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Ashutosh Banik Vs. Commissioner of Income-tax, N.E. Region, Shillong. - Court Judgment

LegalCrystal Citation
Subject;Direct Taxation
CourtGuwahati High Court
Decided On
Case NumberIncome-tax Reference No. 22 of 1976
AppellantAshutosh Banik
RespondentCommissioner of Income-tax, N.E. Region, Shillong.
Prior history
K. N. SAIKIA J. - The statement of the case is : That the assessee is an individual. In making the assessment for the assessment year 1969-70, corresponding previous year being 1375 B.S., the ITO added a sum of Rs. 675 being the rent received for the house in holding No. 401. In his order the ITO had not given any reasons or materials for making that addition. The assessee appealed to the AAC and brought to his notice that the assessee was originally the owner of the house property in holding
Excerpt:
- - 401 which was gifted by him to his wife in the year 1954, and since then the income therefrom was being enjoyed by the wife to the complete exclusion of the assessee. 27 of the 1961 act cannot be retrospectively applied to the transfer, which the assessee made to his wife in the year 1954 since when the income therefrom had been enjoyed by his wife to his complete exclusion. it clearly aims at foiling an individuals attempt to avoid or reduce the incidence to tax by transferring his assets to him wife or minor child, or admitting his wife as a partner or admitting his minor child to the benefits of the partnership, in a firm in which such individual is a partner. 64(iii) will clearly apply as the property in holding no......appealed to the aac and brought to his notice that the assessee was originally the owner of the house property in holding no. 401 which was gifted by him to his wife in the year 1954, and since then the income therefrom was being enjoyed by the wife to the complete exclusion of the assessee. the assessee also claimed that that income had not been included in his total income in any of the preceding assessment years and, therefore, the ito was not justified in adding it to his income in the assessment year 1969-70, and that too without giving any reasons. the aac accepted his contention and held that the income from the house property in holding no. 401 should be excluded from the total income of the assessee.the revenue in appeal to the tribunal contended that according to s. 27 of.....
Judgment:

K. N. SAIKIA J. - The statement of the case is : That the assessee is an individual. In making the assessment for the assessment year 1969-70, corresponding previous year being 1375 B.S., the ITO added a sum of Rs. 675 being the rent received for the house in holding No. 401. In his order the ITO had not given any reasons or materials for making that addition. The assessee appealed to the AAC and brought to his notice that the assessee was originally the owner of the house property in holding No. 401 which was gifted by him to his wife in the year 1954, and since then the income therefrom was being enjoyed by the wife to the complete exclusion of the assessee. The assessee also claimed that that income had not been included in his total income in any of the preceding assessment years and, therefore, the ITO was not justified in adding it to his income in the assessment year 1969-70, and that too without giving any reasons. The AAC accepted his contention and held that the income from the house property in holding No. 401 should be excluded from the total income of the assessee.

The revenue in appeal to the Tribunal contended that according to s. 27 of the I.T. Act, 1961 (hereinafter "the 1961 Act"), an individual who transfers otherwise than for adequate consideration any house property to his spouse shall be deemed to be the owner of the house property so transferred and consequently the inclusion of the income from the property in the total income of the assessee was justified and should be restored. The assessee opposed this contention pleading that the provisions of s. 27 of the 1961 Act could not apply to the transaction of the assessee and it took place before the coming into force of the 1961 Act specially when there was no analogous section in the repealed Indian I.T. Act, 1922. The Tribunal, however, held that the provisions of s. 27 were application since the assessment related to the assessment year 1969-70, when that section was very much in the statute book.

The assessee applied on April 15, 1976, requiring the Tribunal to draw up a statement of the case and to refer the question set out in annex. "A" to the application to this court for adjudication. The revenue filed a reply. The Tribunal, however, being of the opinion that a substantial question of law arose out of the order of the Tribunal, has drawn up the above statement of the case, reframed the question and referred the same to this court as follows :

"Whether, on the facts and in the circumstances of the case and on a true interpretation of section 27 of the Income-tax Act, 1961, the assessee could be deemed to be the owner of the house property which was transferred to his spouse prior to the commencement of the Act ?"

Mr. S. K. Senapati, the learned counsel for the assessee, submits that s. 27 of the 1961 Act cannot be retrospectively applied to the transfer, which the assessee made to his wife in the year 1954 since when the income therefrom had been enjoyed by his wife to his complete exclusion. The assessee, according to counsel, cannot, therefore, be deemed to be the owner of the house property in holding No. 401 which was validly transferred prior to the commencement of the 1961 Act. The taxing statutes, counsel submits, unless expressly made retrospective by Legislature, are prospective and there is nothing to indicate that s. 27 of the 1961 Act is retrospective, and the question referred should, therefore, be answered in the negative.

Mr. G. K. Talukdar, the learned standing counsel for the revenue, demurs contending that the question as referred is merely academic as it does not arise from the appellate order of the Tribunal. The learned counsel points out the following observation of the Tribunal in para. 7 of its order :

"But here the assessees case from the assessment year 1962-63 comes within the provisions of section 64(iii) read with section 27 of the Act, the as such the view taken by the Appellate Assistant Commissioner in excluding income from holding No. 401 was not correct, and as such I reverse his findings in this regard."

From the above observation it appears that the decision of the Tribunal was based not entirely on s. 27 but on the provisions of s. 64(iii) read with s. 27. This aspect of s. 64(iii) having been omitted in the question referred, it cannot be said that it arises out of the order of the Tribunal. Mr. Talukdar, however, submits that under such circumstances the court may either refuse to answer the question as referred or may reframe the question as it arises from the order of the Tribunal.

Admittedly, the ITO in his assessment order did not give any reason for the inclusion of Rs. 675 as income of the assessee in respect of holding No. 401. The AAC also, without referring to any section of the 1961 Act, observed :

"As regards the other property being holding No. 401, it is the the case of counsel that the property was transferred to the wife of the appellant in 1954 and at no stage in the earlier year it has been held by the department that the income from the property would be taxable as income of the appellant. This year there is a change and without mentioning any reasons, the income from the said property has been included in the total income of the appellant. In this view the action of the ITO also cannot be upheld."

From the above observations it could not be definitely said that only s. 27 of the 1961 Act was applied. The Tribunal, however, holds that the case of the assessee comes within the provisions of s. 64(iii) read with s. 27 of the Act.

Considering the above facts, instead of refusing to answer the question as referred, we reframe the question as under :

"Whether, on the facts and in the circumstances of the case, and on a true interpretation of section 64(iii) read with section 27 of the Income-tax Act, 1961, the income from the house property in holding No. 401, which was gifted by the assessee to his wife in 1954, should be added to his income for the assessment year 1969-70 ?"

Section 16(3), cl. (iii) of the 1922 Act provided as follows :

"In computing the total income of any individual for the purpose of assessment, there shall be included -

(a) so much of the income of a wife or minor child of such individual as arises directly or indirectly - .......

(iii) from assets transferred directly or indirectly to the wife by the husband otherwise than for adequate consideration or in connection with an agreement to live apart."

Sub-section (3) was inserted by s. 2 of the Indian I.T. (Amend.) Act, 1937. This provision corresponds to s. 64(iii) of the 1961 Act, which at the relevant time provided :

"64. Income of individual to include income of spouse, minor child, etc. - In computing the total income of any individual, there shall be included all such income as arises directly or indirectly - .......

(iii) subject to the provisions of clause (i) of section 27, to the spouse of such individual from assets transferred directly or indirectly to the spouse by such individual otherwise than for adequate consideration or in connection with an agreement to live apart."

Section 27(i) provided :

"27. For the purposes of section 22 to 26 -

(i) an individual who transfers otherwise than for adequate consideration any house property to his or spouse, not being a transfer in connection with an agreement to live apart, or to a minor child not being a married daughter, shall be deemed to be the owner of the house property so transferred."

Section 27 remains the same since is introduction in the 1961 Act. There was no exactly corresponding provision in the 1922 Act. Section 9 of that Act did not contain any corresponding deeming provision.

Now, the question arises whether, while adding the income of the house property transferred prior to the 1961 Act, in this instant case in the year 1954, it can be said that s. 64(iii) and s. 27 of the 1961 Act are being given retrospective effect Mr. Senapatis main objection is that neither s. 27 nor s. 64 is retrospective and his wifes title by virtue of his transfer in 1954 having become absolute, the assessee cannot be deemed to be the owner of that property by virtue of s. 27, nor can the gift be deemed to be a transfer without adequate consideration for the purpose of s. 64(iii) or s. 27 of the 1961 Act.

A statute is retrospective when it takes away or impairs any vested right acquired under the existing laws, or creates a new obligation, or imposes a new duty, or attached a new disability in respect of transactions or considerations already past. But a statute is not retrospective because a part of the requisites for its action is drawn from time antecedent to its passing.

In the instant case the question of validity or ownership of the property transferred by the assessee is not in issue. The subject-matter of taxation is the income arising from the house property in holding No. 401 for the assessment year 1969-70. This income cannot be said to have arisen prior to its previous year. This income is the requisite for action in the assessment year 1969-70. The principle of inclusion of the income in the total income of the assessee is based on a past action of the assessee in respect of the source of the income, namely, holding, No. 401. As such, when the ITO includes its income of the previous year for the assessment year 1969-70, he cannot be said to be giving retrospective effect of the provisions of s. 64(iii) of the Act. No vested interest has thereby been taken away from the assessee or his spouse, to whom the property was transferred. This principle has been consistently followed by the courts.

In Maharajah of Pithapuram v. CIT [1945] 13 ITR 221, the Privy Council observed that the Indian I.T. Act, 1922, as amended from time to time, formed a code, which had no operative effect except in so far as it was rendered applicable for recovery of tax imposed for a particular fiscal year by a Finance Act. By virtue of the Finance Act, 1939, s. 16(1)(c) of the Indian I.T. Act as amended by the Indian I.T. (Amend.) Act, 1939, applied for the assessment year 1939-40, although the subject of charge was the income of the year 1938-39. For the assessment year 1939-40, the income derived from the assets comprised in four trust deeds transferred on April 5, 1933, were deemed to be the income of the assessee under s. 16(1)(c) of the Act as amended by the Amendment Act of 1939.

In R. Ganesan v. CIT : [1965]58ITR411(Mad) , it was observed that in s. 16(3) the law did not say that the income of the wife was to be deemed to be the income of the husband. What in effect it provided for was that an income received by the wife in certain circumstances should be taxed in the hands of the assessee.

"Section 16(3) sets out the mode of computation of the income of a person who has transferred certain assets to his wife, and in certain specified circumstances the income arising from the transferred asset is taxed in the hands of the husband himself." (p. 417).

In Philip John Plasket Thomas v. CIT : [1963]49ITR97(SC) , the Supreme Court observed (p. 101) :

"Sub-section (3) of section 16 of the Act was introduced in 1937. For the purpose of its application it is immaterial whether the partnership was formed before or after 1937, and whether the transfer was effected before or after that date. However, the sub-section deals only with income arising after its introduction. It clearly aims at foiling an individuals attempt to avoid or reduce the incidence to tax by transferring his assets to him wife or minor child, or admitting his wife as a partner or admitting his minor child to the benefits of the partnership, in a firm in which such individual is a partner."

In Raja Ajai Varma v. Assessing Authority : [1964]51ITR308(All) , the Allahabad High Court dealing with s. 4A of the U.P. Agrl. I.T. Act, which was similar to s. 16(3) of the 1922 Act, observed (p. 312) :

"On a plain reading of the section there is little or no scope for the contention that the income for the assessment year after the insertion of section 4A in 1953, from the assets transferred before 1953 by the assessee, would not stand to be included in the assessment of the transferor who otherwise satisfies the conditions of this section. This section, prima facie, has no concern with the date of the transfer of the assets but only with the income of the transferred assets in the relevant year of assessment. The section casts its net wide enough to embrace in its sweep income from assets which may have been transferred before the enactment of Act XIV of 1953."

From the above observations there is no doubt that there is no question of giving retrospective effect to s. 64(iii) or s. 27 in the instant case. There is also no need for questioning the title or ownership of the spouse. The sections only provide for a principle of computation and taxing the income in the hands of the transferor.

The next question is as to the effect of making s. 64(iii) subject to the provisions of cl. (i) of s. 27. Under that clause where an individual transfers otherwise than for adequate consideration any house property to his or her spouse, not being a transfer in connection with an agreement to live apart, the transferor is assessable as owner in respect of income from such house property. The words "subject to" occurring in s. 64(iii) merely gives priority to cl. (i) of s. 27 where it applied; but even where that clause does not apply, s. 64(iii) would independently operate in respect of acts not attracting s. 27(i).

In B. K. Guha v. CIT : [1972]84ITR592(Cal) , the assessees wife purchased a plot of land and constructed a house on it. Part of the purchase price of the land was given by the assessee to his wife. The assessee also gave money for construction of the house. The ITO included the income from the house property in the total income of the assessee under s. 64(iii). It was contended on behalf of the assessee that s. 27(i) would not apply to the case and that excluded the application of s. 64(iii) also. On a reference, the Calcutta High Court held that there had been a transfer of assets by the assessee to his wife otherwise than for adequate consideration and the income arising directly or indirectly from the asset was liable to be included in the total income of the assessee under s. 64(iii).

Thus, s. 64(iii) being made subject to s. 27(i) means that in a case to which s. 27(i) is not attracted, the provisions of s. 64(iii) would apply if the facts came within its purview. It does not mean that where s. 27(i) does not apply, s. 64(iii) also will not apply even if the facts come within its purview. Section 64(iii) and s. 27(i) both will apply in appropriate cases at the same time.

In the instant case both s. 27(i) and s. 64(iii) will clearly apply as the property in holding No. 401 was admittedly transferred by the assessee to his wife in 1954 without adequate consideration and not in connection with an agreement to live apart. The income from it will be taxed in the hands of the husband as under s. 27(i), the assessee will be deemed to be the owner of such property for the purpose of income-tax and so its income will be deemed to be his income for the assessment year 1969-70. Under s. 64(iii) the income will be included in the income of the assessee. In computing this income no retrospective effect is being given to s. 27(i) or to s. 64(iii). The question whether in fact he owned the income or not, or whether the transfer was valid or not, would be irrelevant. Section 27(i) and s. 64(iii) only provide for principles of computation and taxing in the hands of the transferor.

In the result, we answer the question in the affirmative. On a true interpretation of s. 64(iii) read with s. 27(i) of the 1961 Act, the income from the house property in holding No. 401, which was gifted by the assessee to his wife in 1954, should be added to the income of the assessee, for the assessment year 1969-70. We pass no order as to costs.

D. PATHAK, Actg. C.J. - I agree.


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