1982 (2) TMI 50 - HC - Income Tax

Summary

Issues:
1. Interpretation of Section 64(iii) of the Income Tax Act, 1961 regarding inclusion of income arising from indirect transfers of assets.
2. Determination of whether gifts made by individuals to their spouses constitute indirect transfers of assets under Section 64(iii) of the Income Tax Act, 1961.

Analysis:
The High Court of Bombay was tasked with addressing two questions under Section 256(1) of the Income Tax Act, 1961. The first issue involved the inclusion of income arising from assets indirectly transferred to the assessee's wife by the assessee himself. The second issue revolved around gifts made by individuals to their spouses and whether these gifts constituted indirect transfers of assets under Section 64(iii) of the Income Tax Act, 1961.

Regarding the second question, it was noted that the gifts made by the assessee and his brother to their respective wives were considered cross-gifts, and this fact was not disputed at any level of appeal. Consequently, it was established that the amount deposited by the assessee's wife in a partnership firm was an asset indirectly transferred to her by the assessee. Similarly, there was an indirect transfer of assets by the brother to his wife. The court relied on precedent, such as the case of Smt. Mohini Thapar v. CIT, to support the position that income derived by the wives from such indirect transfers should be assessed in the hands of the transferors.

Furthermore, the court referenced the decision in Bhaichand Jivraj Muchhala v. CIT, which held that interest paid by a firm on capital contributed by a lady partner, sourced from her husband, should be included in the husband's income. In light of these legal precedents and the undisputed nature of the cross-gifts in this case, the court concluded that both questions should be answered in the affirmative against the assessee. Consequently, the income arising from the indirect transfers of assets to the wives was deemed includible in the total income of the transferors. No costs were awarded considering the circumstances of the case.