Law:

Section:

Section 85 [now section 80K], read with section 64(iii) of the Income-tax Act, 1961 - Deductions - In respect of certain dividends - Assessee had transferred certain shares to his wife and, therefore, applying section 64(iii), dividends received on such shares were assessed in hands of assessee - Whether assessee was entitled to get relief under section 85 on such dividends - Held, yes FACTS The assessee, an individual, had transferred certain shares to his wife. In the assessment years 1965-66 and 1966-67, applying section 64(iii), the ITO brought to tax the dividends received on the said shares, in the hands of the assessee. He further observed that the assessee was entitled to rebate under section 85, inter alia, upon the said dividends and assessed the assessee's income accordingly. The Commissioner, however, exercising his powers under section 263, directed the ITO to withdraw the rebate allowed to the assessee under section 85 because the assessee was not the owner of these shares, and therefore, the requirements of section 85 had not been fulfilled. On appeal, the Tribunal, however, held that the relief under section 85 had been properly given by the ITO. On reference, the revenue contended that in order that the rebate under section 85 could be granted, two conditions were required to be fulfilled, i.e., (i) that the assessee should be the owner of the asset, and (ii) that the income should be income in his hands, and as the shares, in the instant case, belonged to the assessee's wife, the first condition was not fulfilled. Further, the said dividends could not be paid to be income in the assessee's hands and, therefore, the second condition was also not fulfilled. HELD It is apparent that section 64(iii) was intended to prevent the evasion of tax by an individual by the transfer of assets to his spouse. Income from such assets is, therefore, under section 64(iii), intended to be treated as the income of the individual. The assets that were transferred consequently were to be treated as if they had not been transferred and the individual remained the owner thereof. For the purpose of the Act, therefore, the shares that were transferred by the assessee…

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