Clubbing provisions and full disclosure: disclosure of asset transfer was enough, and later spouse capital gains need not be separately stated.

Income arising to a spouse from assets transferred without adequate consideration is includible in the transferor's total income under the clubbing provisions, and capital gains are not excluded from "income" for that purpose. For reassessment under section 147(a), however, the decisive question is whether the assessee failed to disclose fully and truly all primary material facts necessary for assessment. Once the transfer of assets to the spouse was disclosed, the inference about any later capital gains was for the assessing authority to draw. Mere omission to state that the spouse subsequently realised capital gains did not amount to nondisclosure of material facts, so the reassessment notice was invalid.

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Issues: Whether the assessee was bound to disclose, in his own assessment, capital gains arising to his from assets transferred by him to her so as to justify reassessment under section 147(a) of the Income-tax Act, 1961.

Analysis: Income arising to a spouse from assets transferred by the assessee without adequate consideration is includible in the assessee's total income under the clubbing provisions, and capital gains are not excluded from the term "income" for that purpose. However, the obligation under the reassessment provisions is tied to the assessee's duty to disclose fully and truly all primary material facts necessary for assessment. Once the assessee has disclosed the transfer of assets to the spouse, the inference whether any further income, including capital gains, arose from those assets is for the assessing authority to draw. The mere omission to state that the spouse later realised capital gains does not amount to nondisclosure of material facts by the assessee.

Conclusion: The reassessment notice was not validly assumed, because there was no failure by the assessee to disclose fully and truly all material facts necessary for assessment.

Ratio Decidendi: An assessee is not required to disclose, as a separate material fact, income of a spouse that is merely includible in the assessee's hands by operation of the clubbing provisions, where the primary fact of transfer has already been disclosed.

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