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Section 64(1)(iii), read with section 52(2), of the Income-tax Act, 1961 - Transfer of assets for benefit of spouse or minor child - Assessment years 1968-69 to 1972-73 - Whether section 64(1)(iii) can be applied to a transaction of sale of property by husband to wife even when section 52(2) has already been applied to such transaction - Held, yes FACTS On 24-2-1966 the assessee sold an item of property to his wife for a consideration of Rs. 48,000. The fair market value of this property was Rs. 1,49,873 and its cost price to the assessee was Rs. 17,100. Applying the provisions of section 52(2) of the Act, the ITO brought to tax the capital gains in the hands of the assessee. Even after applying the provisions of section 52(2), the ITO held that the provisions of section 64(1)(iii) were attracted as the property was transferred by the assessee without adequate consideration. The Tribunal held that having applied the provisions of section 52(2) to the conveyance of property executed by the assessee to his wife and brought to tax capital gains on the basis of the fair market value of such property as on the date of the conveyance and not on the basis of the actual consideration received by the assessee from his wife, it was not open to the department to invoke the provisions of section 64(1)(iii) to include in the total income of the assessee, after such conveyance, two-thirds of the income from such property. On reference: HELD Section 52(2 ) does not create any such fiction as visualized by the Tribunal. Even if it was assumed for the sake of argument that section 52( 2) created some legal fiction, the fiction is limited to the purport and scope of section 52(2) and will not extend to section 64. Accordingly, the Tribunal was not justified in directing the exclusion of 2/3rd income from the property transferred from the total income of the assessee. CASES REFERRED TO State of Bombay v. Pandurang Vinayak Chaphalkar [1953] SCR 773, CIT v. Vadilal Lallubhai [1972] 86 ITR 2 (SC) and H. N. Patwardhan v. CIT [1970] 76 ITR 279 (Bom.). G.S. Jetly, J.P. Deodhar and K.C. Sidhwa for the Applicant. JUDGMENT Sugla, J. - In these two departmental references relating to the…

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