not seem to have dealt with the question in any great detail, but he confirmed the view of the Gift-tax officer. He, however, held that the price of each share should not be Rs. 4 per share as held by the Gift-tax Officer, it should be Rs. 2 per right share. To that extent he granted relief to the assessee.
14. When the matter came before the tribunal, they confirmed the view of the Gift-tax officer and the Appellate Assistant Commissioner and the held 'the short point we have to consider is whether any consideration moved from Willys to the three assessees whereby the three assessees undertook to relinquish or renounce the rights in favour of Willys. So far as the letters are concerned, it is clear that the three assessees undertook a liability to relinquish or renounce the rights in favour of Willys. It is clear from what has been stated above that there was no direct consideration moving from Willys to the three assessees.' The Tribunal referred to the definition of 'consideration' in section 2(d) and then gave the following findings (1) We find there is neither the promisor no the promise, as defined in the Contract Act, in this case. (2) There is no agreement between the three assessees and Willys to do anything in particular. (3) Though there may be an agreement between the company and Willys, that is not useful to the assessees, because, as held by the lower authorities, a company is a separate and distinct person from the three assessees who are the shareholders. (4) To come within the definition of 'consideration' as laid down in the Contract Act. Willys ought to have done something or abstained from doing something at the desire of the three assessees. This is lacking in the present case.....' They, therefore, held that the relinquishment or renouncement of the rights by the three assessees in favour of Export was without any consideration and constituted a gift.
15. Section 3, which is the charging section of the Gift-tax Act, says that '..... there shall be charged for every assessment year commencing on and from the 1st day of April, 1958, a tax..... in respect of the gifts, if any, made by a person during the previous year.....'. 'Gift' is defined in section 2(xii) to mean 'the transfer by one person to another of any existing movable or immovable property made voluntarily and without consideration in money or money's worth, and includes the transfer of any property deemed to be a gift under section 4.' 'Property' is defined in section 2(xxii) as including any interest in property, movable or immovable. 'Transfer of property' is defined in section 2(xxiv), but it is not material in deciding the main point involved in this reference. We will, however, refer to this definition when we consider a minor point argued by Mr. Parpia that the rights in the shares were no property at all,
16. We may first of all dispose of this argument advanced by Mr. Parpia. It is urged that the rights of the assessees in the shares were not 'property' at all and so cannot be the subject of a gift at all. According to him, the rights to the shares undoubtedly give rise to a right, but when the assessees exercised the right of renunciation, it was only in the nature of a power which they exercised and it cannot fall within the definition of property in section 2(xxii). He relied upon the decision in Ex parte Gilchrist : In re Armstrong.
17. The word 'property' is not as such defined in section 2(xxii), the definition being merely an inclusive definition. It includes any 'interest' in property, movable or immovable, which would certainly cover the 'right shares'. But taking into consideration the general connotation of the word 'property', we can see no reason why the right shares which the assessees had obtained and transferred would not be 'property' itself in the present case. Property is a not only the thing which is the subject-matter of ownership but includes also 'dominion' or right of ownership or partial ownership and, as Lord Long dale put it in Jones v. Skinner : 'It is the most comprehensive of all the terms which can be used inasmuch as it is indicative and descriptive of every possible interest which the party can have.' In his Transfer of Property Act, Sir Dinshaw Mulla indicates the connotation of 'property' by saying : 'It is used in this dual sense of the thing and the right to the thing in section 54 which contrasts, 'tangible immovable property' with 'a reversion or other intangible thing'. This is the distinction expressed in English real property law as corporal and incorporeal hereditaments.'
18. The case in Ex parte Gilchrist : In re Armstrong turned upon the special wording of section 4 of the Act of 1869 (see page 536). In that case a woman trading in her own name with the aid of separate property became bankrupt. She had a power of appointment in her own favour and the question was whether this power was property which would vest in the official receiver. The court held that it was not property under section 4 read with section 15 of the Act of 1869. We do not think that the definitions are the same here nor are the facts. Moreover, we are not really considering in the present case any question of the exercise of a mere power of appointment. Here, we are considering the transfer of the shares themselves. The qualifying adjective 'right' shares does not make them any the less shares held in the company. The word right merely indicates that they were shares to which the shareholder became entitled because as an existing shareholder he had so to say a pre-emptive right to them. The right shares would be property. Assuming however that the question is with regard to the exercise only of the power of renunciation, here the power of renunciation was attached to the right shares and when the power of renunciation was exercised the shares necessarily passed. The power of renunciation could not be exercised, an interest in property was transferred which is included in the definition of property. What we must consider here is the substance of the transaction. The transfer of the right shares in favour of Export by the assessees by means of exercise of the power of renunciation was a transfer of property. Even if it was merely an interest in property. It would still be included in the definition of property.
19. We may also point out here that clause (d) of section 2(xxiv), which defines 'transfer of property', includes within 'transfer of property' any transaction entered into by a 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. Looked at from that point of view, the assessee certainly intended by the transfer of the right shares to Export to diminish directly or indirectly the value of his own property and to increase the value of the property of Export. The right shares, it is well known, have a market value and can be bought and sold and in the present case in fact the assessee had sold them to the L. I. C. for Rs. 2 each and they have been valued in the present proceedings also at the same value. They would, therefore, come within the meaning of 'property' as defined in section 2(xxii) and the transaction within the definition of transfer of property in section 2(xxiv).
20. Two other decisions upon which reliance was placed by Mr. Parpia are also cases of powers of appointment. In Re Mathisson : Ex parte The Trustee the question was whether a power of appointment over property was itself property and it was held that in the ordinary use of language, 'property' does not include a general power of appointment (See per Lord Atkin at page 310). In Commissioner of Stamp Duties v. Stephen the question was whether in terms section 49, sub-section 2A(a), of the New South Wales Stamp Duties Act, 1896, a special power to appoint amongst a limited class granted by a document could come under that statute. The Privy Council held that, 'mere general language in a probate duty statute applicable to the property of deceased persons and to property subject to their general power of appointment does not extend to property subject to a special power to appoint amongst a limited class. The intention to include the latter must be clearly expressed and accompanied by apt provisions'. None of these cases can have any analogy with the facts of the of the present case, where we are merely considering a transfer of shares and where in any case the power of renunciation was coupled with the right shares and so would come within the meaning of 'property' as defined in section 2(xxii).
21. Then we turn to the principal question arising in this reference, namely, whether the transfer of the rights shares was without consideration in money or money's worth. The definition of 'gift' in section 2(xii) is in two parts, preceded by the words 'gift means'. In the second part there is only an inclusive definition. The latter is only an artificial extension of the true meaning of the word 'gift' by the use of a fiction implied by the words 'deemed to be a gift under section 4'. The concluding words of the section 'and includes the transfer of any property deemed to be a gift under section 4' by a fiction includes certain categories of transfer as gifts which normally do not and cannot fall within the connotation of the word 'gift'. Such 'deemed gifts' are dealt with in section 4 of the Act. Turning to section 4, it contemplates several categories of transfer which are thus included in the definition of 'gift'. For the purposes of the arguments before us reference may be made to clauses (a) and (b) only. Clause (a) deals with transfers for an inadequate consideration and says that such a transfer will be a gift to the extent to which the consideration is adjudged inadequate. Clause (b) deals with transfers where the consideration has not passed from the transfer to the transferor or is not intended to pass in full or in part. In such a case the transfer is deemed to be a gift to the extent to which the consideration has not passed or is not intended to pass. Thus by virtue of section 4(a) read with section 2(xii), even transfers with inadequate consideration would become gifts so long as the tax authorities come to the conclusion that 'the value of the property at the date of the transfer exceeds the value of the consideration. In such a case, the transfer would be gift only to the extent to which the market value exceeds the consideration of the transfer. Section 4(b) deals with cases where a transfer is for consideration but the consideration 'has not passed or is not intented to pass either in full or in part from the transferee to the transferor'. In such a case the transfer becomes a gift to the extent of 'the amount of the consideration which has not passed or is not intended to pass...'. Clauses (c) and (d) of section 4 of course can never be attracted in the present case.
22. We have referred to this artificial definition of the meaning of the word 'gift' by including therein 'deemed gift', because it serves to emphasise by contrast what is the real definition and to crystallise the point arising in this reference. The artificial definition is not invoked in the present case. Section 4 is not attracted because it is not the case of the department that the transfers in the present case were 'otherwise than for adequate consideration', nor is it the case of the department here that the consideration has not passed or was not intended to pass either in full or in part from the transfer to the transferor. It is not the case of the department that the transactions were for consideration, but the consideration has not passed or was not intended to pass. The department's case is clear that these transfers were gifts because there was no consideration at all for the shares transferred. The case, according to the department, falls within the opening words of the definition, viz., transfers 'without consideration in money or money's worth'. That is how it was argued by Mr. Joshi. So far as the present case is concerned, therefore, what we have to see is whether the Mahindras received any consideration at all in money or money's worth when they transferred their 'right shares' and not whether the consideration was large or small, adequate or inadequate or whether it passed or did not pass. That is also clear from the first question referred : 'Whether, on the facts and in the circumstances of the case, the amounts representing the value of right shares renounced in favour of Willys were chargeable as gifts.... as being without consideration in money or money's worth ?'.
23. The question is not whether the right shares were transferred for inadequate consideration and, if so, to what extent was the consideration inadequate. It seems to us that in this reference this is a vital consideration, for we shall show a little later that, in the course of the arguments on the question whether there was consideration or not, the question of adequacy and inadequacy of the consideration has been invariably mixed up.
24. If the assessees thus can establish that they received money or money's worth they are entitled to succeed in the present reference and, conversely, only if department succeeds in establishing that there was no consideration at all for the transfer of the right shares, then only must the question be answered in favour of the department.
25. Now the word 'consideration' is not defined in the Gift-tax Act and we agree with the reasoning of the Tribunal in paragraph 17 of its order that the word must therefore carry the meaning assigned to it in section 2 of the Contract Act where it is defined in clause (d) of section 2 as follows.
'When, at the desire of the promisor, the promise or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise.'
26. Before we proceed to apply this definition as contained in the Contract Act, however, it must be borne in mind that it is subject to such qualifications or limitations as are expressly stated in the Gift-tax Act. Reading the definition of 'consideration' in section 2(d) of the Contract Act in the light of the provisions of the Gift-tax Act, it is clear that the definition has been modified in two respects : (1) the modification to which we have already referred, namely, that in the Gift-tax Act an agreement to transfer property 'otherwise than for adequate consideration' (see section 4(a) gives rise to a gift to the extent of inadequacy while under definition in the Contract Act that is not so. Under the Contract Act the adequacy or inadequacy of the consideration is immaterial. Similarly, under Explanation 2 to section 25 of the Contract Act, an agreement to which the consent of the promisor is freely given is not void merely because the consideration is inadequate. It is still a valid agreement, but under section 4(a) of the Gift-tax Act such an agreement or transfer would be partially bad, to the extent of the inadequacy. It would be gift only to the extent to which the market value of the property at the date of the transfer exceeds the value of the consideration of the transfer. Thus, the ambit of a gift in the Gift-tax Act is somewhat enlarged and the corresponding area of a contract for consideration artificially narrowed down. In the present case, the extension of the meaning need not be considered, because it was never the case of the department that the transfer in the present case was for an inadequate consideration. What we have to see, therfore, in the present case is to treat the transaction as if it were an ordinary contract and decide whether it was for consideration at all. Thus, the second part of the definition of 'gift' need not at all detain us, nor the provisions of section 4(a) or 4(b).
27. The second thing that has to be noted, so far as the definition of 'consideration' in section 2(d) of the Contract Act is concerned, is the express modification made to that definition by the use of the words 'consideration in money or money's worth' in the definition of 'gift' Under the Contract Act, consideration must of course be something which the law can deem of some value but it need not necessarily be 'money or money's worth'. Sir Dinshaw Mulla puts it thus at page 15 of his commentary on the Contract Act : 'Apart from the peculiar case of a promise made by deed, English law will not enforce a promise unless it was given for value, that is, not necessarily for an adequate value, but for something which the law can deem of some value, and the parties treat as such by making it a subject of bargain. The value so received in exchange for the promise may consist in present performance for example, the delivery of goods, or it may itself be the promise of a performance to come. These elements are embodied in definition of consideration by clause (d) of our section.'
28. As to What is meant by consideration, Sir William Anson, in his book on the Principles of English Law of Contract (22nd edition by A. G. Guest) traces the development of the concept of consideration in English law and points out how at one time under the influence of Lord Mansfield consideration was only treated as evidentiary of contract and the doctrine gained ground that 'the existence of a previous moral obligation was sufficient to support an express, but gratuitous, promise' (see page. 83) Later on, that doctrine was overthrown by the decision in Eastwood v. Kenvan (1840) 11A. & E. 433, and 'From this time onwards, we get a rule of universal application, a uniform test of the actionably of every promise made by parol. In each case, we must ask : Does the promisor get any benefit or the promise sustain any detriment, present or future, in respect of the promise If not, the promise is gratutions, and is not binding.' In Cheshire and Fifoot's Law of Contract, sixth edition, the learned authors, commenting on the definition of benefit and detriment, though reiterated in the Court, is not altogether happy'. They suggested a different approach following the suggested definition of Sir Frederick Pollock in his Book on Contracts, 13th edition at page 133. At page 60 the learned authors state :
'A different approach to the problem of consideration may be made through the language to purchase and sale. The plaintiff must show that he has bough the defendant's promise either by doing some act in return for it or by offering a counter-promise. Sir Frederick Pollock has summarised the position in words adopted by the House of Lords in 1915 : 'An act or forbearance of one party, or the promise thereof, is the price for which the promise of the other is bought, and the promise thus given for value is enforceable.'
29. Now it is undoubtedly the intention of the Gift-tax Act by the use of the words 'consideration in money or money's worth' in section 2(xii) to limit the meaning of consideration to something which can be reckoned in terms of money and not to any and every obligation, e.g., a promise to marry, which would be a valid consideration under the ordinary law of contracts. It is a moot question whether 'consideration in money or money's worth' is the same things as 'valuable consideration or some thing which the law deems of value' or whether it was intended by the definition to narrow down the concept of consideration. We have adverted to this distinction in order to emphasise the extent of the narrowness of the concept of consideration in the Gift-tax Act. The distinction, however, need not detain us here, for we shall proceed to consider whether the consideration in the present case was as stated in the Gift-tax Act definition 'in money or money's worth'.
30. Now, the fundamental assumption in the orders of the Gift-tax officer and of the Tribunal in the present case (the Appellant Commissioner does not seem to have applied his mind to it at all) is that no consideration flowed from the promises, Willys of Export, to the promisors, the Mahindra in the present case. It was argued before these authorities that the consideration for the transfer of the 'right shares' by the Mahindra brother by their letter dated 9th October, 1957, was not only in consideration of the relinquishment to renouncement by Willys and Export of their rights under the agreement of 3rd December, 1956, but also in consideration of the valuable advantages, benefits and property to be received under the agreement of 9th October, 1957, between the company, Willys and Export. Both the Gift-tax Officer and the Tribunal answered the argument by holding that under that contract the consideration flowed from Willys and Export to the company and not to the assessees, the Mahindras, who were the transferors. Therefore, so far as the Mahindras are concerned, they received no consideration for the transfer of their right shares. We have already quoted the passages from the findings. The Gift-tax Officer observed that the benefactor in the deal was the assessee when he gave away the rights free, whereas the beneficiaries were Willys Inc., but the benefit which Willys conferred in return did not go to the assessees but to Mahindra and Mahindra Ltd. He, therefore, treated the transfer of the shares as a voluntary act of helping the company 'to get out of the situation'. The Tribunal took the same view but expressed it by saying 'It is clear from what has been stated above that there was no direct consideration moving from Willys to the three assessees'.
31. Now in the first place, nothing can turn upon the use of the word 'direct'. Either the consideration received in the shape of the benefits received by the company under the contract dated 9th October, 1957, were benefits which can be treated as good consideration for the assessees for the agreement to transfer the shares by the assessees or it cannot be treated as consideration to them at all. If it could be treated as consideration for the assessees, then it would support the transfer of the shares as being for consideration.
32. In coming to their conclusion, the authorities treated the assessees and the company as different legal entities which they no doubt are. It is no doubt true that the assessees must be distinguished from the company of which they are only the shareholders, directors or officers but there is nothing in the definition of 'consideration' in section 2(d) to show that when 'the promise has done or abstained from doing or does or abstains from doing, or promises to do or to abstained from doing or does or abstains from doing or promises to do or to abstain from doing, something', the benefit of that act or abstinence must 'directly' go to the promisor. A contract can arise even though the promise does or abstains from doing something for the benefit of a third party - in this cases the company - and the assessee can treat that benefit to a third party as a good consideration to him. This is clear upon the authorities. At page 91, Sir William Anson puts the principle thus :
'The courts will not make bargains for the parties to a suit and, if a man gets what he contacted for, will not inquire whether it was an equivalent to the promise which he gave in return. The consideration may be of benefit to the promisor, or to a third party, or may be of no apparent benefit to anybody, but merely a detriment to the promise...... '; in any case 'the adequacy of the consideration is for the parties to consider at the time of making the agreement, not for the court when it is sought to be enforced. The most trifling detriment or benefit will suffice......'. Sir Frederick Pollock, in his book on Contracts, at page 133, puts the principle thus : 'Consideration means not so much that one party is profited as that the other abandon some legal right in the present, or limits his legal freedom of action in the future, as an inducement for the promise of the first. It does not matter whether the party accepting the consideration has any apparent benefit thereby or not : it is enough that he accepts it, and that the party giving it does thereby undertake some burden, or lose something which in contemplation of law may be of value'. In a subsequent passage, under the heading 'The Modern Doctrine, benefit to promisor not material', the learned author gives two illustrations which are telling : 'We may now trace the characteristic points of the English doctrine. It was understood as early as the third quarter of the fifteenth century, with reference to the quid pro quo of debt, that apparent benefit to the promisor is immaterial'. 'In 1459 we have this case. Debt in the Common Pleas on an agreement between the plaintiff and defendant that the plaintiff should marry one Alice, the defendant's daughter, on which marriage defendant would give plaintiff 100 marks. Averment that the marriage had taken place and the defendant refused to pay. Danver's J. said : 'The defendant has quid pro quo : for he was charged with the marriage of his daughter and by the espousals he is discharged, so the plaintiff has done what was to be paid for. So if I tell a man, if he will carry twenty quarters of wheat of my master Priscot's to G., he shall have 40s., and thereupon he carry them, he shall have his action of debt against me for the 40s.; and yet the thing is not done for me, but only by my command : so here he shows that he has performed the espousals, and so a good cause of action has accrued to him : otherwise if he had not performed them. Moyle J. : If I tell a surgeon, if he will go to one J. who is ill, and give him medicine and make him safe and sound, he shall have 100s.; there if the surgeon does cure J. he shall have a good action of debt against me for the 100s., although the thing was done for another and not for the defendant himself; if there is not quid pro quo, there is what comes to the same. 'Priscot C.J. and Danby J. thought that such an action was not maintainable except on a specialty (though Priscot was impressed by Danver's and Moyle's instances), and an objection was also taken to the jurisdiction on the ground of marriage being a spiritual matter : the case was adjourned and the result is not stated. But the point is quit clearly stated that what a man chooses to bargain for must be conclusively to be of some value to him'. and the learned author then adds that it is really by a deduction from this that the English courts have in modern times laid it down as an 'elementary principal that the law will not enter into an inquiry as to the adequacy of the consideration'. It is here that point we have stressed earlier that the adequacy of the consideration, though expressly made a ground for challenging the contract as being without consideration in the definition of the Gift-tax Act read with section 4(a) and 4(b), becomes of importance. Though under the Act it was open to them the point was never taken by the department that the consideration in the instant case is inadequate. Therefore, the normal doctrine must apply, and the normal doctrine is that since the assessees chose to treat the consideration flowing from Export's contracts with the company as good consideration to them and it is consideration in money or money's worth, it must be accepted as consideration for the transfers of the shares by the assessees. This would of course be subject to any allegations that the consideration is shown fraudulently or with an oblique motive which is not the case here. The other principle is that the consideration need not flow directly from the promise to the promisor but the promisor may accept a benefit to a third party as good consideration for himself.
33. Now, bearing in mind these principles, what is the position upon the facts and circumstances of the present case On behalf of the assessees, reliance is placed, firstly, upon the consideration furnished by the agreement dated 9th October, 1957, between the company on the one hand and Willys and Export on the other, and secondly, upon the renunciation or surrender of the rights of Willys and Export under the earlier agreements made on the 3rd December, 1956. We will for the present consider the former case first. The letter dated 9th October, 1957, of the assessees is signed by all the three Mahindras and in express terms it refers to their earlier letter dated 3rd December, 1956, written pursuant to the first contract and to the fact that certain options were granted to Export in regard to acquisition of shares of company. Then the letter refers to the agreement entered into between Export and company dated 'of even date', that is to say, the agreement entered into on the 9th October, 1957, and states that Export desires to revoke and be released from the exercise of the said option under the said letters. Obviously, the reference here is to the earlier agreements and the letters exchanged. But then the letter goes on to say, 'We hereby jointly and severally agree in consideration of the execution of the said agreement, that the said exercise of the said option by Export be revoked and cancelled as if the same had never been exercised'. Here, the reference to 'the said agreement' is to the agreement of 'even date', namely of the 9th October, 1957, and in consideration of that agreement they agreed to allow Export to revoke and cancel the earlier agreement to buy shares. The further paragraph granting the right to the 'right shares' also begins with the words : 'In further consideration of the execution of the said agreement entered into on the 9th October, 1957, is treated by the assessees as consideration for what they are promising by the agreement of 9th October, 1957. In other words, the assessees treated the benefits which were to be received and to conferred upon the company by the agreement of 9th October, 1957, as a sufficient enough consideration to them for granting of the rights in the 'right shares' to Export.
34. The position as it appears to us from this agreement and the facts and circumstances of the case is clear. The three Mahindras between them owned 43.44% of the share capital. Mr. Parpia urged that really the three Mahindras and the members of their families together owned 54% of the share capital of the company (vide paragraph 9 of the Tribunal's order). If so, they undoubtedly controlled the company Mahindra and Mahindra Ltd. They were moreover vitally interested in the success of the company and the profits which it earned. Two of them were also directors of the company and the third was its principal officer. It is not too much to suppose that with such a major interest in the company, the assessees could well regard anything done for the company as beneficial to themselves as individuals, for they and their family members owned more than half the share capital of the company. So far as the profits are concerned, it could well be said that for every rupee that was earned as profits are concerned, it could well be said that for every rupee that was earned as profits, fifty paise belonged to their family and 43 : 44 paise to the assessees jointly. The agreement dated 9th October, 1957, was principally for the supply by Export of 504 Willys trucks and 294 Willys utility vans valued at over $ 1,207,903.20. The supply of so large a number of motor vehicles and of so high a value would undoubtedly add to the profits of Mahindra and Mahindra Ltd. Therefore, it is not surprising that the assessees would go all out to make large concessions in favour of Willys and Export in consideration of the benefits to be received by the company. The agreement dated 9th October, 1957. There is nothing to show that the statement in the letter is incorrect, nor is the letter challenged on that ground. The three Mahindras, the assessees, therefore, regarded the consideration of sale of 798 vehicles and the other equally valuable rights of loan and otherwise obtained by the company under the agreement as sufficient consideration for the transfer to Export of their 'right shares' which upon the valuation made even by the department itself would be worth Rs. 83,240 in the case of each assessee at Rs. 2 per share.
35. From the start moreover it is clear that Export and Willys were willing to go in for the shares of the company and that is why they had stipulated even at the time of the first agreement for the transfer to them of 30,000 ordinary shares, either at the market price ruling on 8th November, 1956, or at the average of the market value during the six months prior to the same. That agreement did not fructify but it is an indication of why the subsequent agreement of 9th October, 1957, was entered into. This American company was anxious that if its products were to be sold, its reputation should be maintained and supervision of the assembling and manufacture would be easier by Willys or Export having a share-holding in the company. There were of course considerable difficulties in their way arising out of legislation and the policy of the Indian Government as can be seen from the restrictions placed by the letter dated 12th September, 1957, of the Under-Secretary to the Government of India, Ministry of Commerce and Industry, New Delhi. The circumstance that the contract evidenced by the letter and the agreement were entered into at the same time and signed on the same day is in favour of the conclusion that they formed part and parcel of one arrangement. The parties signing on behalf of the Indian company as well as the parties who agreed to sell the right shares were substantially the same. Three persons signed the letter of whom two were the directors of the company who must be held to have brought about and ratified the agreement.
36. It was urged on the behalf of the department that willys were under no obligation to take the shares but they only acquired an option to take them we do not see what difference that can make except to the extent of consideration. The right shares had undoubtedly some value. They were, upon the findings of the authorities, worth Rs. 2 each and we do not suppose that Willys Export would not take them even though they were fully paid up and there was no possible future liability to face.
37. Since the transaction and since in law challenged on the ground of the inadequacy of consideration and since in law the consideration need not flow directly from the transferees to the transferor himself but the transferor could accept the consideration which passed to the company as good as consideration for himself, it is clear that the transfer of these shares in consideration of the agreement dated 9th October, 1956, being cancelled by mutual consent. No doubt, the letter dated 9th october, 1957, does say that in consideration of the agreement entered into on the 9th October, 1957, the assessees were filling to allow Export to revoke and be released from the exercise of the option under the said letters (of the 3rd December, 1956, and others). The letter on the 9th October, 1957, also says 'Nothing contained herein shall modify or limit the rights and duties of the parties under our two letters to you dated 3rd December, 1956'. In order words, the rights contained in the letters dated 3rd December, 1956, were kept alive. To that the answer on behalf of the department was that Willys were not bound to exercise the option to purchase under the first letter and, therefore, gave up nothing and the first agreement could not form the basis of the second agreement. As we have said, we need not consider these several contentions because, in our opining, the consideration is writ large upon the second agreement brought about by the letter of the same date, i.e. 9th October, 1957.
38. In the light of what we have said, we mat now deal with the four points which the Tribunal made in paragraph 18 of its order. First of all they said that there was neither a promisor nor a promise as defined in the Contract Act. We are quit unable to understand this statment. The promisor in the present case was the assessee in each case and the promises were Export with whom that contract to transfer shares was made in consideration of Export a freeing to supply 798 motor vehicles given a loan of $ 400,000 to the company. Secondly, the tribunal says 'There is no agreement between the three assessees and the Willys (Export) to do any-thing in particular'. We again fail to understand what is meant by such a remark. The agreement was to transfer the right shares to Export as indicated in the letter dated 9th October, 1957, and the consideration was that Export were to supply company with the states number of motor vehicles and to advance them a loan upon the terms stated. The third statement in paragraph 18 is a distinction which we have already dealt with, namely, that a company is a separate and distinct person from the three assessees who are the shareholder and that the agreement between the company and willys (Export) was not useful to the assessees for that reason. We have already pointed out that the assessees could well treat the benefit to be derived by the company under the agreement with Export and Willys we as a sufficient enough benefit to the assessees themselves. In substance it was a substantial enough benefit to the assessees, because they were vitally interested in the company and would be enable to get a higher return upon the shares which they held would be 'Consideration in, money's worth'.
39. Lastly, the Tribunal remarked : 'To come within the definition of consideration as laid down in the Contract Act, Willys ought to have done something or abstained from doing something at the desire of the three assessees. This is lacking in the present case...' Now, we have already shown the vital connection between the assessees and the company and how the benefit to the company was also a benefit to the assessees and a consideration which passed from Willys or Export to the company was as good as a consideration passed from Willys and Export to the assessees. In fact, it was the assessees who were running the business and were in a position to control it. The agreement and the letter written on the 9th October, 1957, are clearly interliked. The agreement and the letter are signed by one and the same person and must have been approved by the two assessees who are the directors. In these circumstances, it seems to us a very strange conclusion to draw that whatever Willys or Export did for the company, which is the consideration for the assessees, was not done 'at the desire of the three assessees' If the assessees had not desired it, the agreement could not have been entered into nor could the letter of the 9th October, 1957, have been written. The words moreover are not 'at the instance of' but 'at the desire of', and surely it cannot be said, having regard to the circumstances we have set forth, that the assessees did not desire all this although it was very much to their own profit. We are unable for these reasons to accept the reasoning of the Tribunal.
40. Apart from the above legal consideration, what is the true portion These transactions were between parties engaged in business with a foreign country. It is not suggested anywhere that there was any other motive or relationship between them, - secret or otherwise. Both the Willys and Export on the one hand, and the assessees and their company on the other were bent only on doing business to their mutual advantage and, in such circumstances, we are surprised to be total that each of the three assessees simply gave away Rs. 83,240 each to Willys and/or Export without any consideration. Businessmen do not give away such large sums of money for nothing without a quid pro quo. In the present case, the consideration for the assessees obviously was their good business relationship with Export and Willys and the fact that these parties had agreed to supply to their company motor vehicles worth well over million dollars and to give the company on easy terms a handsome loan of $ 400,000 dollars.
41. All this must be judged in the light of the well-known facts that in India at that time and even today, dollars were scarce and very difficult to obtain and the value of the rupee had gone down. The assessees were getting dollars or dollar equivalents by the contracts and giving only rupees in return. All this would in the ultimate analysis bring to the assessees personally large income or gains. The benefits to the company, therefore, could well be regarded by them as good consideration to themselves although initially the benefit was to the company. It seems to us that in construing commercial contracts of this kind the tax authorities and the Tribunal must have regard to normal business considerations, and look at the substance of commercial transactions rather than the particular form they assume in a given case. They must not assume that every large transaction is a good potential source of revenue and then proceed to determine how much tax can be gathered from it; otherwise they are bound to fall into error and also make business impossible.
42. In the result, therefore, the answer to the first question referred is in the negative. Since that is the answer to the first question, upon the terms of the second question no answer is necessary to it because the second question arises only 'if the answer to the first question is in the affirmative'. We are not, therefore, called upon to answer the second question. The commissioner will pay the costs of the assessees.