1966 (8) TMI 17 - HC - Income Tax

Assessee was the holder of an impartible estate, and, by an indenture, granted to his wife two premises for life by way of supplementary khorposh (maintenance) grant - transfer cannot be taken as a transfer by the husband of his assets to his wife - provision u/s 16(3)(a)(iii) cannot, therefore, be attracted

Issues Involved:

1. Constitutionality of Section 16(3)(a)(iii) of the Indian Income-tax Act, 1922.
2. Applicability of Section 16(3)(a)(iii) to income from property transferred by the holder of an impartible estate to his wife for her maintenance.
3. Inclusion of income under Section 16(3)(a)(iii) for computing the net annual value of the residential house at 10% of the total income under the first proviso to Section 9(2).

Issue-wise Detailed Analysis:

1. Constitutionality of Section 16(3)(a)(iii):

The assessee challenged the constitutionality of Section 16(3)(a)(iii) of the Indian Income-tax Act, 1922, arguing that it was ultra vires Article 14 of the Constitution of India. However, the learned counsel for the assessee conceded that the provisions under Section 16(3)(a)(iii) are not ultra vires the Constitution. Consequently, the first question was answered in the negative and against the assessee, referencing the case of Balaji v. Income-tax Officer, Special Investigation Circle, Akola.

2. Applicability of Section 16(3)(a)(iii):

The second question addressed whether Section 16(3)(a)(iii) applied to the income arising from a property transferred by the holder of an impartible estate to his wife for her maintenance. Section 16(3)(a)(iii) stipulates that in computing the total income of any individual, the income of a wife or minor child from assets transferred by the husband, otherwise than for adequate consideration or in connection with an agreement to live apart, should be included in the husband's total income.

The court examined the nature of impartible estates, noting that such estates belong to the Hindu joint family, although the holder has unrestricted powers of enjoyment and disposal. The court cited the Judicial Committee's decision in Commissioner of Income-tax v. Dewan Bahadur Dewan Krishma Kishore, which held that the joint family is the owner of the property in an impartible estate, not the individual holder.

The court concluded that the transfer of the two house properties by the holder of the impartible estate to his wife could not be considered a transfer of his assets to his wife within the meaning of Section 16(3)(a)(iii). Therefore, this provision could not be applied to the income from the transferred properties. The court emphasized that the deeming provision under Section 16(3)(a)(iii) did not apply as the holder of the impartible estate was not the owner of the assets before the transfer. Consequently, the second question was answered in the negative and in favor of the assessee.

3. Inclusion of Income for Computing Net Annual Value:

The third question pertained to whether the income under Section 16(3)(a)(iii) should be included in the total income for computing the net annual value of the residential house at 10% of the total income under the first proviso to Section 9(2). Given the court's conclusion on the second question that Section 16(3)(a)(iii) did not apply to the income from the transferred properties, the third question did not need to be considered.

Conclusion:

The court disposed of the reference by answering the first question in the negative and against the assessee, the second question in the negative and in favor of the assessee, and deemed the third question unnecessary to consider. No order for costs was made against either party.

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