Law: Income Tax Act, 1922

Section: 16(3)(iii)

Income-tax Act, 1922 (XI of 1922)-Section 16(3)(iii), Proviso (inserted by Finance Act, 1964)-Transfer of assets-Gift--Property gifted by assessee to wife prior a 1-7-1964, when proviso was inserted by Finance Act, 1964 -Gift, whether exempt from tax in assessee's hands in assessment year 1964-65 onwards--Held yes. The assessee purchased a partly constructed house for a sum of Rs. 82,000 in the name of his wife and constructed the first floor of the building. The total expenditure on the building including the purchase price amounted to Rs. 1,57,000. In respect of the assessment years to 1964-65 to 1967-68 the assessee claimed that the income from the property constructed out of the gifts made by him to his wife some-time in 1962 and 1963 could not be included in his total income under the proviso to Section 16(3)(iii) of the Income-tax Act, inserted by Finance Act, 1964. In support of the gift the assessee produced a copy of Hibanama made previously under the Mohammadan Law. The Income-tax Officer rejected the claim holding that the 'Hibanama' was an after-thought and that the payments were made by the assessee to his wife without adequate consideration and as such the income from the property was liable to tax in his hands. The Appellate Assistant Commissioner, on appeal by the assesses, did not agree with the Income-tax Officer that the 'Hibanama' was an after-thought but he confirmed the order of assessment on different ground. He observed that after introduction of the Gift Tax Act the proviso to Section 16(3) of the Income-tax Act was inserted by the Finance Act, 1964 to the effect that income from asset transferred by an assessee by way of gift shall not be assessable in the transferor's hand. The said proviso applied to the gifts made after 1-7-196 and not to the gifts made prior to 1-7-1964, the proviso had no application to the case and as such the case should be governed by the law prior to the introduction of the proviso. In other words, income from such gifts would continue to be included in the total income of the husband. Reversing the order of the Appellate Assistant Commissioner: Held, that the proviso was added by the Finance Act of 1964 and…

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