1971 (3) TMI 27 - HC - Income Tax

Transfer of property to wife and after ten years to minor sons - Whether in accordance with the provisions of section 16(3)(a)(iv) the income from the property can be properly included in the computation of the assessee s total income of the previous years

Issues Involved:
1. Inclusion of sums under Section 16(3)(a)(iv) of the Indian Income-tax Act, 1922.
2. Inclusion of sums under Section 16(3)(a)(iii) of the Indian Income-tax Act, 1922.

Detailed Analysis:

Issue 1: Inclusion of Sums under Section 16(3)(a)(iv)

The primary question was whether the sums of Rs. 13,918 and Rs. 14,586 could be included in the assessee's total income for the assessment years 1958-59 and 1959-60, respectively, under the provisions of Section 16(3)(a)(iv) of the Indian Income-tax Act, 1922. The assessee had gifted four properties to his wife in 1947, who later gifted two of these properties to their six sons in 1957. The Income-tax Officer included the income from these properties in the assessee's income, asserting that the assets were indirectly transferred to the minor sons by the assessee without adequate consideration.

The Appellate Assistant Commissioner reversed this decision, stating that the transfer by the wife in 1957 was not an indirect transfer by the husband. However, the Tribunal reversed this decision, emphasizing the words "transferred directly or indirectly" and concluded that the transfer by the wife to the sons was indirectly a transfer by the father.

The court examined the necessity of establishing a causal connection between the two transfers to attribute the income to the father. Citing precedents, the court held that there must be an interconnection showing an intention to transfer by the father to the minor children from the inception. The court found no evidence of such a connection in this case, noting the ten-year gap between the two transfers and the genuine ownership and management of the properties by the wife during this period.

The court concluded that the Tribunal erred in its judgment by not considering the lapse of time and the genuineness of the transfers as relevant factors. Therefore, the answer to the first question was in the negative, meaning the sums could not be included in the assessee's income under Section 16(3)(a)(iv).

Issue 2: Inclusion of Sums under Section 16(3)(a)(iii)

The second question was whether the sums could be included in the assessee's total income under Section 16(3)(a)(iii). This section pertains to income arising from assets transferred directly or indirectly to the wife by the husband. The argument was that the opening words of Section 16(3)(a) refer to the income of a wife or minor child, implying that clauses (i) to (iv) would apply to both categories.

The court clarified that Section 16(3)(a) contemplates separate provisions for the wife and minor child. Sub-clauses (i) and (iii) deal with the wife, while sub-clauses (ii) and (iv) deal with the minor child. Each clause applies exclusively to its respective category. This interpretation was supported by the Supreme Court's decision in Commissioner of Income-tax v. Sodra Devi, which stated that sub-clauses (i) and (iii) refer to the wife, and sub-clauses (ii) and (iv) refer to the minor child.

Therefore, the court agreed with the Tribunal's finding that Section 16(3)(a)(iii) could not be applied to the minor child's income. The answer to the second question was also in the negative.

Conclusion:
Both questions were answered in the negative, meaning the sums could not be included in the assessee's total income under Sections 16(3)(a)(iv) and 16(3)(a)(iii). The Commissioner was ordered to pay the costs of the assessee.

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