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Interpretation of revocable transfers under the Income-tax Act, 1961 in light of gifts made under the Portuguese Civil Code. Analysis: The case involved a reference under section 256(1) of the Income-tax Act, 1961, regarding gifts made by a husband to his wife and whether they constituted revocable transfers under section 61 read with section 63 of the Act. The husband had gifted a sum of money and properties to his wife, which the Income-tax Officer initially included in the assessment of the body of individuals comprising the couple. The Appellate Assistant Commissioner accepted the contention that the wife had absolute possession and enjoyment of the gifted properties, directing the exclusion of the income from assessment. The Revenue appealed to the Income-tax Appellate Tribunal, arguing that the gifts were revocable under the Portuguese Civil Code, making the income includible under section 61 of the Income-tax Act in the hands of the husband. The Tribunal noted that under the Portuguese Civil Code, gifts between spouses could be freely revoked at any time, but held that this did not affect the applicability of section 61 of the Income-tax Act. The Tribunal concluded that gifts revocable under the Civil Code did not fall within the ambit of section 61. The Revenue contended that a gift revocable by operation of law should also be considered revocable under section 61 read with section 63 of the Act. Section 61 provides for the inclusion of income from revocable transfers in the transferor's total income, subject to certain exceptions under sections 62 and 63. The High Court analyzed the provisions of sections 61, 62, and 63 of the Income-tax Act, emphasizing that the term "revocable transfer" should be understood in the legal sense, with the scope expanded by the deeming provision in section 63. Referring to the Portuguese Civil Code, which allowed for the cancellation of gifts between spouses, the Court held that the gifts made by the husband were revocable gifts under section 61 of the Income-tax Act. The Court clarified that section 63 did not render gifts revocable by operation of law as irrevocable. Therefore, the Court answered the referred question in favor of the Revenue, upholding the inclusion of the gifted income in the husband's assessment. In conclusion, the judgment clarified the interpretation of revocable transfers under the Income-tax Act, 1961 concerning gifts made under the Portuguese Civil Code. It established that gifts revocable under the Civil Code could still be considered revocable transfers under section 61 of the Act, emphasizing the legal understanding of revocability and the scope of deeming provisions in determining tax liability for such transfers.
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