Transferred spousal income and partitioned coparcenary property were not taxable as individual income.

Interest credited on money transferred by an assessee to his wife was not taxable in his hands merely because the transfer was to a spouse; the income arose from the transferred amount and, absent an independent basis for treating the money as still belonging to him, inclusion failed, leaving section 16(3) open for the Tribunal. Property received by a coparcener on partition of Hindu undivided family property retained its ancestral or coparcenary character in relation to his male issue and did not become separate property merely because he had no son at the time. The income from such property was therefore not assessable as his individual income.

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Issues: (i) Whether interest credited on the amount transferred by the assessee to his wife was includible in the assessee's taxable income. (ii) Whether properties received by the assessee on partition of Hindu undivided family property were his individual property or remained ancestral/coparcenary property assessable in his hands as individual income.

Issue (i): Whether interest credited on the amount transferred by the assessee to his wife was includible in the assessee's taxable income.

Analysis: The amount of Rs. 50,000 was held to have been transferred by the assessee to his wife, and the interest of Rs. 3,000 represented income arising on that transferred amount. In the absence of any finding sustaining inclusion on the independent footing that the amount still belonged to the assessee, the interest could not be treated as his income. The question of application of section 16(3) was not decided in the reference and was left open for the Tribunal.

Conclusion: The inclusion of Rs. 3,000 as the assessee's income was not valid, subject to any consideration of section 16(3) by the Tribunal.

Issue (ii): Whether properties received by the assessee on partition of Hindu undivided family property were his individual property or remained ancestral/coparcenary property assessable in his hands as individual income.

Analysis: Property obtained by a coparcener on partition of joint family property retains its character as ancestral/coparcenary property in relation to his male issue. The birth of a son does not change the character of the property from coparcenary property to self-acquired property. Accordingly, the share taken on partition was not the assessee's separate property merely because, at the time, he had no male issue.

Conclusion: The properties and the income therefrom were not liable to be assessed as the assessee's individual income.

Final Conclusion: The reference was answered in favour of the assessee on both substantive questions, and the impugned inclusion of income in his individual assessment failed.

Ratio Decidendi: Income arising from property validly transferred to another person cannot be assessed in the transferor's hands merely on the basis that the transferee is the transferor's spouse, and property obtained on partition of Hindu undivided family property continues as ancestral/coparcenary property in the hands of the coparcener.

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