Clubbing of income through a trust arrangement falls within section 64(iii) where transfers operate indirectly for a spouse's benefit.

Section 64(iii) of the Income-tax Act was held to apply to a trust-based, circuitous transfer made for the benefit of the assessee's spouse, because the words "directly or indirectly" were wide enough to catch an arranged device that routed income through another person. Once the transfer fell within the provision, the income arising from the transferred assets was required to be clubbed in the assessee's total income, as the facts showed no adequate consideration or basis to exclude the spouse-linked income. The court thus treated indirect transfers through a trust as within the anti-avoidance clubbing rule and answered the reference for the revenue.

---

---

Issues: (i) Whether section 64(iii) of the Income-tax Act, 1961 applied to income arising from assets transferred through a trust arrangement for the benefit of the assessee's spouse. (ii) Whether the entire income from the assets so transferred was includible in the assessee's total income under section 64(iii).

Issue (i): Whether section 64(iii) of the Income-tax Act, 1961 applied to income arising from assets transferred through a trust arrangement for the benefit of the assessee's spouse.

Analysis: The provision was treated as materially corresponding to the earlier anti-avoidance provision considered in prior case law. The Court held that the words "directly or indirectly" were wide enough to include a circuitous arrangement effected through a trust, especially where the assets of the assessee were deliberately turned, by a planned exchange of corresponding transfers, into assets of like value in the hands of another person from whom the income reached the spouse indirectly. The trust structure did not take the case outside the section.

Conclusion: Section 64(iii) applied to the trust-based arrangement and operated against the assessee.

Issue (ii): Whether the entire income from the assets so transferred was includible in the assessee's total income under section 64(iii).

Analysis: Once the transfer was held to fall within the language of section 64(iii), the income arising from the transferred assets was liable to be clubbed in the hands of the transferor to the extent that it arose directly or indirectly to the spouse from the transferred assets. The facts showed no adequate consideration and no factual basis to exclude the spouse-linked income from the clubbing provision.

Conclusion: The entire income from the transferred assets was includible in the assessee's total income and the conclusion was against the assessee.

Final Conclusion: The clubbing provision was held to cover indirect transfers made through a trust device, and the reference was answered in favour of the revenue.

Ratio Decidendi: A transfer made through a trust or similar circuitous arrangement falls within a clubbing provision using the expression "directly or indirectly" where the arrangement is part of a planned device by which income from transferred assets reaches the spouse without adequate consideration.

---