1973 (2) TMI 4 - SC - Income Tax

Whether Tribunal was right in holding that the income u/s 16(3)(a)(iii) was to be included in the total income for the purpose of computing the net annual value of the residential house at 10% of the total income under the first proviso to section 9(2) - income of the house property should be included in the total income of the assessee - annual value of the assessee s residential house has to be computed at 10% of the total income to the assessee

Summary

Issues:
1. Validity of inclusion of income from house properties under section 16(3)(a)(iii) of the Indian Income-tax Act, 1922.
2. Interpretation of section 9(4)(a) in relation to the individual income of the holder of an impartible estate.
3. Determination of whether income from properties transferred to the wife of the holder of an impartible estate should be considered as the income of the assessee under section 16(3)(a)(iii).

Analysis:

The judgment dealt with appeals arising from a High Court decision regarding the inclusion of income from house properties in the total income of the assessee under section 16(3)(a)(iii) of the Indian Income-tax Act, 1922. The assessee, holder of an impartible estate, transferred properties to his wife, leading to a challenge on the grounds of constitutionality and individual income classification. The High Court addressed three questions, including the validity of the application of section 16(3)(a)(iii) to the transferred income.

The judgment analyzed the nature of an impartible estate, highlighting that income from such estates was not considered individual income under section 9 before an amendment. The court discussed the impact of the amendment, section 9(4)(a), deeming the holder of an impartible estate as the individual owner of the properties. This change meant that income from house property owned by the holder of an impartible estate would be considered individual income.

Regarding the interpretation of section 16(3)(a)(iii), the court rejected the contention that the legal fiction created by section 9(4)(a) was limited to section 9 only. It emphasized that the purpose of the legal fiction was to determine the taxable income of the assessee comprehensively across all sources, not restricted to a specific section.

The judgment further clarified that the transfer of assets to the wife, without adequate consideration, required the income to be considered as that of the assessee, except for specific circumstances outlined in section 16(3)(a)(iii). The court emphasized that the legal fiction should be given effect in determining the taxable income of the assessee, aligning with the legislative intent.

In conclusion, the Supreme Court allowed the appeals, vacated the High Court's decision on question 2, and ruled in favor of the revenue. The judgment affirmed the inclusion of income from transferred properties in the total income of the assessee, impacting the computation of the annual value of the assessee's residential house. The assessee was directed to bear the costs of the revenue in both courts.