Transfer for inadequate consideration: income from property purchased with gifted funds taxed to transferor under attribution rule.

Section 16(3)(a)(iii) applies where funds gifted to a spouse constituted the major part of the consideration for acquiring property; the transfer is treated as for inadequate consideration and attracts attribution. Because the transferred Rs. 45,000 formed the principal part of the purchase consideration and was not shown to be adequate consideration, income of Rs. 2,044 from the house property is attributable to and taxable in the transferor's hands despite subsequent conversion of the funds into the property.

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Issues: (i) Whether the provisions of section 16(3)(a)(iii) apply to the transfer of Rs. 45,000 to the wife; (ii) Whether the income of Rs. 2,044 from the house property is taxable in the assessee's hands.

Issue (i): Whether section 16(3)(a)(iii) applies to the facts, i.e., whether the transfer of Rs. 45,000 to the wife was a gift and not for adequate consideration such that the provision attracts.

Analysis: The Tribunal rejected the Town Kazi's statement for lack of personal knowledge and accepted the assessee's own statement that Rs. 45,000 was transferred to the wife as a gift. The Tribunal found on facts that the transfer was not shown to be for adequate consideration and that the sum formed the major part of the consideration for the wife's purchase of the house. The fact that the transferred sum was later converted into a different form of asset does not prevent the application of the provision governing transfers for inadequate consideration.

Conclusion: Section 16(3)(a)(iii) applies to the transfer; the transfer is held to be a gift not supported by adequate consideration, attracting the provision against the assessee.

Issue (ii): Whether the income of Rs. 2,044 from the house property is taxable in the assessee's hands as a consequence of the finding under Issue (i).

Analysis: Given that the transfer of Rs. 45,000 to the wife is held to be a gift and not for adequate consideration and that the transferred funds formed the major part of the consideration for the acquisition of the house, the income arising from that property is attributable to the transferor under the provision addressing such transfers.

Conclusion: The income of Rs. 2,044 from the house property is taxable in the assessee's hands.

Final Conclusion: Both referred questions are answered against the assessee and the income from the house property is held attributable to and taxable in the assessee's hands.

Ratio Decidendi: A gift of funds to a spouse used as the major part of consideration for acquisition of property attracts the provision governing transfers for inadequate consideration, and subsequent conversion of the transferred funds into another asset does not prevent attribution of income to the transferor.

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