(1.) THE assessee is a prominent film artiste. In the account year relevant to the assessment year 1960-61, he constructed a house at a cost of over Rs. 1, 25, 000. This property stands in the name of his wife. It was found as a fact in the assessment proceedings that the assessee had given a sum of Rs. 75, 000 to his wife for the purpose of this construction. THE Income-tax Officer took the view that since that was a transfer of this volume of an asset to the wife and that transfer was not for adequate consideration, the proportionate income from the property should be included in the income of the assessee. He computed three-fifths of the income as so includible in the assessment of the assessee. THE assessee appealed. One of the points raised was that there was no transfer of any asset to the wife which could be brought under section 16(3) of the Act. THE contention was that the assessee had only advanced funds for the purpose of construction and that could not be construed as a transfer of an asset. This argument prevailed with the Appellate Assistant Commissioner, who directed the deletion of any part of the income from the house from the total income of the assessee THE department took the matter in appeal to the Tribunal.
(2.) THE Tribunal found as a question of fact that the assessee did transfer a sum of Rs. 75, 000 to the wife without any adequate consideration and that this sum was utilised for the construction of the house. THE Tribunal took the view that even if it was only money that was transferred, it could still be brought within the scope of section 16(3) of the Act. THE further contention advanced was that there was no receipt of any real income from the property, for the owner, the wife of the assessee, was actually residing therein, and it was urged that it is "real" income as opposed to "notional" income that could be brought within the scope of section 16(3) of the Act. This contention was also negatived by the Tribunal. Lastly, it was urged that section 9 of the Act places an upper limit in the matter of taxation of residential property, and since the income assessed, as being derived from this property has to be limited to 10 per cent. of the income of the owner, the amount can be included in the assessee's income, as the owner's income in the relevant year was nil. This contention will be elaborated in due course, but it would suffice to say that that was also rejectedOn the application of the assessee, the following question was referred by the Tribunal for the determination of this court"Whether any part of the income from the house property could be included in the hands of the assessee, and if so, what part ?Mr. R. M. Seshadri, learned counsel for the assessee, cannot at this stage dispute the finding of fact that a sum of Rs. 75, 000 was in fact provided by the assessee for the construction of this house, and since the house as ultimately constructed stands in the wife's name and this property is admittedly owned by her, the sum contributed by the assessee for the construction cannot but be regarded as an asset transferred to her. Notwithstanding this, Mr. Seshadri argues that section 16(3) of the Act has no application, and even if it applies, it has to be read along with section 9 of the Act which brings to tax income from property if so done, no part of the income from this property can be included in the income of the assesseeTHE relevant part of section 16 of the Act reads thus16. (3) In computing the total income of any individual for the purpose of assessment, there shall be included .... so much of the income of a wife ..... of such individual as arises directly or indirectly---(iii) from assets transferred directly or indirectly to the wife by the husband otherwise than for adequate consideration or in connection with an agreement to live apart." *This provision accordingly requires that where any asset has been transferred to the wife in such circumstances as indicated and the wife derives an income from that asset, that income shall be included in the total income of the assessee.
(3.) THAT there may be no income in fact is disregarded when the assessment is made. The actual or hypothetical income has to be measured by some standard for the purpose of taxation and the standard prescribed is the annual value. This principle has been subject to adverse comment, but once the theory is appreciated, the method may be understood, and any confusion of thought created by the words of the charging section dispelled . . . "Earlier it is pointed out that in Shanks v. Commissioners of Inland Revenue, the phrase "property in land" was held to include any right of occupation which gives the occupier the benefit of the annual value. This accords with the view that we have expressed that the benefit arising from the enjoyment of the property is really what is brought to tax and not the receipt of any income in terms of moneyWe have already indicated the next line of argument Mr. Seshadri contends that section 16(3) itself is a deeming provision and it can only mean that an income which is not that of the assessee but that of his wife is in certain circumstances deemed to be the income of the assessee himself. His argument is that what is not a real income, but a deemed income, in the hands of the wife cannot once again be deemed to be that of the assessee liable for assessment in his hands. Turning to section 9, he claims that section 9 itself, in so far as it brings to tax the annual value of the property, deems a certain sum to be the income from the property, so that it is not a real income that is dealt with under section 9. It is thus his contention that what is only a deemed income under section 9 cannot be brought within the scope of section 16(3) which, according to him, deals only with a real income of the transferee, which is assessed in the hands of the transferor, the assessee. Firstly, we may point out that it is not a deemed income at all that is dealt with under section 16(3), that is to say, the law does not say that the income of the wife shall be "deemed" to be the income of the assessee. What in effect it provides for is that an income received by the wife in certain circumstances shall be taxed in the hands of the assessee. Section 16(3) sets out the mode of computation of the income of a person who has transferred certain assets to his wife, and in certain specified circumstances the income arising from the transferred asset is taxed in the hands of the husband himself. It may be said in a manner of speaking that the income of the wife is deemed to be that of the husband, but the section itself does not say so. Even apart from that, we have already pointed out that section 9 itself does not create an artificial income. The fact that in respect of the property the income is not received in rupees, annas and pies does not lead to the position that no income at all is derived therefrom.