POTTI VEERAYYA SRESTY Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) AT the instance of the assessee, the following question of law, under Section 256(1) of the Income-tax Act, 1961 (hereinafter called "the Act"), has been referred to us for our opinion:

(2.) THE facts that are material for answering the reference may briefly be stated :

(3.) SRI K. SRInivasa Murthy, the learned counsel appearing for the department, contended to the contra. His contention was that the meaning that was to be given to the phrase "adequate consideration" was consideration in money or money's worth. What the court has to see is whether the assessee in consideration of the transfer made by him to his wife, received either money or money's worth, which was equivalent to the value of the assets so transferred. In return for assets of Rs. 40,000 transferred by him to his wife, the assessee received the consent of his wife for adopting a son. That may give spiritual benefit to the assessee. Spiritual benefit cannot be valued in terms of money. It is, therefore, not adequate consideration. On the other hand, by adopting a son, the assessee has lost certain portion of his wealth in favour of his son. It is, therefore, positively a case of reduction in wealth. The assessee did not receive any monetary benefit by obtaining the consent of his wife for adopting a son. In Commissioner of Income-tax v. Prem Bhai Parekh the transfer was by a father to his minor child. The minor child invested the assets so transferred to him by his father in a partnership business, to the benefits of which he was admitted. The profits that the minor derived from the partnership firm for his share was not in consequence of his investing the assets transferred to him by his father, but on account of the fact that the other partners had agreed to admit him to the benefits of a partnership. It was, on those facts, the Supreme Court held that there was no nexus between the income earned and the assets transferred. In the present case the wife invested the assets in a business of her own and earned an income. For earning that income there was no necessity for her to depend upon the agreement of others. Therefore, the ruling in Commissioner of Income-tax v. Prem Bhai Parekh does not apply to the facts of this case. The department was justified in including the income of the assessee's wife in the total income of the assessee under Section 64(iii) of the Act.