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P.R. Mukherjee Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberIncome-tax Reference Nos. 357, 359, 360 and 361 of 1972
Judge
Reported in[1979]116ITR554(Cal)
ActsIncome Tax Act, 1961 - Sections 64 and 254
AppellantP.R. Mukherjee
RespondentCommissioner of Income-tax
Appellant AdvocateD.K. Dey and ;R.N. Dutta, Advs.
Respondent AdvocateSuhas Sen and ;Samar Banerjee, Advs.
Cases ReferredJ.S. Parkar v. V.B. Palekar
Excerpt:
- sabyasachi mukharji, j. 1. the assessee was chief engineer of howrah municipality and retired in 1967. in this reference, we are concerned with the assessment years 1962-63 to 1965-66. the cinema house called 'shyamasree talkies' was constructed in the name of the assessee's wife in march 19, 1946. the land was purchased for a sum of rs. 15,000 prior to 1946, with the assessee's funds. on the security of the land an overdraft was obtained from the bengal central bank and with the, money obtained from 'the bank and the credit extended by the contractors, the cinema building was constructed and the total cost of land and building stood atrs. 30,733 by march, 1946. in february, 1948, the assessee's wife submitted a voluntary return of income for the previous year ending 31st march, 1947,.....
Judgment:

Sabyasachi Mukharji, J.

1. The assessee was Chief Engineer of Howrah Municipality and retired in 1967. In this reference, we are concerned with the assessment years 1962-63 to 1965-66. The cinema house called 'Shyamasree Talkies' was constructed in the name of the assessee's wife in March 19, 1946. The land was purchased for a sum of Rs. 15,000 prior to 1946, with the assessee's funds. On the security of the land an overdraft was obtained from the Bengal Central Bank and with the, money obtained from 'the bank and the credit extended by the contractors, the cinema building was constructed and the total cost of land and building stood atRs. 30,733 by March, 1946. In February, 1948, the assessee's wife submitted a voluntary return of income for the previous year ending 31st March, 1947, disclosing income from property and cinema house. In the course of the assessment proceedings, the ITO wrote to the lady as to the source of funds for capital contribution in the business. She replied that the capital came from dowry given by her father. The capital referred to was a sum of Rs. 25,381 shown in the balance-sheet of the cinema business as on 31st March, 1947. But the ITO was not satisfied with the explanation. He held that in the absence of any documentary and other evidence the capital must be held to have come from the assessee and the income from the business should, therefore, be included in the assessee's assessment under Section 16(3) of the Indian I.T. Act, 1922. He accordingly reopened the assessment of the assessee for the assessment year 1946-47, under Section 34 of the Indian I.T. Act, 1922, and included the income from the cinema business and the property in the assessment under Section 16(3) of the said Act. The assessee did not appeal against this assessment. Subsequently, after reopening the assessment of the assessee under Section 34 of the Indian I.T. Act, 1922, for the assessment year 1947-48, the ITO held that in the absence of any evidence in support of the explanation offered, viz., that the money was gifted to the assessee's wife by her father, it was income of the assessee from some undisclosed source and accordingly added the sum to the assessment. The assessee appealed against the order of the ITO before the AAC and ultimately to the Tribunal without any success. The matter was then taken up in reference and the High Court held that the Tribunal was justified in finding that the sum in question was the assessee's income from undisclosed source (see : [1956]30ITR535(Cal) ). For the assessment year 1948-49, also the assessee included the income from the cinema house in the return and the assessment was made accordingly. For the assessment year 1949-50, the assessee again included the income from the said business in his return but contested before the AAC without success that the same should be excluded from his assessment. He took up the matter in appealbefore the Tribunal who returned the case to the AAC with a direction forre-deciding the issue after giving the assessee reasonable opportunity ofproducing such material as the assessee thought it necessary to prove that the assets with which the cinema was built and the business was run were not transferred directly or indirectly by the assessee to his wife, Sm. Lila Devi. The AAC reheard the appeal and passed a fresh order in which he found that the land, building, cinema machinery and furniture as also liquid capital utilised for carrying on the business were acquired from the following sources:

(1) (Savings made by the assessee out of his salary income from which the land was purchased for a sum of Rs. 15,000.

(2) Rs. 25,381 held to be assessee's undisclosed income for 1946-47 assessment year, which, was invested in the building and in the purchase of machinery and furniture.

(3) Overdraft from the bank obtained on the security of the aforesaid land and building; and

(4) Credit facilities allowed by the contractors who constructed the cinema building and were paid subsequently out of profits arising from the business.

2. The AAC accordingly held that the entire investment in the cinema house as well as business had been made out of the assessee's savings from salary or income from undisclosed sources or from money borrowed from the securities of these sources or the money earned from the business carried on from these sources. It was, therefore, clear that the assessee, according to the AAC, was the owner of all these investments. The order of the AAC was accepted by the assessee.

3. Afterwards, right up to the assessment year 1965-66, the assessee had returned the income from cinema business in his personal assessment. He did not contest before the ITO during the assessment proceedings against the inclusion of that income in his assessment. Even before the AAC he did not raise this ground in the original appeal but raised it only later by way of an additional ground. It was contended by way of additional ground before the AAC that the entire income from the business of Shyamashree Cinema in the name of his wife should not be included in the assessee's income but only a portion thereof could be so included. It was urged that a sum of Rs. 65,270 was only transferred to the wife by the assessee. The hall was constructed in the name of the wife out of moneys given by the assessee and, excepting for land and buildings, the other assets were out of bank overdraft obtained from the Bank of Bengal and Central Bank, Howrah, in 1944-45 on the security of the house and building in her name. It was further argued that at best the income which could be attributed to flow from the amount transferred by the assessee to the wife should be included and not that portion which was referable to profits or accretions of out of borrowed capital of the lady. The 'AAC, however, observed that Section 64 did not provide for pro rata division of income on the basis of assets transferred by the husband to the wife and out of accretions or loans taken By the wife. He was of the view that the loans and buildings were acquired out of the moneys advanced by the husband and profits and accretions were on the basis of the transfer of land and building. The bank overdraft was also on the security of the land and buildings. According to the AAC, Section 64(iii) of the I.T. Act, 1961, was fully attracted and the inclusion of the entire income in the name of the wife in the assessee's income for all the years was justified.

4. The assessee being aggrieved by the aforesaid order of the AAC went up in appeal before the Tribunal. Before the Tribunal the grounds of appeal were as follows :

'1. That in the facts and circumstances of the case the learned AAC of Income-tax was not justified in holding that the entire income of Shyamasree Cinema which is owned by the appellant's wife is to be included in the assessment of the appellant under Section 64(iii) of the I.T. Act, 1961,

2. That the learned AAC should have held on appreciation of the fact that the income arising from Shyamasree Cinema is partly out of assets transferred by the appellant to his wife and mainly out of capital belonging to the lady.'

5. It was urged before the Tribunal on behalf of the assessee that the land alone was acquired by the assessee's wife out of funds gifted by the assessee, that the overdraft from the bank and credit facilities from the contractors for the construction of the building were obtained by the assessee's wife on her own account, that the capital in the business had gone up from Rs. 25,381 in 1946-47 to Rs. 1,92,442 during 1965-66 which meant that the business was carried on not merely with the assets transferred by the assessee to his wife but mainly with the accretions to the assets and that the income pertaining to such accretions should not in any case be taxed in the assessee's hands.

6. On behalf of the revenue it was contended that there was no evidence of transfer of any funds by the assessee to his wife, that the cinema house was constructed and the show business was run with the assessee's own funds in the name of the wife and that she was only a benamidar. The previous order was referred to and it was found that the assessee had paid his tax dues by debiting the capital account of the cinema business. The Tribunal after considering the rival contentions observed that there was no evidence of transfer of any asset of the business by the assessee to his wife and from the beginning, according to the Tribunal, the assessee's case was that the money that was required for purchase of the land or construction of the building or for running of the business was obtained by his wife on her own account and he did not provide anything. The Tribunal, however, observed that the explanation offered for the original investment in the business was not accepted by the department and it was held to be the assessee's undisclosed income. The assessee also accepted the action of the department. The Tribunal, however, held that it did not mean that there was any transfer of assets or that the assets were acquired by the assessee's wife out of funds transferred by the assessee. The findings of the AAC, for the assessment years 1949-50 and 1951-52 which were accepted by the assessee would clearly indicate that the investment in the business was that of the assessee and the income from the business was earned by his personalexertion in the management of the business. The Tribunal was of the view that there was no presumption of advancement in Indian law and the burden of proving an advancement or gift lay on the person alleging such advance or gift and the assessee has failed to discharge that onus. The Tribunal held that the facts of this case did not fall within the purview of Section 64(iii) of the I.T. Act, 1961. The Tribunal then referred to the criteria for determining the benami character of a business and observed that it was clear from the aforesaid discussion, as made by the Tribunal, that the capital required for business was found by the assessee and the business was also carried on by his personal exertion and that the tax liability of the assessee was met for different years by withdrawals of funds from business indicated that he was also in enjoyment of the profits of the business. The Tribunal, therefore, held that the business carried on in the name of Shyamasree Talkies belonged to the assessee himself and his wife was only a benamidar and the income from the business was rightly assessed in his hands for all these years under consideration.

7. Upon this, as directed by this court under Section 256(2) of the I.T. Act, 1961, the following three questions have been referred to this court:

'1. Whether the Tribunal decided the appeal on different grounds other than the matters in issue before it and, if so, was it justified in so doing

2. Whether there was any evidence before the Tribunal to come to the conclusion that Sm. Lila Devi, wife of the assessee, was benamidar in respect of the cinema business styled as Shyamasree Talkies

3. Whether, on the facts available on record, the Tribunal was justified in holding that the provisions of Section 64(iii) of the I.T. Act, 1961, to the extent of the asset transferred by the assessee to his wife are not applicable in the instant case ?'

8. The first question, as we have mentioned before, challenges the jurisdiction of the Tribunal to go into the question of benamidar in the instant case. The powers of the Tribunal are prescribed under Section 254 of the I.T. Act, 1961. The said section provides that the Tribunal after giving both the parties an opportunity of being heard can pass such orders thereon as it thinks fit. The Tribunal has wide powers to pass any appropriate order. But the amplitude of the power, is circumscribed by the subject-matter of the appeal. The question, in the instant case, is whether the income belonged to the assessee or the income of the wife is to be included in the income of the assessee under Section 64(iii) of the I.T. Act, 1961. It was contended that the subject-matter of the appeal was not whether the wife was merely the benamidar of the assessee or whether the property, ShyamasreeTalkies, belonged to the assessee or not. The subject-matter of the appeal, according to counsel for the assessee, was whether any portion of the income from the Shyamasree Talkies could be said to be the income arising from assets transferred directly or indirectly by the husband to the wife.

9. In the case of Hukumchand Mills Ltd. v. CIT : [1967]63ITR232(SC) the Supreme Court held that the Tribunal had sufficient power under Section 33(4) of the Indian I.T. Act, 1922, which were in similar terms to Sub-section (1) of Section 254 of the I.T. Act, 1961, to entertain a contention of the department with regard to the application of para. 2 of the Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950, and remand the case to the ITO. There, what had happened was that an assessee, a company incorporated in the native State of Indore, was assessed in British India except for the assessment year 1948-49 as a non-resident on such income as has fallen within Section 4(1)(a) or (c) read with Section 42 of the Indian I.T. Act, 1922. After the Constitution of India came into force, Indore became a part of Part B State and the Indian I.T. Act, 1922, was brought into force in Para B States with effect from 1st April, 1950. From the assessment year 1950-51, the assessee became assessable as a resident. For the assessment years 1950-51 to 1952-53 one of the questions that arose for determination was the proper written down value of the building, machinery, etc., for calculating the depreciation allowance under Section 10(2)(vi) of the Act. The Tribunal held that only that part of the depreciation which had entered into the computation of the taxable income of the assessee under the Act for the assessment years prior to 1950-51 should be treated as the depreciation actually allowed and not the total depreciation which went into the computation of the total world income. The Tribunal, however, permitted the department to raise the contention that the ITO had not considered the provision of para. 2 of the Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950, and remanded the matter to the ITO to ascertain whether any depreciation was allowed under the Indore Financial Tax Rules and if he was of the opinion that these rules related to income-tax or super-tax or any laws relating to tax or profits of business should take into consideration such depreciation actually allowed under these Rules and also for the purpose of computing the written down value. The assessee contended that the Tribunal should not have allowed the department to raise the contention for the first time before remanding the case. The Supreme Court indicated the above principle in the context of the aforesaid facts. The Supreme Court further observed that the powers of the Tribunal in dealing with the appeals had been expressed in the widest possible terms. The word 'thereon' in Section 33(4) restricted the jurisdiction of the Tribunal to the subject-matter of appeal. The words 'pass such order as the Tribunal thinks fit' include all powers.

10. In the case of CIT v. Mahalakshmi Textile Mills Ltd. : [1967]66ITR710(SC) the facts were that the assessee, which carried on the business of manufacture and sale of cotton yarn, spent Rs. 93,215 for introduction of the 'Casablanca Conversion System' in its spinning plant. Substantially, this involved replacement of certain roller stands and fluted rollers fitted with rubber aprons to the spinning machinery, removal of ring frames from certain existing parts, introduction, inter alia, of ball-bearing jockey-pulleys for converting the original band-drivers to tape-drivers and other additions and alterations in the drafting mechanism. The assessee claimed development rebate on the ground that introduction of the 'Casablanca Conversion System' involved installation of new machinery, for the first time before the Tribunal and claimed in the alternative that the amount laid out was in any event expenditure for current repairs allowable under Section 10(2)(v) of the Indian I. T. Act, 1922. The Tribunal inspected the factory, studied the working of the machinery and considered the literature of the manufacturers and held that though development rebate was not admissible, the amount spent was admissible under Section 10(2)(v) since as a result of the stress and strain of production over a long period there was need for change in the plant, and that the assessee had replaced old parts. In this context, the Supreme Court held that under Section 33(4) the Tribunal was competent to pass such orders on appeal 'as it thinks fit'. There was nothing in the I. T. Act which restricted the Tribunal to the determination of questions raised before the departmental authorities. All questions, whether of law or of fact, which related to the assessment of the assessee might be raised before the Tribunal. If for reasons recorded by the departmental authorities in respect of a contention raised by the assessee, grant of relief to him on another ground was justified it would be open to the departmental authorities and the Tribunal, and indeed they would be under a duty, to grant that relief. The right of the assessee to relief was not restricted to the plea raised by him.

11. Therefore, the Tribunal has the power to pass any order if it thought fit after giving the parties appropriate opportunities. But such orders must be passed on the subject-matter of the appeal. The subject-matter of the appeal must be viewed in the context and the background of the facts and circumstances of each particular case. In the instant case it is quite clear that in the previous years the revenue had found that the wife of the assessee was merely the benamidar of the assessee and the income from the Shyamasree Talkies belonged to the assessee. In that context the assessee was contending that not the whole but a part of the income would be assessable in his hands under Section 64(iii) of the I.T. Act, 1961. The subject-matter of the appeal was the assessability or includibility of the income from the Shyamasree Talkies in the income of the assessee. Viewed fromthat point of view whether that income was to be included as an income arising directly or indirectly from the asset transferred directly or indirectly by the assessee or whether that income was to be included because the asset belonged to the assessee as his own were really facets of two different aspects of the question of assessability or includibility of the income from the Shyamasree Talkies or the quantum thereof. In the context of these facts we are of the opinion that the subject-matter of the appeal was wide enough to include examination of the question of benami by the Tribunal if reasonable and proper opportunity as enjoined under the Rules and the principles of justice was given to the assessee to controvert such a contention to be considered by the Tribunal. There is no dispute that such opportunity had been given to the assessee. Our attention was drawn by counsel for the revenue to the decision of the Bombay High Court in the case J.S. Parkar v. V.B. Palekar : [1974]94ITR616(Bom) and reliance was placed on the observations of the court at pages 658 and 660. The said observations in our opinion only reiterated the principles we have already mentioned and do not carry the matter any further. Counsel for the assessee, however, drew our attention to the decision of a Division Bench of the Madras High Court in the case of M.R.M. Periannan Chettiar v. CIT : [1960]39ITR159(Mad) . There the Division Bench observed that the existence of an appeal which related only, to a distinct matter in controversy did not entitle the Tribunal to take up and decide the appeal in favour of the appellant on the basis of a ground not in controversy. There the court found that the only question for determination before the Tribunal was whether the remittance from Penang was made in 1941-42 or in 1947-48, and, therefore, the question as to who received the remittance did not arise for determination before the Tribunal and could not properly form the subject-matter of the appeal; the question whether the assessee was to be assessed separately in his two capacities did not arise before the Tribunal and it was not competent to adjudicate on that question. As we have mentioned before, the matter has to be looked into in the background of the facts of each case. Here as we have noted the controversy, was about the includibility of the income and the extent thereof from Shyamasree Talkies in the income of the assessee. By what process that income would be included either on the ground that the assessee was the real owner of the business carried on in the name and style of Shyamasree Talkies or whether because the income arose from the assets transferred by him were two different facets of one question. Reliance was also placed on the observations of the Supreme Court in the case of CIT v. Indira Balkrishna : [1960]39ITR546(SC) and counsel drew our attention to certain observations at page 551 of the report. The said observations were made in a different context and cannot be availed of by the assessee on this aspect of thematter. For the reasons mentioned as above we are of the opinion that the Tribunal was justified or was at least competent to decide the appeal on the ground that the Shyamasree Talkies belonged to the assessee. In that background the question No. 1 has to be approached and the question No. 1 is in our opinion unfortunately framed. The first part of the question No. 1 is whether the Tribunal decided the appeal on different grounds other than the matters in issue before it. In our opinion the issue before the Tribunal was the includibility of the income from the Shyamasree Talkies. Therefore, it cannot be said that the Tribunal decided the matter on different grounds other than the matters in issue before it. It is true that the Tribunal decided the matter on a different aspect other than that taken before the AAC in the instant case. But the issue was about the includibility of the income from the Shyamasree Talkies. Therefore, it cannot be said that the Tribunal decided on grounds other than the matters in issue before it. It must be said that the Tribunal was justified in following the course it did. We answer question No. 1 by saying that the Tribunal did not decide on grounds other than the matters in issue before it and the Tribunal was justified in taking up the course it followed.

12. The second question was whether there was any evidence before the Tribunal to come to the conclusion that Smt. Lila Devi, wife of the assessee was benamidar in respect of the cinema business styled as Shyamasree Talkies. The Tribunal has discussed the evidence. We are not concerned with the sufficiency of the evidence in support of a conclusion arrived at by the Tribunal. It cannot be said that there was no evidence before the Tribunal to come to the conclusion and it cannot also be said that the conclusion arrived at by the Tribunal was perverse. We, therefore, answer question No. 2 in the affirmative and in favour of the revenue.

13. The third question is whether on the facts available on record the Tribunal was justified in holding that the provisions of Section 64(iii) of the I.T. Act, 1961, to the extent of the assets transferred by the assessee to his wife are not applicable in the instant case. It was contended before us as it was contended before the Tribunal that the entirety of the income of Shyamasree Talkies should not be included as arising from the assets transferred directly or indirectly by the husband to the wife. We have noted that originally there were gifts of about Rs. 15,000 and Rs. 25,381. The rest was obtained from overdraft from the bank on the security of the aforesaid land and building and credit facilities allowed by the contractors on the profits made from the business. Therefore, originally there was some gift of money by the husband to the wife. There were accretions to the gifts, viz., interest on the gifts and savings on interest and also overdraft and loan obtained on the security of properties acquired with the giftedmoney. The question, therefore, is whether the income that ultimately arose from the totality of the assets, viz., the assets originally gifted and transferred by the husband to the wife, the accretions on those gifts in the shape of interest and profits arising therefrom or loans advanced by the bank on the security of the properties acquired from those gifts and the profits could be said to be arising from the assets transferred by the husband to his wife in the context of the facts of this case. Section 16(3)(a)(iii) of the Indian I.T. Act, 1922, directed that in computing the total income of an individual for the purpose of assessment there shall be included 'so much' of the income of the wife as arose directly or indirectly from assets transferred directly or indirectly to the wife. The expression 'so much' in Sub-section (3) of Section 16 of the Indian I.T. Act, 1922, in our opinion, was a significant pointer that not the entirety of the income but so much thereof as arises from the assets transferred directly or indirectly would be includible in the income of an individual. Section 64(iii) of the I.T. Act, 1961, as it stood at the relevant time was in pari materia with Section 16(iii) of the Indian I.T. Act, 1922. Section 64 of the present Act, as it stood at the relevant time, provided that in computing the total income of an individual there should be included all 'such income' as arose directly or indirectly and subject to the provision of Clause (1) of Section 27 to the spouse of such individual from assets transferred directly or indirectly. Therefore, assets may be transferred directly or indirectly. There is no dispute in the instant case, if we leave aside the question of benami and consider the question on the basis of Section 64 of the Act, that there was asset transferred directly to the wife by the assessee-husband. The accretions in the shape of interest on the money gifted or loans obtained on the security of the property purchased or constructed with the gifted money or the profits made from the business carried on with the property gifted cannot be described or considered to be assets transferred indirectly. The question is, whether the income that arises from the totality of all these, viz., the money originally gifted by the assessee's husband to the wife, the accretions thereon in the shape of interest and loans obtained from the bank on the security of such property purchased with the gifted money or profits earned by running the business of the gifted money, could such entirety of that amount be described to be such income which arose either directly or indirectly from the assets gifted. The transfer was only of the money, the accretions were not transfers. The entirety of the income does not arise from the assets transferred, part of it does arise from the accretions. Such accrual of income as arising from the income of the accretions cannot properly perhaps be described as income arising indirectly from the assets transferred because such income does arise directly but not because of the transfer but out of the accretions.

14. In this light we would have to examine some of the judicial decisions which have considered this aspect. In the case of CIT v. Prem Bhai Parekh : [1970]77ITR27(SC) , the Supreme Court observed that Section 16(3)(a)(iii) of the Indian I.T. Act, 1922, created an artificial income and it must receive strict construction. Before an income could be held to come within the ambit of Section 16(3)(a)(iii) or (iv) it must be proved to have arisen directly or indirectly from transfer of asset made by the assessee in favour of his wife or minor children. The connection between the transfer of assets and income, reiterated the Supreme Court, must be proximate. The income must arise as a result of the transfer and not in some manner connected with it. In that case, the assessee who was a partner in a firm having 7 annas share therein, retired from the firm on 1st July, 1954. Thereafter, he gifted Rs. 75,000 to each of his four sons, three of whom were minors. There was a reconstitution of the firm with effect from 2nd July, 1954, whereby the major son became a partner and the minor sons were admitted to the benefits of the partnership of the firm. The question was whether the income arising to the minors by virtue of their admission to the benefits of the partnership of the firm could be included in the total income of the assessee under Section 16(3)(a)(iv) of the 1922 Act. The Tribunal found that the capital investment by the minors of the firm came through gift made in their favour by their father, the assessee. It was held by the Supreme Court that connection between the gifts made by the assessee and the income to the minors from the firm was a remote one and it could not be said that the income arose directly or indirectly from the transfer of the assets. The income arising to the three minor sons of the assessee by virtue of admission to the benefits of the partnership by the firm could not be included in the total income of the assessee. In the case of Smt. Mohini Thapar v. CIT : [1972]83ITR208(SC) , the assessee made certain cash gifts to his wife. From out of these cash gifts, she purchased certain shares and invested the balance in deposits. The question was whether the income derived by the assessee's wife from the deposits and shares were to be assessed in the hands of the assessee under Section 16(3)(a)(iii) of the I.T. Act, 1922. It was held that the transfers in question were direct transfers and the income realised by the wife was income indirectly received in respect of the transfer of cash directly made by the assessee. There was a proximate connection between the income and the transfer of assets made by the assessee. The income derived by the assessee's wife had, therefore, to be included in the total income of the assessee under Section 16(3)(a)(iii).

15. Following these principles enunciated by the Supreme Court, we, in the case of Prahladrai Agarwala v. CIT : [1973]92ITR130(Cal) , held that where an individual had gifted a sum of money to his wife and the wifeinvested the same in a firm and became a partner and had received a share of profits of the firm, such share of profits arose primarily because the partnership made a profit. Though that had a connection with the gift, it did not arise as a result of the gift. Secondly, the income arose only because the other partners had agreed to take the individual's wife as a partner and had allowed her to contribute to the capital of the firm. This was not a result of the gift. The income from share of profits in the firm arising to the individual's wife could not, therefore, be included in the total income of the individual under the provisions of Section 64(iii) of the 1961 Act.

16. In the case of Mammon K. Cherian v. CIT : [1976]102ITR553(Ker) , on a plot of 20 cents of land belonging to the wife a house was built, inter alia, at the cost of the husband. The Tribunal included the entire income from the house in the hands of the husband under Section 64(1)(iii) of the I.T. Act, 1961. It was held that contribution of the land by its location or its situation by the side of the road or in an important commercial centre was a contributory factor in determining the quantum of the rent that could be fetched by a building constructed on it. The rent fetched was not only from the facilities the building provided but also from the location of the land, its situation and its value. The part of the rent which was attributable to the building alone would, therefore, be determined and included in the husband's income. The matter was remanded by the Division Bench of the Kerala High Court to the Tribunal for disposal after deciding what portion of the income should be attributed to the house and included in the husband's income.

17. In the case of CIT v. S. Chandappa Iyer : [1976]103ITR810(Mad) , the Division Bench of the Madras High Court was concerned with a case, where anassessee gifted a sum of Rs. 60,000 to his wife who entered into a partnershipwith her son and the amount gifted was contributed as her capital to thefirm. The ITO included her share of income from the firm in the hands ofthe assessee in the view that her being a member of the firm was becauseof her contribution of capital of Rs. 60,000 which was gifted by herhusband. The AAC and the Tribunal, however, held that the wife was apartner in the firm not because of her capital contribution and hence theinclusion of her share income from the firm in the hands of the husbandwas not justified. On a reference to the High Court at the instance of thedepartment it was held that the wife was a member of the firm not becauseof her capital contribution but she was an active partner and the incomeearned by her was referable to her being a member of the firm, in her ownright and hence was not includible in the hands of the husband under Section 64(iii) of the I.T. Act, 1961.

18. In a recent decision, however, this court in the case of K.D. Ghosh v. CIT : [1978]111ITR502(Cal) has considered this question. There, theassessee who was assessed as an individual filed his return for the assessment year 1966-67 showing an income of Rs. 6,071. The ITO determined the assessee's total income at Rs. 28,404 on the ground that the assessee had gifted a plot of land to his wife and that a building was constructed on the plot of land during the year under consideration. Though the building stood in the name of the wife, the income thereof was included in the assessment of the assessee. The assessee contended that the building was constructed by his wife by her own initiative with moneys borrowed from a bank which occupied two floors in the building at a monthly rent of Rs. 2,652. The assessee also filed a copy of the lease agreement along with the declaration from his wife to the effect that she was absolutely the owner of the building. The ITO and the AAC rejected the contention of the assessee. On a further appeal, the Tribunal found that the assessee's wife had no other source of income and there was no investment by the wife or anything of her own on the building constructed and that it was by hypothecating the land and taking advance rent, on the security of the building constructed, the amounts were raised by the wife and, therefore, rental income from the house accrued directly from the gifted assets and was thus a proximate accretion to it. The Tribunal, therefore, held that the income derived from the building was rightly included in the income of the assessee under Section 64(iii) of the I.T. Act, 1961. On a reference, it was held by this court that the decision of the Tribunal was correct. The income derived by way of rent from the building the assessee had built with money borrowed on the mortgage of the land and money received by way of advance rent, therefore, arose directly and in any event indirectly from the transfer of the land by the assessee in favour of his wife. Therefore, the yield from the house property was includible in the income of the assessee under Section 64(iii) of the Act.

19. In view of the fact that we have come to the conclusion that the Tribunal was right in holding that the wife of the assessee was the benamidar of the assessee and the property in question really belonged to the assessee and, therefore, the income was to be included as the assessee's own income as income from his property, the question of applicability of Section 64 does not call for our consideration because Section 64 can only arise where there is a transfer of the property. Where there is no transfer of the property belonging to the husband to the wife and the conclusion that Section 64 has no application to that extent, we are in agreement. But, if the last mentioned decision be an authority for the proposition that the income arising from the accretions of the assets transferred would be includible under Section 64, then we may respectfully point out that perhaps this aspect requires reconsideration. The section, as has been rightly pointed out by the SupremeCourt, is a section which must receive strict construction because it makes the income of one taxable as income of another. The income if estimated as due to the accretions cannot be said to be arising either directly or indirectly from the assets transferred. The income arises directly and no question of indirect accrual of income arises here. But the income does not arise from the assets transferred. The income arises from the accretions to the assets transferred. The section does not warrant the inclusion of income arising from the assets transferred as also with the accretions thereof. In view of the findings of the Tribunal, with which we are in agreement, that the wife was the benamider of the assessee and there was no scope for application of Section 64, this controversy does not call for determination in the instant case. We would answer, in view of the facts and circumstances of this case, that the Tribunal was right in holding that Section 64(iii) was not applicable.

20. In the facts and circumstances of this case, the parties will pay and bear their own costs.

Guha, J.

21. I agree.


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