2014 (12) TMI 463 - AT - Wealth-tax

Enhancement in net worth of Shah Rukh Khan-assessee - Addition on account of residential house and jewellery purchased by the wife Gauri Khan of the appellant from a loan given to her by the assessee - Transfer of asset - Escapement of assessment - Held that - Even as per the provisions of the Wealth tax Act, extending cash loan, to the wife, by the assessee does not come within the definition od asset , therefore, it can be said that there is no transfer of asset as has been alleged by the Department. - The case of the Revenue is that interest free loan was given to his wife by the assessee to enable her to acquire the aforesaid asset, and thus, in view of section 4(1)(a)(i) such assets have been transferred by the assessee. - We are not agreeing with the Assessing Officer because there is no transfer of asset by the assessee rather, an asset has been purchased in the form of a residential house after taking an interest free cash loan from the assessee. Thus, in our view, there is no transfer of asset by the assessee, as has been canvassed by the ld. DR and also held by the ld. Assessing Officer, as well as by the ld. Commissioner of Income tax (Appeals). The assessee was not the owner of the asset which was transferred to the wife, as argued by the ld. DR, rather out of the interest free loan, the wife of the assessee purchased/acquired new asset in her own name from the third parties, thus, in our view, there is no justification for adding the amount as no asset has been transferred. For application of section 64 (1)(iv) of the Income tax Act, it is imperative that an individual must have transferred the income yielding asset to his spouse. It is only then that in computing the total income of the individual the income arising from such asset can be included. Where an assessee has merely created a charge upon his half share in two properties in respect of his obligation to pay his wife an annual sum, section 64 (1)(iv) would not be attracted. - Following decision of CIT, Gujarat vs. Keshavlal Lallubhai Patel 1964 (11) TMI 9 - SUPREME Court - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of reassessment proceedings.
2. Addition of Rs. 2,28,88,530/- to the net wealth of the appellant, considering the residential house and jewelry purchased by the wife from a loan given by the appellant.

Detailed Analysis:

Validity of Reassessment Proceedings:
- Ground Not Pressed: The appellant's counsel did not press the issue regarding the validity of reassessment proceedings. Consequently, this ground was dismissed.

Addition of Rs. 2,28,88,530/- to the Net Wealth of the Appellant:
- Main Contention: The appellant challenged the addition of Rs. 2,28,88,530/- to his net wealth. This amount was related to a residential house and jewelry purchased by his wife using a loan given by the appellant.
- Arguments by the Appellant:
- The appellant argued that giving a loan to his wife does not constitute a "transfer of asset" as per Section 4(1)(a) of the Wealth Tax Act.
- Reliance was placed on judicial precedents from Karnataka High Court (200 ITR 50) and Calcutta High Court (158 ITR 215).
- The loan was duly recorded in the books of account, indicating no intention of tax avoidance.

- Arguments by the Respondent:
- The respondent argued that the transaction was an indirect transfer of assets and thus should be included in the appellant's net wealth.
- It was contended that the arrangement was made to bring the taxable income into a lower bracket.

- Tribunal's Findings:
- Facts: The appellant declared a net wealth of Rs. 2,75,28,460/- in his wealth tax return. The wife of the appellant purchased a residential house and jewelry using a loan of Rs. 2,28,88,530/- given by the appellant.
- Section 4(1)(a)(i) Analysis: The Tribunal analyzed Section 4(1)(a)(i) of the Wealth Tax Act, which includes assets transferred directly or indirectly to the spouse without adequate consideration. However, the Tribunal found that extending a cash loan does not fall under the definition of "transfer of asset."
- Definition of Asset: Section 2(ea) of the Wealth Tax Act defines "assets," and the Tribunal concluded that the cash loan given to the wife does not fit this definition.
- Income Tax Act Reference: The Tribunal also referred to Section 2(14) of the Income Tax Act, which defines "capital asset," and found no evidence of asset transfer in this case.
- Tax Avoidance: The Tribunal noted that the appellant paid substantial taxes (Rs. 10,25,00,000/- for A.Y. 2006-07), indicating no intention of tax avoidance through the loan arrangement.
- Legal Precedents: The Tribunal cited Supreme Court decisions (CIT vs. Keshav Lal Lallubhai Patel and CIT vs. N.K. Stremann) to support the view that there was no "transfer of asset."
- Loan vs. Transfer: The Tribunal emphasized the distinction between a loan and a transfer, noting that the appellant's wife repaid part of the loan, further supporting the argument that it was a genuine loan transaction.

- Conclusion: The Tribunal concluded that there was no "transfer of asset" as alleged by the Revenue. The order of the Commissioner of Income Tax (Appeals) was reversed, and the addition of Rs. 2,28,88,530/- to the appellant's net wealth was not justified.

Final Decision:
The appeal of the appellant was partly allowed, with the Tribunal ruling in favor of the appellant on the issue of the addition of Rs. 2,28,88,530/- to the net wealth. The order was pronounced on 10th December 2014.