Law:

Section:

Section 64 of the Income-tax Act, 1961 (Corresponding to section 16(1) of Indian Income-tax Act, 1922) - Transfer of assets - For benefit of spouse etc. - Assessment year 1957-58 - Whether unless there is direct proof of transfer of assets to wife or unless such transfer can reasonable be inferred from material on record, provisions of section 16(3) of 1922 Act cannot be attracted - Held, yes FACTS The assessee was managing director in a company. During relevant assessment year, the assessee's wife received dividend on the shares held in her name in the said company. She filed separate return of her income, showing the aforesaid items as her income in the previous year. In the assessment proceedings of the assessee, the ITO called upon him to explain the source of investments in the name of his wife. Theexplanation of the assessee was that these assets belonged to her and were brought out of her stridhan which was acquired by her at the time of her marriage and later in the shape of gifts and presents. The ITO did not accept the explanation and included the aforesaid income in the assessee's total income under section 16(3) of the 1922 Act on the ground that the income had accrued to the wife from the assets transferred to her by the assessee, otherwise than for adequate consideration. The order of the ITO was affirmed by the AAC as also by the Tribunal. On reference: HELD Section 16(3) of 1922 Act aims at foiling an individual's attempt to avoid or reduce the incidence of tax by transferring his assets to his spouse or minor children. And as the section creates an artificial liability to tax, it has to be strictly construed. In the instant case, from the mere circumstance that the assessee had failed to establish that the assets in question in the name of his wife did not come out of the gifts received by her from his father-in-law, it did not necessarily follow that they must have come from the assessee by a transfer, direct or indirect. No attempt was made by the department to bring facts on record from which such an inference could reasonably be made. The wife of the assessee, in whose name the assets stood, was neither noticed nor called upon to state the…

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