Deeming provision in income tax law cannot extend to joint family property transferred from an impartible estate

Section 16(3)(a)(iii) of the Indian Income-tax Act, 1922 was treated as a valid deeming provision, but its scope was confined to income arising from assets transferred by the husband from his own property to his wife otherwise than for adequate consideration. The article explains that property forming part of an impartible estate retains the character of joint family property, so the holder's powers of possession, enjoyment, and alienation do not make it his individual asset for all purposes. On that basis, income from house properties transferred to a wife for maintenance was not taxable in the husband's hands under that provision.

---

---

Issues: (i) Whether section 16(3)(a)(iii) of the Indian Income-tax Act, 1922, was ultra vires Article 14 of the Constitution of India; (ii) Whether section 16(3)(a)(iii) applied to income from house property transferred by the holder of an impartible estate to his wife for maintenance.

Issue (i): Whether section 16(3)(a)(iii) of the Indian Income-tax Act, 1922, was ultra vires Article 14 of the Constitution of India.

Analysis: The constitutional challenge was not pursued, as the assessee conceded the validity of the provision. The question therefore required no further adjudication on merits beyond recording that no sustainable challenge survived.

Conclusion: The provision was held not to be ultra vires Article 14, and the issue was answered against the assessee.

Issue (ii): Whether section 16(3)(a)(iii) applied to income from house property transferred by the holder of an impartible estate to his wife for maintenance.

Analysis: Section 16(3)(a)(iii) operates as a deeming provision and brings within the husband's assessable income income arising from assets transferred by him to his wife otherwise than for adequate consideration. Its application presupposes that the transferred assets are the husband's assets. An impartible estate, however, retains its character as joint family property, although the holder enjoys wide powers of possession, enjoyment, and disposal. The holder's power of management or alienation does not convert the joint family property into his individual property for all purposes. The transfer of two house properties comprised in the impartible estate to the wife, therefore, was not a transfer by the husband of his own assets within the meaning of section 16(3)(a)(iii). The later provisions of the Income-tax Act, 1961, showed that a specific deeming regime was subsequently enacted for such house property transfers, which was absent in the old Act.

Conclusion: Section 16(3)(a)(iii) did not apply, and the issue was answered in favour of the assessee.

Final Conclusion: The reference was answered partly against the assessee on the constitutional point and in his favour on the applicability of section 16(3)(a)(iii); the tax authority's attempt to include the impugned house-property income failed.

Ratio Decidendi: A deeming provision in a taxing statute cannot be extended beyond its clear terms, and income from property transferred by a holder of an impartible estate to his wife is not taxable in the husband's hands under section 16(3)(a)(iii) unless the transferred property is shown to be his individual asset.

---