2004 (11) TMI 68 - HC - Income Tax

Transfer of asset - 1. Whetherthe Tribunal is right in holding that the gifts of Rs. 10,000 made on March 29, 1980 to Smt. Chander Kala and of Rs. 15,000 to Smt. Tara Devi on March 3,1981, were a part of the same transaction and a device to bypass the provisions of section 64(1)(vi)? 2. Whether, Tribunal is right in holding that the share income of Smt. Chander Kala (Smt. Tara Devi) from the firm M/s. Verma Brothers Toka Store, is includible in the income of Shri Om Dutt (Smt. Sushila Devi) under the provisions of section 64(1)(vi)? - Held that the transfers made by Smt. Sushila Devi in favour of Smt. Chander Kala and by Shri Om Dutt in favour of Smt. Tara Devi were part of the same transaction and a device to by-pass the provisions of section 64(1)(vi) and the Assessing Officer did not commit any illegality by declaring that the same was includible in the income of Shri Om Dutt and Smt. Sushila Devi.- Tribunal rightly reversed the order passed by the Appellate Assistant Commissioner and restored the one passed by the Assessing Officer.

Summary

Issues:
1. Whether the gifts made to family members were part of the same transaction to bypass tax provisions?
2. Whether the share income of family members from a firm should be included in the income of the original family members under tax laws?

Issue 1:
The case involved gifts of Rs. 10,000 and Rs. 15,000 made by family members to each other, which were deemed as a device to bypass tax laws. The Tribunal concluded that these gifts were interconnected and part of a scheme to make the donees partners in a firm, thus applying section 64(1)(vi) of the Income-tax Act. The court referred to past judgments emphasizing that interconnected transfers aiming to avoid tax implications fall within the purview of the law. The court upheld the Tribunal's decision, stating that the transfers were part of the same transaction to evade tax provisions.

Issue 2:
The second issue revolved around whether the share income of family members from a firm should be included in the income of the original family members. The Tribunal found that the gifts were part of a well-planned affair to indirectly transfer assets through cross-gifts. Applying section 64(1)(vi) of the Act, the Tribunal held that the share income from the firm should be clubbed in the income of the respective father-in-law and mother-in-law. The court, after considering past judgments and the findings of the Assessing Officer and Tribunal, upheld the decision that the share income should be included in the income of the original family members. Consequently, the court ruled in favor of the Revenue and against the assessees, affirming the Tribunal's decision.

This detailed analysis of the judgment highlights the issues, the arguments presented, the application of relevant tax laws, and the court's final ruling based on legal precedents and factual findings.