Case: C.I.T. Bihar &amp; Orissa, Patna Vs. Maharaj Kumar Kaml Singh

estate. After that decision was rendered Section 9 of the Act was amended by incorporating Section 9 (4) which reads: For the purpose of this section - (a) the holder of an impartible estate shall be deemed to be the individual owner of all the properties comprised in the estate. (b) x x x x x. 6. Hence, it is clear that after Section 9 was amended, the income of house property owned by a holder of an impartible estate has to be considered as his individual income. From this it follows that had the assessee not transferred the premises in question in favour of his wife, the income from those premises would have been considered as his individual income under Section 9. Now we have to see whether because of the transfer of the premises in favour of his wife, the said income cannot be considered as the income of the assessee under Section 16 (3) (a) (iii). Section 16 (3) (a) (iii) reads: In computing the total income of any individual for the purpose of assessment, there shall be included - (a) so much of the income of a wife or minor child of such individual as arises directly or indirectly - (i) x x x x x (ii) x x x x x (iii) from assets transferred directly or indirectly to the wife by the husband otherwise than for adequate consideration or in connection with an agreement to live apart; or (iv) x x x x x (b) x x x x x 7. There is no dispute that the transfer with which we are concerned is a direct transfer. Further it is admitted that the transfer in question was not effected for any consideration adequate or otherwise; nor was it effected in connection with an agreement to live apart. But the assessees contention was, which contention was accepted by the High Court that S. 9 (4) (a) only deems the income of a house property included in an impartible estate as the individual income of the holder and that only for the purpose of Section 9 and not for any other purpose. In other words, it was urged that section raises a legal fiction and that legal fiction is limited for the purpose of Section 9. It was further urged that a legal fiction cannot be extended beyond the purpose for which it was created. Counsel for the assessee urged that the fiction incorporated in Section 9 (4) (a) can be taken into consideration only for the purpose of Section 9 and not for the purpose of Section 16 (3). This contention appears to us to be fallacious. 8. Section 6 of the Act sets out the various heads of income, profits and gains chargeable to income-tax. They are (i) salaries, (ii) interest on securities; (iii) Income from property, (iv) Profits and Gains of business, profession or vocation; (v) Income from other sources and (vi) Capital gains. Section 3 read with S. 4 brings to tax the total income, profits and gains of an assessee from whatever source it might have been received or accrued. The total income is defined in Section 2 (xv) as meaning total amount of income, profits and gains referred to in sub-section (1) of Section 4 computed in the manner laid down in the Act. 9. Section 9 deals with only one head of income. Prior to the transfer by the assessee, he, in law would have been considered as the owner of those premises for purposes of ascertaining his income from house property and that income would have been taken into account in computing his total income. In other words, in ascertaining the total income of the assessee for the purpose of assessment that income also would have entered into the calculation. Hence when Section 9 (4) (a) speaks for the purpose of this section it really means for the purpose of determining the taxable income of the assessee. It must be remembered that an assessee is not separately taxed under each head of income. Hence when a source of income is transferred by the assessee to his wife, excepting for the two purposes mentioned in Section 16 (3) (a) (iii), income from that source has to be considered as the income of the assessee because an asset of the assessee stands transferred to his wife. Such a conclusion does not amount to extending the fiction created under Section 9 beyond the purpose for which it is created. It merely gives effect to that fiction. It is true that a legal fiction should not be extended beyond the purpose for which it is created but that does not mean that the Court should not give effect to that fiction. 10. Section 27 (ii) of the Income-tax Act, 1961 which has taken the place of Section 9 (4) of the Act does not begin by saying for the purpose of this section. On the other hand, it says that the holder of an impartible estate shall be deemed to be the individual owner of all the properties comprised in the estate. It was contended on behalf of the assessee that this is a change in the law and on that basis we were asked to accept the assessees construction of Section 9 (4) (a). We are unable to accept this contention. We do not think that there is any change in the law. Section 27 (ii) of the Income-tax Act, 1961 makes explicit what was implicit in the provision as it originally stood. 11. In view of our conclusion that the income of the house property in question should be included in the total income of the assessee, it follows as a necessary corollary that the annual value of the assessees residential house to be computed at 10% of the total income to the assessee which income as already held includes the income from the house properties transferred to his wife as required by the 1st proviso to Section 9 (2).

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]7. There is no dispute that the transfer with which we are concerned is a direct transfer. Further it is admitted that the transfer in question was not effected for any consideration adequate or otherwise; nor was it effected in connection with an agreement to live apart8. Section 6 of the Act sets out the various heads of income, profits and gains chargeable to income-tax. They are (i) salaries, (ii) interest on securities; (iii) Income from property, (iv) Profits and Gains of business, profession or vocation; (v) Income from other sources and (vi) Capital gains. Section 3 read with S. 4 brings to tax the total income, profits and gains of an assessee from whatever source it might have been received or accrued. The total income is defined in Section 2 (xv) as meaning total amount of income, profits and gains referred to in sub-section (1) of Section 4 computed in the manner laid down in the Act9. Section 9 deals with only one head of income. Prior to the transfer by the assessee, he, in law would have been considered as the owner of those premises for purposes of ascertaining his income from house property and that income would have been taken into account in computing his total income. In other words, in ascertaining the total income of the assessee for the purpose of assessment that income also would have entered into the calculation. Hence when Section 9 (4) (a) speaks for the purpose of this section it really means for the purpose of determining the taxable income of the assessee. It must be remembered that an assessee is not separately taxed under each head of income. Hence when a source of income is transferred by the assessee to his wife, excepting for the two purposes mentioned in Section 16 (3) (a) (iii), income from that source has to be considered as the income of the assessee because an asset of the assessee stands transferred to his wife. Such a conclusion does not amount to extending the fiction created under Section 9 beyond the purpose for which it is created. It merely gives effect to that fiction. It is true that a legal fiction should not be extended beyond the purpose for which it is created but that does not mean that the Court should not give effect to that fiction10. Section 27 (ii) of the Income-tax Act, 1961 which has taken the place of Section 9 (4) of the Act does not begin by saying for the purpose of this section. On the other hand, it says that the holder of an impartible estate shall be deemed to be the individual owner of all the properties comprised in the estate. It was contended on behalf of the assessee that this is a change in the law and on that basis we were asked to accept the assessees construction of Section 9 (4) (a). We are unable to accept this contention. We do not think that there is any change in the law. Section 27 (ii) of the Income-tax Act, 1961 makes explicit what was implicit in the provision as it originally stood11. In view of our conclusion that the income of the house property in question should be included in the total income of the assessee, it follows as a necessary corollary that the annual value of the assessees residential house to be computed at 10% of the total income to the assessee which income as already held includes the income from the house properties transferred to his wife as required by the 1st proviso to Section 9 (2).