2003 (4) TMI 40 - HC - Income Tax

Rental income transfer of assets - Tribunal was right in law in holding that the gift made by the assessee in favour of his three minor sons in the form of Hiba under the Mohammedan law attracts the provisions of section 64(1)(v) read with section 27(1) of the Income-tax Act, 1961, and, therefore, the rental income of the three minors from the properties gifted to them by the assessee was includible in the total income of the assessee for the three years under consideration

Summary

Issues:
1. Interpretation of provisions of section 64(1)(v) of the Income-tax Act, 1961 regarding taxation of gift made under Mohammedan law to minor sons.
2. Application of the definition of 'transfer' under section 2(47) of the Act in determining taxability of income from gifted property.
3. Comparison of provisions of section 64(1)(v) of the Income-tax Act with section 4(1)(vi) of the Wealth-tax Act, 1957.
4. Consideration of exemption under section 5(1)(xii) of the Gift-tax Act, 1958 in relation to taxation under the Income-tax Act.

Analysis:
1. The case involved a question regarding the taxation of rental income derived from properties gifted by the assessee to his minor sons under the Mohammedan law. The Tribunal held that such gifts fell under the purview of section 64(1)(v) of the Income-tax Act, making the rental income taxable in the hands of the assessee. The Tribunal emphasized that the transfer of property to minors without adequate consideration attracts tax liability under the Act.

2. The Tribunal analyzed the concept of 'Hiba' or gift under the Mohammedan law, defining it as an immediate transfer of property without exchange. The Tribunal referred to the definition of 'transfer' in section 2(47) of the Act to establish the taxability of income from gifted property. As the gifts made by the assessee to his minor sons involved a transfer of capital assets, the Tribunal concluded that the income derived from these gifts should be taxed in the hands of the assessee under section 64(1)(v).

3. The Tribunal addressed the argument drawing a parallel between section 64(1)(v) of the Income-tax Act and section 4(1)(vi) of the Wealth-tax Act, 1957. It dismissed the contention that income from gifted property should not be taxed based on the gift-tax exemption granted under the Wealth-tax Act. The Tribunal highlighted the absence of a similar provision in the Income-tax Act, emphasizing the tax liability under section 64(1)(v) for income arising from transfers to minor children without adequate consideration.

4. The Tribunal considered the exemption granted under section 5(1)(xii) of the Gift-tax Act, 1958 in a prior gift-tax case involving the assessee. However, the Tribunal clarified that such exemption did not apply to the current income tax case. The Tribunal underscored that the purpose of the gift, such as ensuring education for minors, did not exempt the income from taxation under the specific provisions of the Income-tax Act.

In conclusion, the High Court upheld the Tribunal's decision, affirming the taxability of rental income from gifted properties in the hands of the assessee under section 64(1)(v) of the Income-tax Act. The court emphasized the legislative intent behind the provision and rejected the assessee's argument regarding consideration for the transfer to minors. The judgment favored the Revenue, establishing the tax liability on the gifted property income.