1971 (6) TMI 6 - HC - Income Tax

Transfer of property by husband to wife for adequate consideration - whether the income from the property can be included in husband s hand under section 64(iii) of the Income-tax Act, 1961

Summary

Issues:
1. Inclusion of income in the assessee's total income under section 64(iii) of the Income-tax Act, 1961 for the assessment year 1965-66.

Detailed Analysis:
The case involved a question of law under section 256(1) of the Income-tax Act, 1961, regarding the inclusion of a sum of Rs. 4,934 in the assessee's income for the assessment year 1965-66 under section 64(iii) of the Act. The assessee transferred assets to his wife, who then invested in a cloth business, resulting in income. The Income-tax Officer included this income in the assessee's total income under section 64(iii), which was upheld in first appeal. The Tribunal ruled that even though the transfer was for obtaining consent for adoption, it was without adequate consideration, thus upholding the inclusion of the income in the assessee's total income.

The main contention by the assessee was that the assets were transferred for adequate consideration and that the income did not directly or indirectly arise from the transferred assets. The department argued that the assets were transferred without adequate consideration as the spiritual benefit obtained from the wife's consent for adoption was not measurable in monetary terms. The department distinguished a previous Supreme Court case where income did not directly arise from the transferred assets, unlike in the present case where the wife's income was directly linked to the transferred assets.

The court analyzed the provisions of section 64(iii) of the Act, which require assets to be transferred without adequate consideration for the income to be included in the husband's total income. The court referred to a Supreme Court case to distinguish the present case, where the wife's income was directly linked to the transferred assets. The court also discussed the concept of "adequate consideration" in legal terms, emphasizing that it must be measurable in monetary value. The court cited previous cases to support the view that natural love and affection, or spiritual benefits, do not constitute adequate consideration under tax laws.

Ultimately, the court held that the assets were transferred without adequate consideration, and the income earned by the wife was directly linked to the transferred assets, leading to the inclusion of the income in the assessee's total income under section 64(iii) of the Act. The court answered the question in the affirmative, ruling against the assessee and ordering them to pay the costs of the reference to the Commissioner of Income-tax.