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Issues Involved:
1. Whether there was any transfer directly or indirectly by the assessee to his wife within the meaning of section 64(1)(iv) of the Income-tax Act, 1961, when the assessee took out a policy of insurance under section 6 of the Married Women's Property Act, 1874. 2. Whether there was consideration for the said transfer within the meaning of section 64 of the Income-tax Act, 1961. 3. Whether the interest earned by the wife of the assessee on the amount received on maturity of the insurance policy taken by the assessee under the Married Women's Property Act, 1874, was includible in the income of the assessee under section 64 of the Income-tax Act, 1961. Issue-wise Detailed Analysis: Issue 1: Transfer of Asset The court examined whether the premium paid by the husband for the insurance policy under the Married Women's Property Act, 1874, constituted a transfer of assets to his wife. The Tribunal held that the premium payments were an indirect transfer of assets from the husband to the wife. The court agreed with this interpretation, stating that the amounts of premia paid by the husband should be considered as cash assets transferred to the wife. The court emphasized that the expression "directly or indirectly" used in section 64(1)(iv) of the Income-tax Act should be construed to fulfill the objective of taxing the income of the wife in the hands of the husband if it arises from assets transferred by the husband. Issue 2: Consideration for Transfer The court analyzed whether the transfer of assets (premium payments) was made for adequate consideration. It concluded that the premium payments were made without any consideration, fulfilling the condition under section 64(1)(iv). The court rejected the argument that the payments were merely discharging a contractual obligation, asserting that the transfer was indeed for the benefit of the wife and without any consideration. Issue 3: Inclusion of Interest Income The court considered whether the interest earned by the wife on the maturity value of the insurance policy should be included in the husband's income under section 64(1)(iv). The Tribunal had included this interest as income of the husband, and the court upheld this decision. The court reasoned that the interest income earned by the wife from the maturity value of the policy was indirectly arising from the cash assets (premium payments) transferred by the husband. The court relied on precedents, including the Supreme Court's decisions in CIT v. Keshavji Morarji and CIT v. Smt. Pelleti Sridevamma, which supported the inclusion of such income in the husband's taxable income. Conclusion: The court concluded that all three conditions under section 64(1)(iv) were satisfied: 1. There was a transfer of asset by the husband to the wife. 2. The transfer was made without adequate consideration. 3. The interest income earned by the wife arose indirectly from the transferred asset. Therefore, the interest income earned by the wife on the maturity value of the insurance policy was includible in the income of the husband under section 64(1)(iv) of the Income-tax Act, 1961. The court answered the common question in favor of the Revenue and against the assessee, disposing of the reference without any order as to costs.
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