1971 (4) TMI 19 - HC - Income Tax

Transfer of house by the assessee to his wife - Whether the income from the house can be included in assessee s total income - since transfer was for adequate consideration income from such asset is includible in assessee s total income

Summary

Issues Involved:
1. Ownership and Benami Nature of Property
2. Applicability of Section 27(i) of the Income-tax Act, 1961
3. Applicability of Section 64(iii) of the Income-tax Act, 1961
4. Interpretation of "Transfer" and "Income" under Section 64(iii)

Detailed Analysis:

1. Ownership and Benami Nature of Property
The primary issue was whether the property at Gariahat Road, ostensibly in the name of the assessee's wife, was actually owned by the assessee. The Income-tax Officer and the Appellate Assistant Commissioner held that the property was constructed out of the assessee's funds and that the wife was merely a benamidar. However, the Tribunal found no material to show that the assessee intended his wife not to be the owner and concluded that the allegation of benami was not proved.

2. Applicability of Section 27(i) of the Income-tax Act, 1961
Section 27(i) deems an individual to be the owner of house property transferred to a spouse otherwise than for adequate consideration. The Tribunal found that Section 27(i) did not apply as the property itself was not transferred by the assessee to his wife, but rather, funds were transferred for the purchase and construction of the property. The Tribunal concluded that the language of Section 27(i) was inapplicable to this case.

3. Applicability of Section 64(iii) of the Income-tax Act, 1961
Section 64(iii) includes in the total income of an individual any income arising directly or indirectly to the spouse from assets transferred otherwise than for adequate consideration. The Tribunal held that the income from the property was assessable in the hands of the assessee by reason of the fiction enacted in Section 64(iii). The Tribunal's finding was based on the fact that the funds for purchasing the land and constructing the house were provided by the assessee.

4. Interpretation of "Transfer" and "Income" under Section 64(iii)
The assessee's counsel argued that Section 64(iii) should be strictly construed and that no transfer of house property occurred within the meaning of Section 27(i). The Tribunal, however, interpreted that Section 64(iii) contemplated income arising indirectly from assets transferred directly by the assessee to his wife. The Tribunal concluded that the income from the property was liable to be included in the assessee's total income under Section 64(iii), irrespective of the applicability of Section 27(i).

Conclusion:
The High Court upheld the Tribunal's decision, affirming that the income from the property was assessable in the hands of the assessee under Section 64(iii) of the Income-tax Act, 1961. The court emphasized that the provisions of Section 64(iii) were broad enough to include income arising indirectly from assets transferred by the assessee to his wife. The answer to the referred question was in the affirmative and against the assessee.