1980 (9) TMI 46 - HC - Income Tax

Summary

Issues Involved:
1. Applicability of Section 27 of the Income-tax Act, 1961.
2. Retrospective application of Section 27 and Section 64(iii) of the Income-tax Act, 1961.
3. Computation of income from house property transferred to spouse.

Detailed Analysis:

1. Applicability of Section 27 of the Income-tax Act, 1961:

The revenue contended that under Section 27 of the Income-tax Act, 1961, an individual who transfers any house property to their spouse without adequate consideration shall be deemed to be the owner of the house property so transferred. Consequently, the inclusion of the income from the property in the total income of the assessee was justified. The assessee opposed this contention, arguing that Section 27 could not apply to a transfer made before the commencement of the 1961 Act, especially since there was no analogous section in the repealed Indian Income-tax Act, 1922. The Tribunal held that the provisions of Section 27 were applicable since the assessment related to the year 1969-70 when that section was in force.

2. Retrospective application of Section 27 and Section 64(iii) of the Income-tax Act, 1961:

The assessee's counsel argued that Section 27 of the 1961 Act could not be retrospectively applied to the transfer made in 1954. The counsel emphasized that taxing statutes are prospective unless expressly made retrospective by the Legislature, and there was no indication that Section 27 was retrospective. The court, however, noted that a statute is not retrospective merely because it draws part of the requisites for its action from a time antecedent to its passing. The income in question arose in the assessment year 1969-70, and thus, applying Section 64(iii) and Section 27 did not constitute giving retrospective effect. The court cited several precedents, including Maharajah of Pithapuram v. CIT [1945] and Philip John Plasket Thomas v. CIT [1963], to support the principle that the law applies to the income of the relevant assessment year, regardless of when the transfer was made.

3. Computation of income from house property transferred to spouse:

The court reframed the question to consider the true interpretation of Section 64(iii) read with Section 27 of the 1961 Act. Section 16(3)(iii) of the 1922 Act and Section 64(iii) of the 1961 Act provided that income from assets transferred to a spouse without adequate consideration should be included in the transferor's total income. Section 27(i) of the 1961 Act deemed the transferor to be the owner of the house property transferred to the spouse, not for adequate consideration. The court concluded that both Section 27(i) and Section 64(iii) applied to the case, as the property was transferred without adequate consideration and not in connection with an agreement to live apart. The income from the property would be taxed in the hands of the husband, and no retrospective effect was given to the provisions. The court emphasized that these sections only provided principles of computation and taxing in the hands of the transferor, not questioning the validity or ownership of the spouse.

Conclusion:

The court answered the reframed question in the affirmative, holding that the income from the house property in holding No. 401, gifted by the assessee to his wife in 1954, should be added to the income of the assessee for the assessment year 1969-70. The court passed no order as to costs.