Law: Income Tax Act, 1922

Section: 16(3)

Section 64 of the Income-tax Act, 1961 [Corresponding to section 16(3) of the Indian Income-tax Act, 1922] - Transfer of assets - For benefit of spouse etc. - Assessment years 1948-49 to 1951-52 - Firm 'K' which consisted of 'C', his two sons 'D' and 'L', entered into an agreement for purchase of house and paid certain advance - Sale deed was taken in names of 'Mrs. C', 'Mrs. D' and 'L' - Each lady paid over to firm one-third share of sale consideration - Subsequently, similar amount was paid by 'C' to his daughter-in-law, 'Mrs. D', stating it to be Diwali gift and also by 'D' to his mother, 'Mrs. C', stating it to be birthday gift - It was not satisfactorily explained why 'C' made such big gift to his daughter-in-law on occasion of Diwali and why 'D' made gift to his mother on occasion of her birthday which had taken place several months ago - Whether, on facts, it could be said that circuitous method had been adopted as device to evade implication of section 16(3) of 1922 Act and that two transactions were so intimately connected that they could be regarded as single transaction - Held, yes - Whether, therefore, it could be said that there was indirect transfer of assets by husband to their respective wives - Held, yes FACTS The firm 'K' consisted of 'C' and his two sons 'D' and 'L'. During accounting year relevant to the assessment year 1947-48, the aforesaid firm entered into an agreement for purchase of a house and paid certain amount which was debited to the accounts of the aforesaid three partners. The sale deed, however, was taken in the names of 'Mrs. C', Mrs. D and 'L'. The balance of the consideration was paid to the vendors by the firm. Each of the two ladies paid to the firm 1/3rd share of the balance purchase price and the amounts which were paid by their husbands as part of earnest money. The ladies issued the cheques on their accounts into which certain amounts were paid by the firm by cheques. Amount paid to Mrs. 'C' was debited to account of 'D' stating it to be birthday gift by 'D' to his mother. Similarly, in respect of amount paid to Mrs. 'D', account of 'C' was credited stating to be Diwali gift by him to his daughter-in-law. In this way,…

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