1984 (2) TMI 181 - AT - Income Tax

Summary

Issues:
1. Assessment of property income in the hands of the assessee.
2. Validity of considering part of the income as gift without consideration.
3. Interpretation of adequacy of consideration in transactions between relations.
4. Application of section 64 of the Income-tax Act, 1961.

Analysis:
1. The judgment pertains to the assessment year 1979-80 where the assessee, an employee of a charitable trust, purchased a property jointly with his wife. The dispute arose regarding the valuation of the half interest released by the assessee, with the ITO and AAC differing on the assessment. The ITO considered a portion of the income as gift without consideration, leading to the appeal by the revenue.

2. The revenue contended that the set off of meher amount should not have been allowed, raising a new argument that the meher debt was not promptly discharged. However, the Tribunal held that the new argument could not be entertained as the existing facts did not support it. The Tribunal also noted that the ITO's action was misconceived as the AAC's order was more favorable to the revenue.

3. The cross-objection by the assessee challenged the inclusion of any part of the property income in their hands, arguing that the consideration for the transfer was agreed upon by the parties and could not be altered by the ITO. The Tribunal cited legal precedents, including the Supreme Court and High Court decisions, to establish that bonafide transactions should not be affected by such alterations.

4. The Tribunal analyzed the concept of adequacy of consideration in transactions between relations, emphasizing that the consideration should be reasonable and valuable in the context of the transaction. It highlighted that the ITO's valuation based on market value alone was oversimplified and not supported by law. The Tribunal concluded that the stated consideration in the transaction was bonafide and adequate, thus rejecting the application of section 64 of the Income-tax Act in this case.

5. Ultimately, the Tribunal allowed the cross-objection, ruling in favor of the assessee, and dismissed the departmental appeal. The Tribunal did not consider additional alternative grounds raised in the cross-objection as it had already succeeded due to the adequacy of consideration in the transaction.