Commissioner of Income Tax vs P.R. Thakkar

Bharucha, J.—Income Tax Reference No. 332 of 1975 relates to the assessment year 1962-63. Income Tax Reference No. 43 of 1974 relates to the assessment years 1963-64 to 1965-66. Both references are made at the instance of the Commissioner in respect of the same assessee and upon the same facts They can, therefore, be disposed of together.

Income Tax Reference No. 332 of 1975 raises this question :

"Whether, on the facts and in the circumstances of the case, the assessee was entitled to the deduction of Rs. 12,000 u/s 24(1)(iv) of the Income Tax Act, 1961 ?"

Income Tax Reference No. 43 of 197 raises this question :

"Whether amounts received by the assessee''s wife were liable to be included in the total income of the assessee u/s 64(1)(iii)(sic) or section 60 of the Income Tax Act, 1961 ?"

The assessee owns a half share in a house property known as "Aarati" and in a house property known as "Father''s Gift". On December 1, 1960, the assessee executed a deed whereby, out of natural love and affection for his wife, the grantee thereunder, he covenanted with her that he would pay her, for a period of seven years from the date of the deed, an annual sum of Rs. 12,000 out of his one-half share in the net income from the two properties. The assessee charged his half share and all his right, title and interest in the two properties with the payment to his wife of the sum of Rs. 12,000 with intent that this should be an annual charge and his half share a security for the said payment.

In respect of the payments made to his wife under the deed, the assessee claimed deductions u/s 9(1)(iv) of the Indian Income Tax Act, 1922, and, subsequently, u/s 24(1)(iv) of the Income Tax Act, 1961. The Income Tax Officer and the Appellate Assistant Commissioner rejected the claim. The Income Tax Appellate Tribunal, however, upheld it. Arising out of its order, the question in Income Tax Reference No. 332 of 1975 is framed.

For the subsequent years, it was contended on behalf of the Department that the amount so paid to the assessee''s wife was liable to be included in the total income of the assessee by virtue of section 16(3)(iii) of the Indian Income Tax Act, 1922, and section 64(1)(iii) of the Income Tax Act, 1961, as also section 60 of the latter Act. The Tribunal rejected these contentions. The question framed in Income Tax Reference No. 43 of 1974 arises out of this order of the Tribunal.

Section 24 of the Income Tax Act, 1961, provides for the deductions to be made in the computation of income from house property. At the relevant time, section 24(1)(iv) read thus :

"24. (1) Income chargeable under the head ''Income from house property'' shall, subject to the provisions of sub-section (2), be computed after making the following deductions, namely : - ...

(iv) where the property is subject to an annual charge (not being a charge created by the assessee voluntarily or a capital charge), the amount of such charge;"

These were substantially the provisions under the 1922 Act.

A bare reading of the provision makes it clear that it is applicable to the case of the assessee. He had subjected his half share in the two properties to the annual charge of the payment of Rs. 12,000 to his wife. He was, therefore, entitled to the deduction of the amounts paid under the charge.

This is borne out by the judgment of this court in Commissioner of Income Tax, Bombay City-II Vs. Abdullabhai M. Moonim, . The assessee in this case and other co-owners had started the construction of a house property by contributing equally towards the cost of construction by taking a loan collectively. A part of the share of the cost of construction was raised by the assessee individually by borrowings. The assessee claimed a deduction u/s 24(1)(iv) of the Income Tax Act, 1961, of the interest paid by him on the loan raised by him personally. It was held by this court that he was entitled to such deduction in the computation of his income under the head "Income from house property". The court said that a reading of sections 20 to 26 of the said Act made it clear that where a house property was owned by co-owners who had definite and ascertainable shares, the gross income from such property was first to be ascertained on the basis of the provisions of section 23 of the said Act. From such gross income, the deductions u/s 24 had to be made. This gave the net income from the total property as available to the co-owners. The net income was then to be allocated to each of the co-owners in the proportion of their respective shares. After this was done, each of the co-owners was entitled to the deductions u/s 24. Each was entitled to the deduction of interest on the amount of money that he might have borrowed for the construction or acquisition of his share in the house property.

Accordingly, the question in Income Tax Reference No. 332 of 1975 is answered in the affirmative and in favour of the assessee.

It was contended by Mr. Jetly, learned counsel for the Revenue, that the amounts paid to the assessee''s wife under the said deed were liable to be included in the assessee''s total income by virtue of section 60 and/or section 64(1)(iii) of the Income Tax Act, 1961.

Section 60 of the Income Tax Act, 1961, reads thus :

"60. All income arising to any person by virtue of a transfer whether revocable or not and whether effected before or after the commencement of this Act shall, where there is no transfer of the assets from which the income arises, be chargeable to Income Tax as the income of the transferor and shall be included in his total income."

It will be seen that the amounts paid to the assessee''s wife had already been considered in the assessment of the assessee''s total income. The assessee was found to be entitled to the deduction of these amounts by reason of the provisions of section 24(1)(iv) of the Income Tax Act, 1961. What is sought to be done now is to include these same amounts yet again u/s 60. This is impermissible. The same amounts cannot be computed twice over as income.

The judgment of the Delhi High Court in Commissioner of Income Tax Vs. Dr. Rameshwar Lal Pahwa, , takes the same view. The assessee in that case was the owner of a house property. When he left for England he executed a deed in relation to the house property whereunder, out of natural love and affection, he created an obligation upon himself to pay to his mother maintenance in a stated sum for her lifetime and, if his father survived her, the same sum to his father till his death. A charge was created on the house property to secure payment of the maintenance and the sale of the property was to be subject to that charge. The Income Tax Officer permitted the assessee the deduction u/s 24(1)(iv) of the Income Tax Act, 1961, in respect of the amount of the charge, but simultaneously applied the provisions of section 60 of the said Act and added the same amount as "income from other sources" The Appellate Assistant Commissioner upheld the addition, but the Tribunal did not. It noted that the house property had been assessed by the Income Tax Officer in the hands of the assessee under sections 22 to 26 of the said Act, because he continued to be the owner. That being so, there was no further scope for the operation of section 60 of the said Act. All that section 60 provided was that the income from the property would continue to be assessed in the hands of the assessee. That assessment had, in the case of house property, to be done only in accordance with the provision of sections 22 to 26, and that had already been done. Section 60 did not declare that the same income had to be treated as income from other sources. Relying upon the judgment of the Supreme Court in Nalnikant Ambalal Mody Vs. Commissioner of Income Tax, Bombay, , the Delhi High Court observed that there was no scope for adding the same income over again as income from other sources merely because in the original computation of the income from the same source, the Income Tax Officer had been obliged to give a deduction. What the Income Tax officer had done virtually amounted to a double taxation of the income from the property in question.

We are wholly in agreement with the view expressed by the Delhi High Court and must hold that the amount received by the assessee''s wife was not liable to be included in the total income of the assessee by reason of section 60 of the Income Tax Act, 1961.

Section 64(1)(iii) of the Income Tax Act, 1961, at the relevant time read thus :

"64. (1) In computing, the total income of any individual, there shall be included all such income as arises directly or indirectly - ...

(iii) 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 an agreement to live apart."

For the application of this provision it is imperative that an individual must have transferred the income-yielding asset to his spouse. It is only then that in computing the individual''s total income, the income arising from such asset can be included.

There has been no transfer of an asset by the assessee to his wife in the instant case. He has merely created a charge upon his half share in the two properties in respect of the obligation to pay his wife the sum of Rs. 12,000 per annum. Section 64(1)(iii) of the Income Tax Act, 1961, is, therefore, not attracted.

The question raised in Income Tax Reference No. 43 of 1964, must, therefore, be answered in the negative and in favour of the assessee.

No order as to costs.