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Addl. Commissioner of Income-tax Vs. H.L. Gulati - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAllahabad High Court
Decided On
Case NumberIncome-tax Reference No. 863 of 1975
Judge
Reported in(1983)32CTR(All)219; [1982]138ITR648(All); [1982]11TAXMAN167(All)
ActsIncome Tax Act, 1961 - Sections 23(2) and 64
AppellantAddl. Commissioner of Income-tax
RespondentH.L. Gulati
Appellant AdvocateM. Katju, Adv.
Respondent AdvocateR.K. Gulati, Adv.
Excerpt:
- .....the tribunal accepted the claim of the assessee regarding the giving of a loan of rs 61,000 to his wife. the tribunal held that the proportionate income from the house which was to be assessed in the hands of the assessee will have to be re-worked. it was also held that in case there was no other income of the wife, the income derived from the house would, in view of the provisions of section 23(2) of the act, be nil and that nothing could on that account be added to the assessee's income. the contention raised on behalf of the commissioner of income-tax that the provisions of section 23(2) were not applicable was rejected. 3. an application under section 256(1) of the i.t. act was thereafter filed by the additional commissioner of income-tax, lucknow, requiring the tribunal to refer the.....
Judgment:

V.K. Khanna, J.

1. This reference relates to the assessment year 1969-70. Smt. Kamlesh Gulati constructed a house at a cost of Rs. 1,40,000. There is no dispute now that Rs. 50,000 had been gifted to her by the assessee and another sum of Rs. 61,000 had been advanced by the assessee to her as a loan. The ITO did not accept the theory of giving of the loan of Rs. 61,000 to the assessee's wife and held that in view of the provisions of Section 64(iii) of the I.T. Act, the income from the house was liable to be assessed in the hands of the assessee. Accordingly, a sum of Rs. 3,500 was added to the assessee's income in the assessment year 1969-70 on this score. It may be mentioned that the aforesaid amount was arrived at by applying the provisions of Section 23(2) of the I.T. Act, as it was held that the house was being used by the assessee for his own residence. On appeal by the assessee, the AAC, Lucknow, held that the ITO was justified in rejecting the claim of the assessee regarding the giving of the loan amounting to Rs. 61,000 to his wife. As the assessee had given only Rs. 1,11,000 out of the total cost of the house amounting to Rs. 1,40,000, the AAC held that only 4/5ths, income from the house could be assessed in the hands of the assessee.

2. The matter was then taken up in appeal by the assessee before the Income-tax Appellate Tribunal. The Tribunal accepted the claim of the assessee regarding the giving of a loan of Rs 61,000 to his wife. The Tribunal held that the proportionate income from the house which was to be assessed in the hands of the assessee will have to be re-worked. It was also held that in case there was no other income of the wife, the income derived from the house would, in view of the provisions of Section 23(2) of the Act, be nil and that nothing could on that account be added to the assessee's income. The contention raised on behalf of the Commissioner of Income-tax that the provisions of Section 23(2) were not applicable was rejected.

3. An application under Section 256(1) of the I.T. Act was thereafter filed by the Additional Commissioner of Income-tax, Lucknow, requiring the Tribunal to refer the following questions of law, which, in his opinion, arose out of the order of the Tribunal :

' (i) Whether, on the facts and in the circumstances of the case, was the Tribunal legally correct in admitting fresh grounds regarding the applicability of Section 23(2) for computing income in the hands of the assessee's wife

(ii) Whether, on the facts and in the circumstances of the case, was the Tribunal legally correct in holding that for applying the provisions of Section 64(iii) the provisions of Section 23(2) of the I.T. Act, 1961, are applicable, and that if the lady had no other source of income then nothing could be added under Section 64(iii) of the I.T. Act, 1961 '

4. The Tribunal has, however, referred only one question which is as follows :

' Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the provisions of Section 23(2) of the Income-tax Act were applicable while applying the provisions of Section 64(iii) and that if the wife of the assessee had no other source of income then nothing could be added under Section 64(iii) of the Income-tax Act, 1961, in the hands of the assessee '

5. The learned counsel appearing for the department has contended that the view of the Tribunal that the provisions of Section 23(2) of the I.T. Act were applicable while applying the provisions of Section 64(iii) of the Act, is incorrect. It has been further urged that the view of the Tribunal that in case the wife of the assessee had no other source of income then nothing could be added under Section 64(iii) of the Act is also incorrect.

6. Section 64(i)(iv), which is relevant for the purposes of this reference, provides as under :

' 64. (1) In computing the total income of any individual, there shall be included all such income as arises directly or indirectly--......

(iv) subject to the provisions of Clause (i) of Section 27, in a case not falling under Clause (i) of this sub-section, 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.'

7. From the provisions of Section 64(1)(iv) of the Act it is, therefore, clear that the income arising directly or indirectly from the amount of Rs. 50,000 shall be included in computing the total income of the assessee. It is not disputed that the aforesaid amount of Rs. 50,000 which had been gifted by the assessee to his wife, has been invested by her in constructing a house which is being used for the own residential purposes of the assessee. Section 22 of the Act provides that income from house property shall be chargeable to income-tax on the annual value of the property. The determination of the annual value for the purpose of Section 22 has been provided for in Section 23. As admittedly the property is in the occupation of the owner for the purposes of his own residence, the annual value has to be determined in accordance with Section 23(2) of the Act. Section 23(2) of the Act provides as follows:--

' 23. (2) Where the property consists of--

(i) a house in the occupation of the owner for the purposes of his own residence, the annual value of such house shall first be determined in the same manner as if the property had been let and further be reduced by one-half of the amount so determined or one thousand and eight hundred rupees, whichever is less ;

(ii) more than one house in the occupation of the owner for the purposes of his own residence, the provisions of Clause (i) shall apply only in respect of one of such houses, which the assessee may, at his option, specify in this behalf :

Provided that for the purposes of Clauses (i) and (ii), where the sum so arrived at exceeds ten per cent, of the total income of the owner (the total income for this purpose being computed without including therein any income from such property and before making any deduction under Chapter VIA), the excess shall be disregarded.

Explanation.--Where any such residential unit as is referred to in the second proviso to Sub-section (1) is in the occupation of the owner for the purposes of his own residence, nothing contained in that proviso shall apply in computing the annual value of that residential unit.'

8. The proviso to Section 23(2) limits the annual value of a residential house in the occupation of the owner, which annual value is, for the purposes of the I.T. Act, to be treated as income liable to tax, to 10% of the other income of the owner. Learned counsel for the department contended that in determining the annual value of a residential house in the occupation of the owner, the limit of 10 per cent, in the proviso to Section 23(2) has to be worked out with reference to the other income of the assessee and not with reference to the other income of the spouse utilising the amount gifted by him in building the said house.

9. The aforesaid submission made by learned counsel for the department cannot be accepted, as it is, in the teeth of the clear and express statutory provision contained in the proviso to Section 23(2) of the Act, which expressly lays down that the limit of 10% specified therein is referable to the other income of the owner of the residential house.

10. In the present case, the assessee did not transfer the house to his wife. He merely gifted a sum of Rs. 50,000 to her which she utilised in constructing the house. In the circumstances, it is the assessee's wife who is the owner of the house and by no stretch of imagination can it be said that the house was owned by the assessee or that the assessee was its owner. Accordingly, in the instant case, while determining the annual value of the residential house the limit of 10 per cent, specified in the proviso to Section 23(2) has to be worked out with reference to the other income of the assessee's wife to whom he had gifted a sum of Rs. 50,000 and not with reference to his own other income.

11. Under Section 64 of the Act what has to be determined is that income which arises directly or indirectly from the assets, which have been transferred by the assessee to his wife. The assets, transferred by the assessee have been utilised by the wife in constructing the house which is being used for residential purposes by the assessee. It is clear that as the house is being used for residential purposes and has not been let out, it cannot be said that any such income is factually accruing to the wife there from either directly or indirectly. It is only by applying the provisions of Section 23(2) of the Act that the annual value of the residential house so determined can be taken to be the income accruing to the wife from the house constructed by her, and so much of that income accruing to the wife, as is referable to the amount gifted to her by the assessee, could alone be included in the assessee's income. If according to the provisions contained in Section 23(2) the amount gifted by the assessee did not lead to the accruing of any income to the assessee's wife, it will not be possible to add anything to the assessee's income on that account. The view of the Tribunal that in case the assessee's wife has no other income the annual value under Section 23(2) of the Act would be treated as nil also appears to be correct. However, as is apparent from the order of the Tribunal, whether the assessee's wife has got some other income has yet to be found out.

12. For the reasons stated above, we answer the question referred to us in the affirmative, in favour of the assessee and against the department. The assessee is entitled to his costs, which we assess at Rs. 250.


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