1970 (3) TMI 15 - HC - Income Tax

Income earned by the assessee s wife from assets - inclusion of said income in assessee s income

Summary

Issues:
1. Whether the income earned by the wife of the assessee was from assets transferred directly or indirectly to her by the assessee otherwise than for adequate consideration?

Detailed Analysis:
The judgment pertains to a reference under section 66(2) of the Income-tax Act, 1922, initiated by the assessee concerning the assessment year 1957-58. The assessee, a managing director, was questioned about investments in his wife's name, including shares and fixed deposits. The Income-tax Officer rejected the explanation that these assets belonged to the wife, attributing the income to the husband under section 16(3) of the Act. The Appellate Assistant Commissioner and the Income-tax Appellate Tribunal upheld this decision, emphasizing the lack of evidence tracing the assets to the wife's father-in-law and suggesting that the assets were likely transferred by the husband. The Tribunal referred the matter to the High Court to determine if there was sufficient material to support the attribution of income to the husband.

The key issue revolves around section 16(3) of the Act, which mandates the inclusion of a wife's income in the husband's total income if derived from assets transferred by the husband without adequate consideration. The court highlighted the necessity of material supporting the inference that the husband transferred the assets to the wife, directly or indirectly. The court emphasized that the provision aims to prevent tax avoidance through asset transfers to family members and must be strictly construed, citing relevant case law.

The court scrutinized the lack of evidence supporting the transfer of assets from the husband to the wife. It noted that the burden of proof lies with the revenue to establish tax liability, and in the absence of direct proof or reasonable inference from the material on record, section 16(3) cannot be invoked. The court underscored that the mere existence of assets in the wife's name, unaccounted for by the husband, is insufficient to attribute the income to the husband without concrete evidence of transfer.

Ultimately, the court held that there was insufficient material before the Tribunal to conclude that the wife's income was derived from assets transferred by the husband without adequate consideration. The court directed the respondent, the Commissioner of Income-tax, to bear the costs of the reference. The judgment underscores the importance of concrete evidence to establish tax liability under section 16(3) and reiterates the burden of proof resting on the revenue in tax matters.