1982 (11) TMI 2 - HC - Income Tax

Summary

Issues Involved:
1. Whether the interest income assessed u/s 64 of the Income-tax Act, 1961, in the hands of the assessee for the assessment year 1971-72 was correct.
2. Whether there was an indirect transfer of Rs. 10,000 by the assessee to his minor son or wife within the meaning of section 64 of the Income-tax Act, 1961.

Summary:

Issue 1: Interest Income Assessed u/s 64 of the Income-tax Act, 1961
The ITO applied the provisions of s. 64 of the I.T. Act, 1961, holding that the interest income derived from the deposit of Rs. 10,000 in the case of each minor child of a partner or in the case of the wife of a partner has got to be clubbed in the total income of the respective partner concerned, being the parent, or the husband, as the case may be. The AAC dismissed the appeals and confirmed the assessments. However, the Tribunal reversed the decision of the ITO, holding that the transfers were genuine and valid gifts, except for two partners whose gifts were considered void as they involved joint family funds. The Tribunal held that the provisions of s. 64 cannot be pressed into service for clubbing the income derived by the minor children and wives in the hands of the transferor partners.

Issue 2: Indirect Transfer of Rs. 10,000
The court had to decide whether there had been indirect transfers by each of the partners concerned of Rs. 10,000 each to his minor son or wife within the meaning of s. 64 of the Act. The court referred to the Supreme Court's decision in CIT v. Kothari [1963] 49 ITR 107 (SC), which held that even if the assets were changed deliberately into assets of a like value of another person, the section would still have application. The court observed that the transfers in this case were inter-connected and served as a circuitous method to evade the implications of s. 64 of the Act. The court rejected the argument that the invalidity of three transfers involving joint family funds broke the chain of cross-transfers, stating that the overall impression of the facts showed that the transfers were part of a single integrated transaction.

Conclusion:
The court concluded that the transactions were indirect transfers within the meaning of s. 64 of the Act. The Tribunal's decision was reversed, and the reference was answered in favor of the Revenue. The assessee was ordered to pay the costs of the Department, with counsel's fee set at Rs. 500.