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 1948-49 - Assessee made a lease of certain quarries in favour of his wife in perpetuity for a consideration of annual royalty of Rs. 4,000 - ITO held that transaction in question constituted a transfer of assets and that consideration of paltry sum of Rs. 4,000 annually as royalty under lease deed against yearly income of those quarries was wholly inadequate and accordingly, applying section 16(3)(a)(iii), brought income from quarries to hands of assessee - Whether finding of Tribunal, that consideration mentioned in lease deed was inadequate and there was no enforceable pre-nuptial agreement between parties being a pure finding of fact could not be interfered with - Held, yes - Whether therefore, income from quarries was rightly included in assessment of assessee under section 16(3)(a)(iii) - Held, yes FACTS By a registered lease deed, the assessee made a perpetual lease of certain quaries in favour of his wife. In consideration, wife of assessee was required to pay Rs. 4,000 per annum as royalty to the assessee. The ITO held that section 16(3)(a)( iii) applied to the transaction in question, that the lease constituted a transfer of assets and that consideration of the paltry sum of Rs. 4,000 annually as royalty under the lease deed, against the yearly income from those quarries in the relevant accounting year of Rs. 20,360 and in the succeeding year of Rs. 58,436 was wholly inadequate. He further expressed the view that the transfer was not in consideration of any marriage to the lessee but to safeguard the quarries from lapsing to the U.P. Government under the U.P. Zamindari Abolition and Land Reforms Act. On appeal, the AAC took the view that the lease was an irrevocable settlement upon the wife for a period of more than six years and, therefore, fell within the proviso to section 16(1)(c) and as such the income therefrom was not includible in the assessment of the assessee. On revenue's appeal, the Tribunal set aside the order of the AAC and restored that of the ITO. In so doing, it…

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