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Second Income-tax Officer Vs. Jayantilal S. Porwal - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Bangalore
Decided On
Judge
Reported in(1986)15ITD379(Bang.)
AppellantSecond Income-tax Officer
RespondentJayantilal S. Porwal
Excerpt:
.....kantilal on 1-11-1978. the case of the revenue was that these gifts indicated that the assessee's wife had received from popatlal on 8-11-1978 an amount equivalent to that received by popatlal's wife from the assessee on 12-11-1977. similarly, the assessee's wife had received from kantilal on 13-11-1977 an equivalent amount given to kantilal's wife by the assessee on 1-11-1978. the argument was that these gifts showed a pattern of cross-gifts which amounted to a transfer by the assessee indirectly to his wife a sum of rs. 5,000 which was invested in the firm sri seetha laxmi saree centre and, hence, the income derived by the wife of the assessee should be added to the total income of the assessee under section 64(1)(iv). this approach of the ito was rejected by the aac and he found that.....
Judgment:
1. This appeal by the revenue is directed against the order of the AAC deleting the addition made under Section 64(1)(iv) of the Income-tax Act, 1961.

2. The admitted facts are as follows : The assessee, Jayantilal, is an individual. He has two brothers, Kantilal and Popatlal. The assessee's wife, Smt. Sushila, had received a gift of Rs. 5,000 on 13-11-1977 from Kantilal and another sum of Rs. 5,000 on 8-11-1978 from Popatlal. The assessee himself had given a sum of Rs. 5,000 to the wife of Popatlal on 12-11-1977 and a sum of Rs. 5,000 to the wife of Kantilal on 1-11-1978. The case of the revenue was that these gifts indicated that the assessee's wife had received from Popatlal on 8-11-1978 an amount equivalent to that received by Popatlal's wife from the assessee on 12-11-1977. Similarly, the assessee's wife had received from Kantilal on 13-11-1977 an equivalent amount given to Kantilal's wife by the assessee on 1-11-1978. The argument was that these gifts showed a pattern of cross-gifts which amounted to a transfer by the assessee indirectly to his wife a sum of Rs. 5,000 which was invested in the firm Sri Seetha Laxmi Saree Centre and, hence, the income derived by the wife of the assessee should be added to the total income of the assessee under Section 64(1)(iv). This approach of the ITO was rejected by the AAC and he found that the income of the spouse did not arise from any asset directly or indirectly transferred to her by the assessee.

3. In the appeal before us it was contended on behalf of the revenue that the pattern of gifts indicated that there was a concerted attempt to avoid the application of Section 64 by indirectly transferring the funds to the spouse and since the income arose to the spouse only with that capital, such income should be added to the total income of the assessee. We are unable to agree with this contention. There are two aspects to this question. The first is, whether the capital invested by the spouse in Sri Seetha Laxmi Saree Centre had been indirectly transferred to her by the assessee. On this question the facts are that she had received two gifts from the two brothers of the assessee whose wives had received an almost equivalent sum one year before and one year after. There may be a pattern in the gifts which have been made on the first day of the accounting year which is the Diwali day but the time lag of one year as well as the fact that the amounts given do not make up for the time lapse. By adding the interest thereon, which accrued to the individual donees, indicate that each gift was not meant to be the actual consideration for the corresponding gift. The revenue relied upon the decision in the case of CIT v. CM. Kothari [1963] 49 ITR 107 (SC) to point out that there need not be a transfer of the same or equivalent amount for cross-gifts to amount to indirect transfer.

But then, in that case, the cross-gifts have been made within a short span of time with the avowed object of defeating the provisions of Section 16 of the Indian Income-tax Act, 1922. In the present case, on the contrary, the brothers have taken care not to make the gifts simultaneously which indicates their intention to see that the transaction of gifts were not inter-connected and did not form part of the same transaction so as to amount to indirect transfer to their respective spouses.

Except the fact that the gifts are made by the brothers, we find no intimate connection between the gifts to establish that there was any indirect transfer of the asset by the assessee to his wife.

4. There is another aspect to this question. We find from the assessment order that the assessee's own income was only Rs. 12,000.

The income of the spouse amounting to Rs. 6,500 ha s been added to bring it within the taxable net. It is admitted that the spouse has no other taxable income. The case of the revenue is that by indirect transfer, the assessee has so managed to reduce his income below the taxable income and also divert a part of it to his spouse which was not liable to tax. But such an inference does not follow if we see the historical background to these provisions. The Supreme Court in the case of Balaji v. ITO [1961] 43 ITR 393 had observed : ...the present social and economic position of women in India as compared with their compeers in America, even as it existed in 1931, is so low that it would be inappropriate to apply the decision made in America to a similar case arising in India. A wife in India, particularly if she be illiterate--a large majority of them are illiterate--would ordinarily be in economic matters a tool in the hands of her husband. Many things are done in her name without her knowledge of the same. When the Legislature of this country, which is assumed to know the conditions of the people and their requirements, with the awareness of this particular widespread fraudulent device in the matter of evasion of taxes, made a law to prevent the said fraud, it is difficult for this Court in the absence of any counterbalancing circumstances to hold, on the analogy drawn from American decisions, that the need for such a law is not in existence....

This observation was made on the context of the challenge to the provisions of Section 16 and the reliance of the assessee in that case on the American decision in the case of Albert A. Hoeper v. Tax Commission of Wisconsin [1931] 76 L.Ed. 248. The American Supreme Court had held: We have no doubt that because of the fundamental conceptions which underlie our system, any attempt by a state to measure the tax on one person's property or income by reference to the property or income of another is contrary to due process of law as guaranteed by the 14th Amendment. That which is not in fact the taxpayer's income cannot be made such by calling it income.

The observations of our Supreme Court are no longer apposite to the consideration of the effect of Section 64 especially in the year 1985.

Women can no longer be considered to be the tools in the hands of their husbands. Women are also entitled to economic independence and the right to earn and enjoy their own income. It may even be said that the position of women in India is no more different from that of their counterparts in America especially among the taxpayers. In the present case, what has happened is only that the spouse of the assessee has been able to obtain some capital of her own to earn income on it. That income being her's and being within the maximum amount not chargeable to tax, is not exigible to income-tax. But by applying the provisions of Section 64 and by regarding an independent gift as an indirect transfer of the husband, the revenue seeks to tax the income which is not ordinarily liable to tax. We are of the opinion that Section 64 cannot be invoked for that purpose.

5. Even assuming that the gifts constituted indirect transfer of the funds by the assessee to his spouse, the income which accrued to the spouse through the membership of a firm cannot be regarded as income derived from those funds--the decision of the Supreme Court in the case of CIT v. Prem Bhai Parekh [1970] 77 ITR 27. Thus, from any point of view, the share of income derived by the spouse cannot be added under Section 64 in the total income of the assessee. The AAC was, therefore, justified in deleting the addition made by the ITO. The appeal is dismissed.


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