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[2007] 294 ITR 507 (ALL.) HIGH COURT OF ALLAHABAD Auto Sales Properties v. Commissioner of Income-tax SUSHIL HARKAULI AND K. N. OJHA., JJ. IT APPEAL NO. 176 OF 2000 JULY 16, 2007 Section 64 of the Income-tax Act, 1961 - Transfer of assets - For benefit of spouse etc. â–  Income arising from building which has been let out in favour of firm comprising their wives at inadequate or reduced rent, would be liable to be included in income of husbands as it was a case of deemed transfer indirectly to wives within meaning of section 64(1)(iv) M and A were partners in a firm which was dissolved and on the next day a new partnership comprising wives of M & A and one more partner was formed. In this firm, the wives of M and A had 47 per cent share each. A building was let out by M and A to the firm in which their wives were partners at a rent of Rs. 4,000 p.m. while it was earlier fetching a rent of Rs. 7,515 p.m. Applying section 64(1)(iv) the rental income from the building was clubbed in the hands of M and A. Held that in view of the provisions of section 64(1)(iv), the income arising from the building which had been let out, was liable to be included in the income of husbands who had let out the property in favour of their wives at inadequate or reduced rent. The transfer in favour of the firm in which 94 per cent share was held by the wives would be deemed to be transfer 'indirectly' to the wives. Moreover the income from the property let out in favour of the firm was income from house property and not business income. In any case, for the purpose of clubbing income under section 64, it was not relevant whether the income was from house property or was business income. JUDGMENT We have heard learned counsel for the appellant as well as learned standing counsel for the Income-tax Department. This appeal has been filed under section 260A of the Income-tax Act, 1961. The facts are that one Brij Mohan Gupta and one Anil Gupta were partners in a firm known as M/s. Auto Sales, which was dissolved on October 31, 1978. On the next day, i.e., November 1, 1978, a new partnership firm was constituted known as M/s. Auto Sales Properties. This new firm had three…

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