Law:

Section:

Section 64(1)(iv) of the Income-tax Act, 1961 - Transfer of assets - For benefit of spouse or minor child - Assessment year 1974-75 - Assessee gifted a sum of Rs. 10,000 to his wife who invested same in purchasing shares and subsequently after selling them and after obtaining, a sum of Rs. 12,484 against a promissory note, purchased a house property from her husband-assessee on a consideration of Rs. 49,000 - Whether this amounted to a direct transfer of an asset by assessee to his wife and an indirect income accruing to wife from said property, and income arising from said asset having a proximate connection with transfer, annual letting value (ALV) attributable to entire sum of Rs. 36,516 was to be included in assessee's income under section 64(1)(iv) - Held, yes FACTS The assessee transferred the house purchased by him in favour of his wife for a consideration of Rs. 49,000. The assessee contended that his wife had paid the price after selling certain shares purchased by her by investing a sum of Rs. 10,000 gifted by him, as well as after obtaining a sum of Rs. 12,484 against a promissory note. The ITO rejected the assessee's claim that only the proportionate annual letting value to the extent of Rs. 10,000 which was originally gifted by him to his wife, should be assessed. He assessed the ALV attributable to entire sum of Rs. 36,516 (i.e., Rs. 49,000 - Rs. 12,484) in the assessee's hands. On appeal, the assessment order was confirmed by the AAC. On second appeal, the Tribunal, however, held that the annual letting value relating to Rs. 10,000 only should be included and not the ALV relating to the remaining amount of Rs. 26,516. On reference: HELD The gift of Rs. 10,000 was a direct gift by the husband-assessee in favour of his wife and the said gift was substituted by the wife by the shares purchased by her and again substituted later by the house property purchased by her. The annual letting value which arose from the said house property must be treated as an indirect income which accrued to the wife from the property transferred and the said amount was to be computed as income of the husband. There was a direct transfer of an asset by the assessee to his…

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