1. This is a reference under Section 66(2) of the Income-tax Act, 1922, at the instance of the assessee in pursaunce of an order of this court in Miscellaneous Civil Case No. 196 of 1966, decided on September 26, 1968.
2. The assessee is an individual who, in the relevant year, was the managing director of 'Ramkrishna Besan and Flour Mills Ltd.' The assessment year in question is 1957-58, the corresponding previous year being the year ending on March 31, 1957.
3. Smt. Gyan Devi is the wife of the assessee. In the relevant year, she received dividend amounting to Rs. 2,600 on the shares held in her name of the value of Rs. 20,000 in the Ramkrishna Besan and Flour Mills Ltd. These shares were acquired by her in earlier years. She also received interest amounting to Rs. 600 on a fixed deposit, which was made on April 14, 1955, in the aforesaid mills. She filed separate return of her income for the assessment year 1957-58, showing the aforesaid items as her income in the previous year.
4. In the assessment proceedings of the assessee, the husband of Smt. Gyan Devi, the Income-tax Officer called upon him to explain the source of investments in the name of wife. The explanation of the assessee was that these assets belonged to her and were bought out of her stridhan which was acquired by her at the time of her marriage and later in the shape of gifts and presents.
5. The Income-tax Officer did not accept the explanation and included the aforesaid income of Rs. 2,600 in the assessee's total income under Section 16(3) of the Act on the ground that the income had accrued to the wife from the assets transferred to Smt. Gyan Devi by her husband, the assessee, otherwise than for adequate consideration. According to the Income-tax Officer.
(a) the explanation was unconvincing and unsupported by any evidence;
(b) no attempt was made to prove that the father-in-law of the assessee had given to the wife of the assessee a dowry of Rs. 30,000 (Rs. 10,000 in cash and Rs. 20,000 in the shape of jewellery, etc.);
(c) the economic status of the father-in-law of the assessee was not such as could reasonable enable him to give a dowry of Rs.30,000; and
(d) there was no evidence to show that the amount remained intact unspent all the years after marriage till its investment, which gave thereturn in question, in spite of the partition of India and the consequent migration of the parties from Pakistan to India.
6. The order of the Income-tax Officer was affirmed by the Appellate Assistant Commissioner, on appeal as also by the Income-tax Appellate Tribunal on a further appeal to it. In the words of the Tribunal:
'There is no direct contemporaneous evidence tracing the assets to the assessee's father-in-law and the family circumstances of his father-in-law on the contrary suggest that he was not capable of giving such valuable assets to his daughter. On the other hand, having regard to the affluent circumstances of the assessee himself and also considering the fact that this was the second marriage, we consider it more probable that the assets held by the second wife were initially transferred by the assessee. The provisions of Section 16(3) would, therefore, be attracted and the income of Rs. 2,600 was rightly included in the assessee's total income.'
7. On the direction of his court, the Tribunal has now referred to this court the following question for decision:
'Whether there was material before the Tribunal for holding that the income of Rs. 2,600 earned by the assessee's wife was from assets transferred directly or indirectly to her by the assessee otherwise than for adequate consideration?'
8. Under Section 16(3) of the Act:
'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..........'
9. Thus, in order to attract the aforesaid provisions, there must be material on record from which it could reasonably be inferred that the assets of the wife of the assessee giving rise to the income were transferred by the assessee-husband to his wife, directly or indirectly, otherwise than for adequate consideration. As there is no question, in this case, of transfer of the assets for any adequate consideration, the only question is whether there was any material from which it could reasonably be inferred that the assessee-husband had transferred to his wife the assets in question either directly or indirectly.
10. All the material we have is the fact that the explanation of the assessee that the assets in question were the gifts to his wife by his father-in-law was not acceptable to the income-tax authorities.
11. It has to be noted that the provision aims at foiling an individual's attempt to avoid or reduce the incidence of tax by transferring his assets to his spouse or minor children. And as the section creates an an artificialliability to tax, it has to be strictly construed : see Commissioner of Income-tax v. Manilal Dhanji,  44 I.T.R. 876;  Supp. 2 S.C.R. 902 (SC.), Philip John Plasket Thomas v. Commissioner of Income-tax,  49 I.T.R. (S.C.). 97 and Commissioner of Income-tax v. Jwalaprasad Agarwala,  66 I.T.R. 154 (S.C.).
12. Now, in the instant case, from the mere circumstance that the assessee has failed to establish that the assets in question in the name of his wife did not come out of the gifts received by her from his father-in-law, it does not necessarily follow that they must have come from the assessee by a transfer, direct or indirect. No attempt was made by the department to bring facts on record from which such an inference could reasonably be made.
13. The wife of the assessee, in whose name the assets stood, was neither noticed nor called upon to state the source of those assets. No material was placed on record that during the years preceding the accumulation of assets by the wife, the assessee had large incomes from which large unexplained withdrawals were made and which could reasonably account for the accumulation of assets by the wife in those years. The aforesaid circumstances are only illustrative and our purpose in stating them is to show that material could have been collected and placed on record to permit the drawing of an inference one way or the other. Because, in the absence of such material, all we have is the fact that the wife of the assessee has some assets in her name for which the assessee has not accounted to the satisfaction of the income-tax authorities.
14. If the legislature intended that all income from assets in the name of the wife unless the source of the assets were satisfactorily accounted for by the assessee were to be included in the total income of the assessee-husband, it could have said so. But, instead of that, the law specifically makes the income of the wife liable for inclusion in the total income of the assessee-husband only when the assets giving rise to the income were transferred to her by the assessee, directly or indirectly, etc. Consequently, unless there were direct proof of such a transfer or unless such a transfer could reasonably be inferred from the material on record, the provisions of Section 16(3) of the Act could not be attracted.
15. We may also add that the burden is on the revenue to show that the incomers liable to tax under the statute, though the burden of showing that a particular class of income is exempt from taxation is on the assessee : see Commissioner of Income-tax, v. Ramakriskna Deo,  35 I.T.R. 312;  Supp. 1 S.C.R. 176(S.C.), Parimisetti Seetharamamma v. Commissioner of Income-tax, (5)  57 I.T.R. 532;  1 S.C.R. 8 (S.C.) and Udhavdas Kewalram v. Commissioner of Income-tax,  66 I.T.R. 462 (S.C.)
16. We are, therefore, of opinion that there was no material before the Tribunal for holding that the income of Rs. 2,600 earned by the assessee'swife was from assets transferred directly or indirectly to her by the assessee otherwise than for adequate consideration.
17. The costs of this reference shall be paid by the respondent-Commissioner of Income-tax. Counsel's fee Rs. 100.