Law:

Section:

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 year 1958-59 - During relevant accounting year assessee had made gift of certain amount to minor daughter of his brother - Assessee's brother in turn made gift of similar amount to minor son of assessee - These amounts were deposited in firm in which assessee was partner - Whether, on facts, it could be said that gift made by assessee was in fact and in truth gift to his minor son and thus provisions of section 16(3)(a)(iii) of 1922 Act were applicable - Held, yes FACTS The assessee declared his status as a HUF with his minor son. While completing the assessment, the ITO found that there was certain deposit made in a firm in which the assessee and his brothers were partners. According to the book entries of the said firm, the assessee withdrew from the firm a sum and credited it in favour of minor daughter of one of his brother, who redeposited the money with the firm. The said brother subsequently withdrew, the said amount and gifted said to the minor son of the assessee. The ITO held that though there was no direct transfer of assets by the father to his minor child, there was an indirect transfer within the meaning of the said expression in section 16(3)(a)( iv) of the 1922 Act. He, therefore, subjected the income arose to the assessee's son from that transaction to tax in the hands of the assessee. The Tribunal upheld the decision of the department on ground that the transactions were brought about as a result of mutual understandings among the brothers, who acted in concert in execution of a scheme and a mutual arrangement to keep outside the scope of section 16(3)(a)(iv) of the 1922 Act. On reference: HELD The object of section 16(3)(a )(iv) of the 1922 Act is plain. The assessee would like to lessen the burden of taxation by transferring his assets to his minor children so that he may not pay tax in the income of those assets and yet at the same time retain the income in his hands ostensibly as the guardian of the minors. Such types of transactions caused leakage of the revenue and the…

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