2001 (5) TMI 38 - HC - Wealth-tax

Issues Involved:
1. Inclusion of income of spouse and minor child in the individual's income under section 64 of the Income-tax Act, 1961.
2. Inclusion of certain assets in the net wealth of an individual under section 4 of the Wealth-tax Act, 1957.

Issue-wise Detailed Analysis:

1. Inclusion of Income of Spouse and Minor Child under Section 64 of the Income-tax Act, 1961:
The core issue revolves around whether the income derived from the converted property, which was initially the separate property of an individual but later thrown into the common stock of a Hindu Undivided Family (HUF), should be included in the individual's income. The Tribunal had ruled that the income from shares received by the assessee on partition of the larger HUF should be considered as the income of the smaller HUF, not the individual. The Revenue argued that section 64(2)(b) applies, which presupposes a partition and includes the income derived from the converted property in the individual's income.

The court analyzed the scope and ambit of section 64(2) as amended in 1975, 1979, and 1980. It clarified that:
- Clause (a) relates to the conversion of individual property into family property.
- Clause (b) states that income from the converted property should be considered the individual's income.
- Clause (c) applies when the converted property is partitioned, and income derived by the spouse or minor child from such property should be included in their income, not the individual's.

The court emphasized that for clause (c) to apply, there must be:
1. Converted property.
2. Partition of this property.
3. Income derived by the spouse or minor child from the partitioned property.

If these conditions are not met, section 64(2)(c) does not apply. The Tribunal did not correctly assess these conditions, necessitating a rehearing.

2. Inclusion of Certain Assets in Net Wealth under Section 4 of the Wealth-tax Act, 1957:
The issue here is whether the value of shares received by the assessee on partition of the larger HUF should be included in his wealth or that of the smaller HUF. The Tribunal had ruled in favor of the smaller HUF, but the Revenue contested this, arguing that section 4(1A) of the Wealth-tax Act should apply.

The court examined section 4(1A) as amended in 1971, 1975, and 1980. It clarified that:
- Clause (a) deems the converted property as transferred to the family members.
- Clause (b) considers the converted property as assets belonging to the individual.
- Clause (c) applies when the converted property is partitioned, and the assets received by the spouse or minor child should be included in their wealth, not the individual's.

The court reiterated that for section 4(1A)(c) to apply, the same conditions as in section 64(2)(c) must be met:
1. Converted property.
2. Partition of this property.
3. Assets received by the spouse or minor child from the partitioned property.

The Tribunal failed to consider these conditions adequately. Therefore, the matter requires reassessment by the Tribunal, keeping the legal positions in view.

Conclusion:
The court concluded that the Tribunal did not correctly evaluate the factual and legal aspects concerning the inclusion of income and assets under the relevant sections of the Income-tax Act and Wealth-tax Act. The Tribunal is directed to rehear the appeals, considering the legal interpretations provided by the court. The references are disposed of accordingly.

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