1997 (10) TMI 13 - HC - Income Tax

Summary

Issues:
1. Clubbing of income of husband and wife for assessment.
2. Application of section 9(2)(a)(iii) of the Tamil Nadu Agricultural Income-tax Act.
3. Burden of proof on Revenue in case of transfer of property.
4. Interpretation of ownership and income rights of husband and wife in agricultural holdings.

Analysis:
The High Court of MADRAS addressed the issue of clubbing the income of a husband and wife for assessment purposes. The Commissioner had revised the assessment order, directing that the income of the assessees should be clubbed and assessed in the hands of the husband. The assessees, a husband and wife, had separate holdings and had been assessed separately for many years. The Commissioner's decision was based on the application of section 9(2)(a)(iii) of the Tamil Nadu Agricultural Income-tax Act, which allows inclusion of a wife's income arising from assets transferred by the husband for inadequate consideration. However, in this case, there was no transfer of property from the husband to the wife, and the legal title vested in the wife from the beginning.

The Court emphasized that for section 9(2)(a)(iii) to apply, there must be a transfer by the husband to the wife for inadequate consideration. Since there was no such transfer in this case, the Commissioner's decision was found to be incorrect. The burden of proof was on the Revenue to establish the transfer, which they failed to do. The Court highlighted that the wife's right to own property and receive income is equal to that of the husband, and there is no presumption that properties owned by the wife are owned by the husband.

The Court also rejected the Revenue's argument that the wife needed to prove the source of her income from 15 years earlier. The Court clarified that the scope of inquiry under section 9(2)(a)(iii) is limited to cases of transfer by the husband for inadequate consideration and cannot question the wife's title acquired through purchase from a third party. The Court set aside the Commissioner's order, emphasizing that the wife's ownership and income rights were valid and not subject to clubbing with the husband's income for assessment purposes.

In conclusion, the Court allowed the revision petition, holding that the Commissioner's decision to club the income of the husband and wife was not supported by the provisions of the Tamil Nadu Agricultural Income-tax Act, as there was no transfer of property and the wife's ownership was legitimate.