1991 (8) TMI 149 - AT - Income Tax

Summary

Issues:
Interpretation of provisions of section 64(1)(v) of the Income Tax Act regarding taxability of income from gifts under Mohammedan Law.

Analysis:
The case involved appeals from the consolidated order of DC (Appeals) regarding the taxability of rental income from gifted properties under the provisions of section 64(1)(v) of the Income Tax Act for assessment years 1983-84, 1984-85, and 1985-86. The Revenue contended that the DC (Appeals) erred in holding that gifts in the form of 'Hiba' under Mohammedan Law did not attract the provisions of section 64(1)(v) of the IT Act, resulting in the deletion of rental income from the assessee's income. The assessee had gifted properties to his minor sons under Mohammedan Law for their education, and the Revenue argued that the income from these gifts should be taxable in the hands of the assessee.

The DC (Appeals) accepted the assessee's contention that under Mohammedan Law, gifts (Hibas) were valid and not subject to taxation under the Income Tax Act. The Departmental Representative argued that the provisions of section 64(1)(v) were not affected by Mohammedan Law and that the income from gifted properties should be taxable in the hands of the assessee. The Tribunal noted that Mohammedan Law deals with the validity of gifts, not their taxability, and that the income from such gifts is subject to the provisions of relevant tax laws.

The Tribunal clarified that gifts under Mohammedan Law involve a transfer of property and fall within the definition of 'Transfer' under section 2(47) of the Income Tax Act. Therefore, the income derived from the gifted properties should be included in the assessee's total income. The Tribunal rejected the argument that since the gifts were exempt under the Gift-tax Act, they should not be taxable under the Income Tax Act, emphasizing the different provisions of the two acts.

The Tribunal distinguished the case of CIT v. Motilal Ramswaroop, highlighting that the gifts in the present case were not void or voidable, and specific provisions in section 64(1)(v) mandated the inclusion of income from gifted properties in the assessee's total income. The Tribunal also discussed the Kerala and Madras cases, affirming that the income from the gifted properties should be taxable in the hands of the assessee. Consequently, the Tribunal allowed all three appeals and restored the orders of the ITO, holding the income from gifted properties as taxable in the hands of the assessee for all three years under consideration.