Spousal transfer of house property did not stop clubbing of later rental income in the transferor's hands.

Income from house property gifted by an assessee to his wife before the commencement of the Income-tax Act, 1961 remained includible in the assessee's total income for assessment year 1969-70. The court treated section 64(iii), read with section 27(i), as a computation rule for current income and held that the relevant taxable event was receipt of income in the assessment year, not the earlier transfer date. Deemed ownership applied where house property was transferred to a spouse for no adequate consideration and not in connection with an agreement to live apart, so the prior gift did not prevent assessment of the later income in the transferor's hands.

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Issues: Whether income from house property gifted by the assessee to his wife before the commencement of the Income-tax Act, 1961 could be included in the assessee's total income for the assessment year 1969-70 under section 64(iii) read with section 27(i) of the Income-tax Act, 1961.

Analysis: The taxable event was the receipt of income in the relevant assessment year, not the antecedent transfer of the property. The provisions governing inclusion of income from assets transferred to a spouse operate as rules of computation and taxation of current income, and do not take away any vested right merely because the transfer occurred earlier. Section 64(iii), being subject to section 27(i), gives effect to deemed ownership in cases of transfer of house property to a spouse for no adequate consideration and not in connection with an agreement to live apart. On that basis, the earlier transfer did not prevent the assessment of the later income in the hands of the transferor.

Conclusion: The income from the house property was rightly includible in the assessee's income for the assessment year 1969-70.

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