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Issues Involved:
1. Applicability of section 64(iii) of the Income-tax Act, 1961. 2. Inclusion of income from assets transferred by Amarendra Nath Chowdhury to Jatindra Nath Chowdhury in the income of Amarendra under section 64(iii) of the Income-tax Act, 1961. Issue-wise Detailed Analysis: 1. Applicability of section 64(iii) of the Income-tax Act, 1961: The court examined whether section 64(iii) of the Income-tax Act, 1961, applied to the facts of the case. The assessee had executed a deed of trust conveying certain assets to his brother, J. N. Chowdhury, who was directed to hold the same in trust for the benefit of his own wife and two daughters. On the same day, J. N. Chowdhury executed a similar trust in favor of the assessee's wife and major son. The Income Tax Officer (ITO) included the income arising from the assets transferred to J. N. Chowdhury in the income of the assessee under section 16(3)(b) of the Indian Income-tax Act, 1922, treating the transfer as made with a view to avoid taxation. The Appellate Assistant Commissioner (AAC) confirmed the assessment for the income benefiting the wife but excluded the income accruing to the major son. The Tribunal, however, held that section 16(3)(b) did not apply, and this decision was upheld by the court in CIT v. A. N. Chowdhury [1969] 71 ITR 326 (Cal). In the present reference, concerning the assessment year 1962-63, the ITO included Rs. 12,900 arising from the assets transferred to J. N. Chowdhury under section 64 of the Income-tax Act, 1961. The AAC confirmed this assessment under section 64(v). The Tribunal found that section 16(3)(b) of the 1922 Act and section 64(v) of the 1961 Act were identical, but section 64(iii) did apply to the facts. The Tribunal held that the income added to the assessee's income arose directly or indirectly from assets transferred to the wife of the assessee, following the Supreme Court decision in CIT v. C. M. Kothari [1963] 49 ITR 107 (SC). 2. Inclusion of income from assets transferred by Amarendra Nath Chowdhury to Jatindra Nath Chowdhury in the income of Amarendra under section 64(iii) of the Income-tax Act, 1961: The court analyzed whether the income from assets transferred by Amarendra Nath Chowdhury to Jatindra Nath Chowdhury should be included in Amarendra's income under section 64(iii). The relevant statutory provisions, including section 16(3) of the Indian Income-tax Act, 1922, and section 64 of the Income-tax Act, 1961, were considered. The court noted that the language of section 64(iii) of the 1961 Act was identical to section 16(3)(a)(iii) of the 1922 Act. The court referred to the Supreme Court decision in C. M. Kothari, which held that a chain of transfers, if not comprehended by the word "indirectly," would defeat the object of taxing the income of the wife in the hands of the husband. The Supreme Court emphasized that the section aimed to tax income arising to the wife from assets transferred by the husband, even if through a circuitous method. The court also referred to CIT v. Abhijit Sen [1968] 68 ITR 23 (Cal), where similar cross-transfers were held to attract section 16(3)(a)(iii). The court concluded that the facts were sufficient to hold that the income arose directly or indirectly to the spouse from assets transferred indirectly through a trust. No consideration was shown to have passed from the wife, nor was there an agreement to live apart. The words "directly or indirectly" in section 64(iii) were deemed wide enough to cover transfers through trusts. Judgment: The court answered both questions in the affirmative and in favor of the revenue, holding that section 64(iii) applied and the income from the assets transferred should be included in the assessee's income. The revenue succeeded in the reference, and there was no order as to costs.
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