Court rules income from assets transfer without adequate consideration should be added to transferor, not transferee.

The court ruled in favor of the petitioner, holding that the Explanation to section 64 of the Income-tax Act, 1961, did not apply to the case. The court determined that income arising from assets transfer without adequate consideration should be added to the transferor, not the transferee, even if the latter's income is greater. The court quashed the order adding income from sources other than the partnership firm to the petitioner's income, allowing the Income-tax Officer to rectify the assessment order accordingly. The petitioner was awarded costs in the case.

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Issues:
1. Challenge against an order passed under section 154/155 of the Income-tax Act, 1961.
2. Assessment of income from partnership and other sources in the hands of the petitioner and her husband.
3. Interpretation of section 64 and its Explanation in the context of income inclusion based on assets transfer.
4. Application of the Explanation to section 64 in determining whose income should include the additional income arising from transferred assets.
5. Rectification of income arising from membership in a partnership firm.

Detailed Analysis:
1. The petitioner challenged an order passed under section 154/155 of the Income-tax Act, 1961, dated December 31, 1971. The order included income from various sources like interest on securities, property, partnership firm, Gauria Bazar, and royalty in the total income assessment of the petitioner.

2. The petitioner's income from the partnership firm was assessed in her hands, while income from other sources was assessed in her husband's hands. The Income-tax Officer sought to rectify the assessment order to include income previously assessed in the husband's hands into the petitioner's income based on the Explanation attached to section 64 of the Income-tax Act, 1961.

3. The court analyzed section 64 and its Explanation, which dictates the inclusion of income arising from assets transfer without adequate consideration. The Explanation clarifies that income addition should be made to the individual (husband or wife) whose total income is greater in cases of assets transfer. However, the Explanation does not apply to clauses (iii), (iv), and (v) of section 64, where income from transferred assets should be added to the transferor, not the transferee.

4. In the present case falling under clause (iii) of section 64, the court concluded that the Explanation does not apply. Therefore, the income arising from assets transferred without adequate consideration should be added to the transferor, not the transferee, even if the latter's income is greater. The court found the order erroneous in applying the Explanation to the petitioner's case.

5. The court allowed the petition in part, quashing the order pertaining to the addition of income from sources other than the partnership firm in the petitioner's income. The Income-tax Officer was permitted to amend the assessment order accordingly, rectifying the inclusion of income based on transferred assets. The petitioner was granted costs in the matter.

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