COMMISSIONER OF INCOME TAX Vs. N MUTHAMMAL

JUDGEMENT

(1.) T. C. No. 823 of 1984 relates to the income-tax assessment, whereas T. C. No. 824 of 1984 relates to the wealth-tax assessment of the same assessee At the instance of the Department, the Tribunal referred the following questions in both the income-tax assessment as well as the wealth-tax assessment of the same assessee for the assessment year 1976-77 for the opinion of this court"T. C. No. 823 of 1984 : Whether, on the facts and circumstances of the case, the Tribunal's finding that the income arising to the minors from out of the properties transferred through the medium of trusts cannot be included in the assessment of the assessee under section 64(1)(vi) of the Income-tax Act, 1961, is sustainable in law ? "" T. C. No. 824 of 1984 : Whether, on the facts and in the circumstances of the case, the Tribunal's finding that the assets transferred to the minors through the medium of trusts cannot be included in the net wealth of the assessee under section 4(1)(a)(v) of the Wealth-tax Act is sustainable in law ?" *

(2.) THE assessee, Smt. N. Muthammal, Dindigul, is an individual. For the assessment year 1976-77, the accounting year ended on December 31, 1975. She derived share income from two firms and other sources. Originally, the assessment was completed on January 28, 1977, on a total income of Rs. 28, 590 in which the assessee has not shown any income against column 12(b) in the return of income pertaining to income arising to spouse/minor child/son's wife/son's minor children. On the basis of communication from the Income-tax Officer, the assessment was reopened and the Income-tax Officer included the income arising from three private trusts created by the assessee, viz., Vijayashree Trust, Sujatha Trust and Ranjit Trust, in favour of her minor grandchildren, viz., Miss Vijayashree, Miss Sujatha and Master Ranjith, by invoking section 64(1)(vi) of the Income-tax Act, 1961According to the Income-tax Officer, the word "indirectly" appearing in section 64(1)(vi) would apply to the transfer made by the assessee through the medium of trusts inasmuch as the ultimate benefit of each of the trusts reached each of the three minor grandchildren of the assesseeOn appeal, the Appellate Assistant Commissioner upheld the validity of the reassessment proceedings under section 147(b), but, on the merits, he held that the transfers through the medium of trusts would not attract section 64(1)(vi) and consequently deleted the income assessed in the hands of the assesseeAggrieved, the Revenue filed a second appeal before the Tribunal and the assessee filed a cross-objection.

(3.) THIS distinction was of little consequence. The words 'directly or indirectly' in section 64(iii) of the 1961 Act, corresponding to section 16(3)(a)(iii) of the 1922 Act, cover the case of a trust and the nature of the transaction in the instant case was similar to that which was before the Supreme Court. The assets of the assessee in the process of being transferred in favour of his wife have been deliberately and in a planned manner converted into assets of a like value in the hands of another person and on the basis of the exchange the income is indirectly reaching the hands of the assessee's wife. Consequently, section 64(iii) of the 1961 Act was applicable and the entire income from the assets transferred by the assessee to J was includible in the income of the assessee : CIT v. Kothari (C. M.) [1963] 49 ITR(SC) 107 and CIT v. Abhijit Sen 1968 (68) ITR 23 (Cal) followed." * In CIT v. C. M. Kothari [1963] 49 ITR(SC) 107, the Supreme Court while considering the provisions of section 16(3)(a)(iii) of the Indian Income-tax Act, 1922, and while answering the question, whether the income arising to Mrs. C and Mrs. D from the house arose out of the assets transferred indirectly to them by C and D, respectively and could, therefore, be included in the total income of C and D under section 16(3)(a)(iii) of the Indian Income-tax Act, 1922, held as under "(i) That for the purpose of section 16(3)(a)(iii) it was not necessary that the same assets belonging to the husband should have reached the wife.