TMI Blog2000 (11) TMI 25X X X X Extracts X X X X X X X X Extracts X X X X ..... ng of section 64 of the Income-tax Act, 1961? (3) Whether, on the facts and in the circumstances of the case, the interest earned by the wife of the assessee on the amount received on maturity of the insurance policy taken by the assessee under the Married Women's Property Act, 1874, was includible in the income of the assessee under section 64 of the Income-tax Act, 1961?" All the three questions mould down to one common question as stated by the Tribunal, as to whether there was any transfer of asset by the assessee as the husband to his wife and whether it was without any consideration and interest income derived by the wife on the maturity value of the insurance policy can be taxed as income of the husband by recourse to section 64(1)(iv) of the Act. The provisions of section 64(1)(iv) of the Act read "64. (1) In computing the total income of any individual, there shall be included all such income as arises directly or indirectly... (iv) subject to the provisions of clause (i) of section 27, to the spouse of such individual from assets transferred directly or indirectly to the spouse by such individual otherwise than for adequate consideration or in connection with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax in the hands of the appellant under section 64 of the Act" The Tribunal, however, reversed the view of the Commissioner of Income-tax and agreeing with the opinion of the Income-tax Officer held that interest earned on the maturity value of the policy was income from the asset transferred indirectly by the husband to the wife within the meaning of section 64(1)(iv) of the Act. The Tribunal placed reliance on the decision of the Delhi High Court in the case of A. C. Khanna v. CIT [1968] 68 ITR 159, of the Bombay High Court in the case of D. M. Netarwala v. CIT [1979] 120 ITR 848 and R. Dalmia (Decd.) v. CIT [1982] 133 ITR 169 (Delhi). Mr. K. H. Kaji, appearing for the assessee, in assailing the conclusion of the Tribunal in its order submits that the premium amount for the policy was paid under the contract of insurance. Under the contract of insurance, the full agreed sum was payable in the event of premature death of the husband during the currency of the policy and the maturity value of the amount of insurance was payable on payment of the entire amount of premium. The premium amount paid for the insurance policy, according to his argument, is not an "asset" transferred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... four sons. The firm was reconstituted. The question was-whether income arising to his minor sons by virtue of their admission to the benefits of the partnership firm could be included in the income of the assessee. It is on those facts that the Supreme Court took the view that income earned by the minor sons as members of the partnership firm cannot be held to have proximity or direct connection with the gifts made by the assessee to his sons. The Supreme Court found that there was no nexus between the transfer of asset and the income in question. The proximity between the transfer of asset and the income is not on the basis of time or period. The aforesaid decision of the Supreme Court in the case of CIT v. Prem Bhai Parekh [1970] 77 ITR 27 came up for consideration in the later decision of the Supreme Court in CIT v. Smt. Pelleti Sridevamma [1995] 216 ITR 826 and Prem Bhai Parekh's case [1970] 77 ITR 27 (SC) was explained thus: "The proximity referred to is the proximity between the assets transferred and the income in question. The time lag, if any, is of no significance under section 64(1)(iv) of the Act." It was in this manner that this decision was understood and distin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d interest. The Income-tax Officer included the interest in the total income of the assessee and the Division Bench upheld such inclusion by observing: "Here, we are dealing with income which has a proximate connection with the transfer of the asset made by the assessee. On a plain reading of section 64(1)(iii), it is evident that the income arising to the wife has to be included in the total income of her husband." Learned counsel, Mr. Akil Qureshi, appearing for the Revenue, submits that the facts of this case clearly show that the assets in the shape of amounts of premia were transferred by the husband in favour of his wife through the insurance policy and the interest amount derived from the maturity value of policy was clearly an income which arose indirectly from the asset transferred to the wife. The provisions of section 64(1)(iv) are clearly satisfied in the present case. On behalf of the Revenue, apart from the decisions of the Supreme Court referred to above, strong reliance has been placed on the decision of the Supreme Court in CIT v. Keshavji Morarji [1967] 66 ITR 142. In the case of CIT v. Keshavji Morarji [1967] 66 ITR 142 (SC), the assessee had a son and three ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee that the amounts of premia were paid under the contract of insurance and to discharge contractual obligations under the insurance policy. What is to be noted in the opening part as also in clause (iv) of section 64 is that there is use of the expression 'directly or indirectly' at two places. If the income arises indirectly from the asset transferred by the assessee indirectly to his spouse, the income is includible in the income of the assessee. The provision has to be construed in a manner so as to fulfil the object of the Act which, as held by the Supreme Court in Keshavji Morarji's case [1967] 66 ITR 142 is to tax the income of the wife in the hands of the husband, if the income of the wife arises to her from the asset transferred by the husband. Merely because the policy of insurance by its terms requires payment of premia by the husband during his life time, does not mean that premia were not cash amounts transferred to the benefit of the wife through the insurance policy. The provisions of the Married Women's Property Act, 1874, to which reference has been made by the Commissioner of Income-tax, are totally irrelevant. The said Act is intended only for the purp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd can be included in the income of the husband. The Division Bench of the Bombay High Court came to the following conclusion against the assessee: "The transferred asset in the new form, i.e., transformed into cash being only of the value of Rs.69,730, the interest attributable to that amount would be the income from the transferred assets arising directly or indirectly from the transferred assets to the wife otherwise than for adequate consideration or in connection with an agreement to live apart within the meaning of section 16(3)(a)(iii) and the rest of it would undoubtedly be the income of the wife but it was not the income from the transferred assets but it was the income from the income, which she had received during the previous year. In our opinion, therefore, out of the interest received by Bai Laxmibai for the subsequent years 1958-59 and 1959-60 only such interest as would be attributable to the value of the transferred assets, viz., the amount of Rs.69,730, would be liable to be included in the total income of Maneklal and not the rest". Applying the ratio of the decision of the Bombay High Court to the facts of the present case, it is to be found that the maturi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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