Joginder Singh, Member (J) -
(1.) THE assessee is aggrieved by the impugned order dated 05/12/2012 of the ld. First Appellate Authority, Mumbai, The assessee raised the following grounds.
I. The learned commissioner of Wealth -tax (Appeals) was not justified in upholding the validity of the reassessment proceedings. The initiation of the reassessment proceedings and also the reassessment order passed consequent there to are illegal and invalid.
II. The learned commissioner of Wealth -tax (Appeals) was not justified in confirming the addition of an amount of Rs. 2,28,88,530/ - to the net wealth of the appellant. He has erred in holding that a residential house and jewellery purchased by the wife of the appellant from a loan given to her by the appellant were to be included in the net wealth of the appellant.
(2.) AT the time of hearing, Shri Hiro Rai, ld. Counsel for the assessee did not press ground No. 1 i.e. upholding the validity of reassessment proceedings; consequently, this ground is dismissed as not pressed. The only effective ground raised by the assessee pertains to confirming the addition of Rs. 2,28,88,530/ - to the net wealth of the assessee holding that the residential house and jewellery purchased by the wife of the assessee from a loan given to her by the assessee were to be included in the net wealth of the assessee. The crux of arguments advanced on behalf of the assessee is that the entire effort of the Assessing Officer as well as of the ld. First Appellate Authority is that it is a tax avoidance by the assessee by submitting that for A.Y. 2006 -07, the assessee paid Rs. 10,25,00,000/ - as tax. Our attention was invited to section 4(1)(a) of the Wealth tax Act. It was contended that the assessee has given a loan to his wife which cannot be said to be a transfer of asset. Reliance was placed upon the decision from Hon'ble Karnataka High Court in : 200 ITR 50 (Kar.) and : 158 ITR 215 (Kol.). It was explained that money given to his wife has been duly recorded in books of account. On the other hand, the ld. DR Shree Jeetendra Kumar strongly defended the conclusion arrived at in the assessment order/impugned order by pleading that it is an indirect transfer of the asset, therefore, the addition was rightly made in the hands of the assessee. Plea was also raised that simply to bring the taxable income in the lower bracket this arrangement was made by the assessee.
(3.) WE have considered the rival submissions and perused the material available on record. The facts, in brief, are that the assessee declared net wealth of Rs. 2,75,28,460/ - in his wealth tax return. The ld. Assessing Officer accepted the wealth declared by the assessee by passing an order u/s 16(3) of the Wealth Tax Act, 1957. The Revenue audit raised a query, consequently, notice dated 15/03/2011 u/s 17 of the Wealth Tax Act, 1957, was issued to the assessee. The wife of the assessee, Ms. Gauri Khan, purchased a residential house at Delhi for Rs. 1,65,95,000/ - and jewellery worth Rs. 70,22,658/ - out of the loan of Rs. 2,28,88,530/ - given by the assessee. The Assessing Officer was of the view that wealth of the assessee escaped assessment, therefore, the loan amount of Rs. 2,28,88,530/ - was to be clubbed in the hands of the assessee for computation of his net wealth. He further observed that the jewellery would have been purchased by the assessee which he deliberately avoided, thus, there was indirect "transfer of asset" to the wife, by the assessee, therefore, within the meaning of provision of section 4(1)(a)(i) of the Wealth Tax Act, 1957, the transferred amount is to be included in the net wealth of the assessee. On appeal, the ld. Commissioner of Income tax (Appeals) affirmed the view of the Assessing Officer against which the assessee is aggrieved and is in appeal before this Tribunal.
4.1. In view of the above discussion, we are reproducing hereunder the relevant provision/section 4(1)(a)(i) of the Wealth Tax Act, 1957:
"4(1) In computing the net wealth -
(a) Of an individual, there shall be included, as belonging to that individual, the value of assets which on the valuation date are held -
(i) by the spouse of such individual to whom such assets have been transferred by the individual, directly or indirectly, otherwise than for adequate consideration or in connection with an agreement to live apart, or."
If the aforesaid section is analyzed it speaks about "transfer of asset" by an individual i.e. by the spouse, directly or indirectly, otherwise than for adequate consideration or in connection with an agreement to live apart. However, under facts available before us, the assessee filed return of wealth declaring wealth of Rs. 2,75,28,460/ - on 30/3/2007, which was accepted by the Wealth tax Officer by passing an order dated 22/12/2008 u/s. 16(3) of the Wealth tax Act. The wife of the assessee has taken cash loan of Rs. 2,28,88,530/ -, from the assessee, for acquiring residential house at Delhi (Rs. 1,65,95,000/ -) and jewellery of Rs. 62,93,530/ -. We are expected to analyze what exactly "asset" means. Section 2(ea) of the Wealth tax Act, 1957, inserted by the Finance Act, 1992, w.e.f. 1.4.1993, and later on substituted by the Finance (No. 2) Act 1998, w.e.f. 1.4.1999, defines "asset". For ready reference we are reproducing the same hereunder: -
"(ea) "assets", in relation to the assessment year commencing on the 1st Day of April, 1993, or any subsequent assessment year, means: -
(i) Any building or land appurtenant thereto (hereinafter referred to as "house"), whether used for residential or commercial purposes or for the purpose of maintaining a guest house or otherwise including a farmhouse situated within twenty -five kilometers from local limits of any municipality (whether known as Municipality, Municipal Corporation or by any other name) or a Cantonment Board, but does not include: -
(1) A house meant exclusively for residential purposes and which is allotted by a company to an employee or an officer or a director who is in whole -time employment, having a gross annual salary of less than five lakh rupees;
(2) Any house for residential or commercial purposes which forms part of stock -in -trade;
(3) Any house which the assessee may occupy for the purpose of any business or profession carried on by him;
(4) Any residential property that has been let -out for a minimum period of three hundred days in the previous year;
(5) Any property in the nature of commercial establishments or complexes;
(ii) Motor cars (other than those used by the assessee in the business of running them on hire or as stock -in -trade;
(iii) Jewellery, bullion, furniture, utensils or any other article made wholly or partly of gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals;
Provided that where any of the said assets is used by the assessee as stock -in -trade, such asset shall be deemed as excluded from the assets specified in this sub -clause;
(iv) yachts, boats and aircrafts (other than those used by the assessee for commercial purposes);
(v) Urban land;
(vi) Cash in hand, in excess of fifty thousand rupees, of individuals and Hindu undivided families and in the case of other persons any amount not recorded in the books of account."
The legislature in its wisdom has specifically included building or land appurtenant thereto within the definition of "asset" and has specifically excluded a house meant exclusively for residential or commercial purposes which forms part of stock -in -trade, motor car, jewellery, bullion, furniture, utensils or any other article made wholly or partially of gold, silver, platinum or any other precious metal etc. So even as per the provisions of the Wealth tax Act, extending cash loan, to the wife, by the assessee does not come within the aforesaid definition, therefore, it can be said that there is no "transfer of asset" as has been alleged by the Department.
4.2 Section 2(14) of the Income tax Act speaks about "capital asset" which means property of any kind held by an assessee, whether or not connected with his business or profession, but does not include (i) any stock in trade; consumable stores or raw materials held for the purposes of his business or profession. (ii) personal effects, i.e. to say, moveable property (including wearing apparels and furniture) held for personal use by the assessee or any member of his family dependent on him. With the insertion of explanation for the purposes of the sub -clause "jewellery" has also been explained. In sub -clause (a) and (b) to sub -section (11) to sec. 2, of the Income tax Act, "tangible asset" and "intangible assets" have been defined which does not include cash. The case of the Revenue is that interest free loan was given to his wife by the assessee to enable her to acquire the aforesaid asset, and thus, in view of section 4(1)(a)(i) such assets have been transferred by the assessee. We are not agreeing with the Assessing Officer because there is no "transfer of asset" by the assessee rather, an asset has been purchased in the form of a residential house after taking an interest free cash loan from the assessee. Thus, in our view, there is no transfer of asset by the assessee, as has been canvassed by the ld. DR and also held by the ld. Assessing Officer, as well as by the ld. Commissioner of Income tax (Appeals). The assessee was not the owner of the asset which was transferred to the wife, as argued by the ld. DR, rather out of the interest free loan, the wife of the assessee purchased/acquired "new asset" in her own name from the third parties, thus, in our view, there is no justification for adding the amount as no 'asset' has been transferred.
4.3 If this issue is analysed, with respect to the claim of the Revenue, we are expected to see whether the assessee, has indulged in any unjustified method to avoid its tax liability? During hearing a question was posed upon the ld. Counsel for the assessee as during the relevant period how much tax was paid? The assessee filed its statement of income for the year ending 31st March, 2006 (Assessment Year 2006 -07). We find that the net taxable income has been shown by the assessee to the tune of Rs. 36,63,98,754/ - and on which TDS to the tune of Rs. 1,95,71,429/ - was also deducted and finally tax was paid to the tune of Rs. 10,25,00,000/ -. It is not the case that the assessee formulated this devise to remain below the maximum tax bracket rather the assessee is already paying the tax at a maximum rate. It is also not the case that with an intention to remain below the wealth tax limit the assessee gave interest free loan to the wife rather as discussed earlier the assessee did not transfer any asset and merely gave interest free loan.
4.4 The word "transfer" in section 64 of the Income tax Act, 1961, must be treated as having been used in the strict sense and not in the sense of "including every means by which the property may be passed from one to another". Even if, there is an indirect transfer, there must still be "transfer of asset". The word "indirectly" does not destroy the significance of the word "transfer". Our view is fortified by the decision of the Hon'ble Apex Court in CIT vs. Keshav Lal Lallubhai Patel : (1965) 55 ITR 637 (SC) and CIT vs. N.K. Stremann : (1965) 56 ITR 62 (SC). The ratio laid down in R. Dalmiya vs. CIT : (1982) 133 ITR 169 (Del.) wherein the Hon'ble High Court held that it is not right to say that the wife cannot make savings from household expenses paid to her. This cannot be deemed to be asset transferred to the wife. In the present appeal uncontrovertedly interest free cash loan was given by the assessee to his wife, therefore, it cannot be said to be 'transfer of asset'. Section 64 of the Act, refers to, transfer made to legally wedded wife. It is worth quoting, as argued by the ld. Counsel for the assessee, that at the later stage part of the loan was re -paid by the wife to the assessee, therefore, repayment of part of the loan further strengthens the case of the assessee because it was a loan simpliciter and cannot be said to be a device to "transfer of asset" as has been alleged by the Revenue with the intention of tax avoidance. It is also noted that the assessee gave the loan to his wife and the same was duly declared, therefore, it is not a case of tax avoidance. There is a distinction between the term "transfer" and "loan" which can be appreciated by comparing the "act of transfer" with the act of "lending". In the former case some legal interest is created in the transferee over the subject matter of transfer, whereas in the case of lending, except a possessory interest, which may be momentary also, no other interest is created. In the case of immovable properties, a distinction of this sort is easily noticed by comparing a lease with a license or as the case may be. When money is lent, the debtor is not expected to return the same coin or currency; he has to return an equivalent worth of money; in the meanwhile, the debtor is free to use the loan in whatever manner he likes; the investment made by him by utilizing the loan need not necessarily be disturbed at the time of returning the loan. As discussed earlier it was merely an interest free loan, thus it cannot be said to be a device for evasion of tax or transfer of asset.
4.5 For application of section 64(1)(iv) of the Income tax Act, it is imperative that an individual must have transferred the income yielding "asset" to his spouse. It is only then that in computing the total income of the individual the income arising from such asset can be included. Where an assessee has merely created a charge upon his half share in two properties in respect of his obligation to pay his wife an annual sum, section 64(1)(iv) would not be attracted. As discussed earlier there is no "transfer of asset" as such rather, an interest free loan was given to the wife, therefore, from this angle also there is no case of the Revenue. The ratio laid down in CIT vs. Mrs. Hasina Begum (wife) and Ors. ( : 158 ITR 215)(Cal.) supports our view. In the present case, the wife of the assessee is having independent source of income, filing her return and even subsequently repaid part of the loan and this fact even has been mentioned in para 4.3 (page -8) of the impugned order that the amount of Rs. 4,50,400/ - was repaid till assessment year 2008 -09, therefore, there was no "transfer of asset" or "colourable device", as has been alleged by the Revenue because the assessee was not the owner of "any asset" which was transferred to the wife, as mentioned earlier, rather a new property was acquired/purchased from a third party out of the interest free cash loan taken by the wife from her husband. So far as, the observation in para 4.3 of the impugned order as to "why a person shall lend money to wife to purchase house and jewellery or not purchase in his own name remained unexplained, is concerned, we are not satisfied with these observations because this is their family matter and the decision for purchasing the property i.e. in whose name the property is to be purchased, is up to them and not the Revenue. The ld. DR as well as the ld. Commissioner of Income tax (Appeals) has mentioned that it amounts to "indirect transfer" within the meaning of section 4(1)(a)(i) of the Wealth Tax Act. We find that sub -clause (i) also speaks about "to whom such assets have been transferred" by an individual. As discussed earlier there is no transfer of asset as such rather interest free loan was given by the assessee to his wife, therefore, from this angle also the assertion made by the ld. DR is on weak footing.
4.6 The Hon'ble Apex Court in CIT, Gujarat vs. Keshavlal Lallubhai Patel ( : 55 ITR 637) (SC), wherein there was self acquired property thrown in common hotchpot of hindu undivided family, which was subsequently partitioned and shares were allotted to wife, and minor child. The question before the Hon'ble Court was whether there was transfer of asset directly or indirectly as per section 16(3)(a)(iii), (iv) of the Indian Income tax Act, 1922. The Hon'ble Apex Court held as under: -
"i) that section 16(3) created an artificial income and had to be construed strictly, while coming to this conclusion the Hon'ble court followed the decision pronounced in Philip John Plasket Thomas vs. CIT : (1963) 49 ITR (SC) 97;
ii) that the word "transfer" was used in sec. 16(3)(a)(iii) and (iv) in the strict sense and not in the sense of including every means by which property may be passed from one to another;
iii) that the word "indirectly" did not destroy the significance of the word "transfer";
iv) that partition of Joint Hindu Family property was not "transfer" in the strict sense;
v) that there was no transfer of asset, direct or indirect, within the meaning of section 16(3)(a)(iii) or (iv) to the respondent's wife or minor son."
4.7 While coming to the aforesaid conclusion the Hon'ble Apex Court followed the decision in Potts Executors vs. Commissioner of Inland Revenue, (1950) 32 tax cas. 211, and distinguished the decision in CIT vs. C.M. Kothari, : (1963) 49 ITR (SC) 107 and approved the decision pronounced in Gutta radha Krishnaiah vs. Gutta Sarasamma : (1951) ILR (Mad.) 607, Stremann vs. CIT ( : 41 ITR 297) and Jagganath vs. State of Punjab : (1962) 64 PLR 22. In view of the clear facts and the proposition of law, as discussed herein above, we find merit in the appeal of the assessee, consequently, the order of the ld. Commissioner of Income tax (Appeals) is reversed, resulting into deciding this ground in favour of the assessee.
Finally, the appeal of the assessee is partly allowed.
This order was pronounced, in the open court, on 10th December, 2014.;