1995 (3) TMI 77 - HC - Income Tax

Summary

Issues Involved:
1. Deletion of capital gain arising from the sale of property by the assessee's wife included in the assessment of the assessee under section 64 of the Income-tax Act.
2. Determination of capital gains and exemption under section 53 in the hands of the donee (wife) and its inclusion in the assessee's (husband's) assessment under section 64(1)(iv) of the Income-tax Act.

Issue-wise Detailed Analysis:

1. Deletion of Capital Gain:
The primary issue was whether the Appellate Tribunal was correct in deleting the sum of Rs. 15,000, which was the capital gain arising from the sale of property by the assessee's wife, included in the assessment of the assessee under section 64 of the Income-tax Act. The Tribunal found that the capital gains accrued to the donee (wife), who was the owner of the property. It determined that the quantum of capital gains and any exemption should be assessed in the hands of the donee under the relevant provisions, including section 53. Since the sale value of the property owned by the wife was less than Rs. 25,000, it concluded that the capital gain could not be included in the assessee's assessment.

2. Determination of Capital Gains and Exemption:
The second issue was whether the Tribunal was correct in its view that the quantum of capital gains and exemption under section 53 should first be determined in the hands of the donee (wife) and only such capital gains chargeable in the hands of the donee should be clubbed in the hands of the assessee (husband) under section 64(1)(iv). The Tribunal relied on the decision in R. Ganesan v. CIT, which dealt with the inclusion of income from house property transferred to a spouse. However, the court found that the Tribunal misread the judgment and that the provisions of the 1961 Act, particularly sections 22 to 27, 45, 53, and 64, were not adequately considered.

The court explained that section 64(1)(iv) of the Act is designed to prevent tax evasion by including income from assets transferred to a spouse in the transferor's income. The court noted that section 53 provides an exemption for capital gains if the aggregate value of the consideration does not exceed Rs. 25,000, but this exemption does not apply if the aggregate fair market value of all capital assets owned by the assessee exceeds Rs. 50,000. The court emphasized that section 27 deems the transferor as the owner of the property for tax purposes, even if the property is transferred to the spouse without adequate consideration.

The court concluded that the quantum of capital gain and exemption should be determined for the donor/transferor under the relevant provisions, including section 53, if the property was transferred to the spouse and was chargeable under the head "Income from house property." This approach aligns with section 45 read with sections 53 and 64(1)(iv) of the Act.

Conclusion:
Both questions were answered against the assessee and in favor of the Revenue, emphasizing that the capital gains and exemptions must be assessed in the hands of the donor/transferor (husband) when the property is transferred to the spouse. The Tribunal's decision to delete the capital gain from the assessee's assessment was overturned, and the court clarified the proper interpretation of the relevant provisions to prevent tax evasion. There was no order as to costs.