Permanent lease as transfer of assets: wife's lease income was includible under the clubbing rule without adequate consideration.

A permanent mokarri lease that confers possession, enjoyment of usufruct, the right to realise income and profits, and power to sell or gift the land constitutes a transfer of assets in immovable property. On that basis, income arising to the wife from the Jharia Hat lease fell within section 16(3)(a)(iii) of the Indian Income-tax Act because the transfer was made without adequate consideration. The principle applied is that a lease creating an interest in land and a right in rem may amount to a transfer of capital asset interest, bringing the resulting income within the statutory clubbing provision.

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Issues: Whether the income arising to the wife from the mokarri lease of Jharia Hat was liable to be included in the assessee's income under section 16(3)(a)(iii) of the Indian Income-tax Act as a transfer of assets to the wife without adequate consideration.

Analysis: The settlement deed did not confer a mere right to collect rent. Its terms gave the transferee the right to possess and enjoy the usufruct of the demised premises, realise the income and profits from generation to generation, and sell or gift the lands. A lease of immovable property creates an interest in land and a right in rem, and therefore constitutes a transfer of assets within the meaning of section 16(3)(a)(iii). The reasoning was supported by the principle that a lease may amount to a transfer of capital asset interest, and the admitted absence of adequate consideration brought the transaction within the statutory provision.

Conclusion: The mokarri lease was a transfer of assets within section 16(3)(a)(iii), and the income from Jharia Hat was rightly included in the assessee's taxable income.

Ratio Decidendi: A permanent lease conferring transferable and inheritable rights in immovable property constitutes a transfer of assets for the purpose of section 16(3)(a)(iii) of the Indian Income-tax Act when made without adequate consideration.

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