TaxTMI 
TaxTMI 
1988 (4) TMI 12
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....ife, Muktar Begum, on March 5, 1973, for a purported consideration of Rs. 49,000. The Income-tax Officer proposed to include the annual letting value (ALV) of the above property in the assessment of the assessee, viz., the transferor, under section 64, inasmuch as the transferee was none other than the wife of the transferor. By a letter dated November 21, 1978, the assessee-husband objected to the above proposal and also stated that without prejudice to his above objection, he had made a gift of Rs. 10,000 to his wife in August 1967, that his wife had invested the above-said amount in the purchase of 82 MICO shares, that the above shares were sold by her in March 1973, for a sum of Rs. 36,516 and that even if section 64 were to be applied, only the proportionate annual letting value to the extent of Rs. 10,000 which was originally gifted by the assessee to his wife could be assessed and that it was not proper to include the entire annual letting value of the property. The Income-tax Officer passed orders on March 10, 1979, rejecting the contention of the assessee. These were contained in orders passed under section 143(3) for the assessment year 1976-77 and orders passed under sec....
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....000 is to be included and not the annual letting value relating to the remaining amount of Rs. 26,516. We may point out that so far as the balance amount of Rs. 12,484 is concerned, the decision of the Tribunal has not been challenged before us by either party. The question, therefore, is: Whether under section 64 of the Act, the annual letting value referable to the entire amount of Rs. 36,516 is to be included in the income of the assessee, viz., the husband, or whether, as held by the Tribunal, only the annual letting value relating to Rs. 10,000 supplied by the husband earlier to the wife should be included ? From the facts set out above, it is clear that the assessee-husband had given a cash gift of Rs. 10,000 to his wife in August 1967. This money was invested by the wife in the purchase of 82 MICO shares and these shares were ultimately sold by her in March 1973, for Rs. 36,516 and this sum became part of the consideration paid by her to her husband (the assessee), for sale of the house on March 5, 1973, by the husband in her favour. While the assessee-husband contends that the annual letting value in respect of the house proportionate to Rs. 10,000 out of Rs. 36,516, al....
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.... and again in sub-clause (iv). In other words, if the assessee has transferred assets directly or indirectly to the spouse, clause (iv) will be attracted and it does not also matter whether the income from such assets has arisen directly or indirectly to such spouse from such assets so transferred. We can visualise two types of cases of transfer by an assessee to the spouse. There may be cases where the immovable property belonging to the husband is gifted to the wife and she realises some income therefrom or realises money by selling it. Alternatively, the assessee might have gifted cash to his wife and she might have acquired immovable property with that money which would have furnished income in her favour or she might have later sold the immovable property and realised money. The question arises whether the income arising from the property so purchased or the money so realised by the sale thereof subsequently 'should by included in the income of the assessee. Such a question arose, in fact, in Mohini Thapar v. CIT [1972] 83 ITR 208 (SC). So far as the former type of cases is concerned, it is not in dispute before us that they will be cases of assets transferred directly by th....
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....ally gifted by the husband to the wife earlier. In our opinion, this contention must prevail. As in Mohini Thapar's case [1972] 83 ITR 208 (SC) above referred to, the case before us is also one of a cash gift of Rs. 10,000 in August 1967, which the wife invested in MICO shares and from which she realised Rs. 36,516 in March 1973, and the said sum was part of the consideration for the purchase of the house by her on March 5, 1973, from her husband. In our view, the gift of Rs. 10,000 was a direct gift by the husband-assessee in favour of his wife in August, 1967, and the said gift was substituted by the wife by the 82 MICO shares purchased by her and again substituted by the house property purchased by her on March 5, 1973. The annual letting value which arose from the said house property must be treated as an indirect income which accrued to the wife from the property transferred and the said amount is to be computed as the income of the husband. As in Mohini Thapar's case [1972] 83 ITR 208 (SC), there is a direct transfer of an asset by the assessee to his wife and an indirect income accruing to the wife from the said property which is to be assessed as the income of the transfer....
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....on the volition and consent of the partners of the firm and did not flow merely from any right exercisable by the minors. That was why the income accruing to the minors on admission to the benefits of the partnership was remote and had no proximate connection with the transfer of the cash by their father to them. The income accrued neither directly nor indirectly inasmuch as such accrual of income depended upon the volition, consent or discretion of the partners of the firm either to admit these minors to the benefits of the partnership or not. It is in that context that the test of proximate or remote connection was laid down by the Supreme Court in Prem Bhai's case [1970] 77 ITR 27. This is clear from the following observations in the said judgment (p. 30) : "The connection between the gifts mentioned earlier and the income in question is a remote one. The income of the minors arose as a result of their admission to the benefits of the partnership. It is true that they were admitted to the benefits of the partnership because of the contribution made by them. But there is no nexus between the transfer of the assets and the income in question. It cannot be said that that income ar....
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....ising out of the house property is an indirect income arising out of a direct transfer of an asset by the husband in favour of his wife, one asset being substituted by another asset by the wife from time to time. The income arising from the asset, in our opinion, has a proximate connection with the transfer as in Mohini Thapar's case [1972] 83 ITR 208 (SC). The accrual of income was not remote as in Prem Bhai's case 1970] 77 ITR 27 (SC). For the aforesaid reasons, we are of the view that the provisions of sub-clause (iv) of section 64(1) are clearly attracted to the facts of the case and the annual letting value attributable to the entire Rs. 36,5-16 is to be included in the income of the assessee-husband. Learned counsel for the assessee, Sri. Y. Ratnakar, has, however, placed reliance on another decision CIT v. Pelleti Sridevamma [1976] 105 ITR 887, rendered by a Division Bench of this court, already referred to. In that case, the assessee made a cash gift of Rs. 90,000 in the financial year 1956-57 to her minor son. This amount was utilised for purchasing house property on behalf of the minor which was used by the assessee for the purpose of her business. After expiry of 8 year....