1971 (2) TMI 19 - HC - Income Tax

Transfer of estate by widow which she inherited from her husband - whether transfer was valid - validity of assessment made for interest earned from such transfer

Summary

Issues:
1. Validity of transfer or gift of amounts to daughters-in-law in March 1953.
2. Necessity of a fresh gift after the Hindu Succession Act in 1956 and its impact on entitlement to benefits.

Analysis:
The case involved the widow of a deceased partner who inherited a substantial amount from the partnership. In March 1953, she transferred a significant sum to each of her sons' wives and claimed no assessable income for the subsequent year. The Income-tax Officer assessed the wives for the interest income and disallowed the interest in the firm's hands. The Tribunal initially ruled in favor of the firm, stating that the widow retained interest in the money until her death, and the sons did not acquire any interest. Subsequently, the Income-tax Officer included the interest income in the widow's total income for multiple assessment years under section 34 of the Income-tax Act, 1922. However, the Appellate Assistant Commissioner overturned this decision, emphasizing that the transfers to daughters-in-law were valid and no interest was received by the widow on the transferred amounts.

The Tribunal, on appeal by the Income-tax Officer, held that the widow was not legally allowed to alienate inherited property without legal necessity or consent of reversioners. Additionally, the Tribunal stated that the Hindu Succession Act, 1956, could not validate the transfers and fresh transfers might be required post the Act's enactment. The Supreme Court's precedent clarified that alienations by widows, even if not binding on reversioners, pass the widow's interest to the alienee. The Tribunal's decision was deemed erroneous as the transfers to daughters-in-law were valid and binding on the widow, precluding the interest on transferred amounts from being considered her income.

Ultimately, the High Court answered the first question negatively, in favor of the assessee, indicating that the transfers to daughters-in-law were valid. Consequently, the second question regarding the necessity of a fresh gift post the Hindu Succession Act did not arise. The assessee was awarded costs, assessed at Rs. 200, with the counsel's fee set at the same amount.