K D GHOSH Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) Directed by this court the Tribunal, under Section 256(2) of the Income-tax Act, 1961, has referred the following two questions:

(2.) The facts of the case have been set out in the statement of the case. The facts material for the purpose of this reference may be briefly noted. The relevant assessment year is the assessment year 1966-67, the corresponding financial year ending on the 31st March, 1966. The assessee is assessed in the status of an "individual". For this year he filed a return admitting an income of Rs. 6,071. The Income-tax Officer determined the assessee's total income at Rs. 28,404 under Section 143(3) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"). The Income-tax Officer found that the assessee had gifted a plot of land to his wife on August 31, 1964, and that a building was constructed on the said plot of land during the year under consideration. The building stands in the name of the lady. The assessee claimed that the building was constructed by his wife by her own efforts with moneys borrowed by her own initiative from M/s. National & Grindlays Bank Ltd., who occupied two floors in the building at a monthly rent of rupees 2,652. The assessee also filed a copy of the lease agreement along with a declaration from his wife to the effect that she was the absolute owner of the building. The Income-tax Officer, however, held that since the land on which the property was built was transferred by the assessee to his wife without adequate consideration the income from the property was assessable in his hands under Section 64(iii) of the Income-tax Act, 1961. Accordingly, the Income-tax Officer included a sum of Rs. 15,904 in the hands of the assessee under the said provision. Against the said order of the Income-tax Officer the assessee appealed to the Appellate Assistant Commissioner objecting to the inclusion of his wife's income in his hands contending that the said income did not arise directly or indirectly out of the land gifted by him and that there was no direct nexus between the property gifted and the property from which the income was derived. The Appellate Assistant Commissioner found that the building was constructed on the land gifted by the husband with money borrowed by mortgage of the said land from the bank. The Appellate Assistant Commissioner, therefore, held that the income of the assessee had been derived indirectly from the land which was transferred by the assessee to his wife and he dismissed the appeal. Against the said order of the Appellate Assistant Commissioner the assessee preferred a further appeal to the Tribunal. The Appellate Tribunal for reasons recorded in its order dismissed the said appeal.

(3.) As the Tribunal refused to refer any question to this court on the application of the assessee because the Tribunal was of the opinion that no questions of law were involved, the assessee had applied to this court under Section 256(2) of the Act. Directed by this court the Tribunal has referred to this court the two questions which we have earlier set out.