For the assessment year 1981-82, the Income Tax Officer (ITO) discovered that the wife of the assessee had entered into an agreement to purchase a flat, but being a housewife, she had no independent source of income. The ITO thus held that the investment made in purchasing the flat, as well as any income or capital gain derived from it, belonged to the assessee since he occupied the property. The assessee appealed and the Appellate Authority Commission (AAC) allowed it, with the Tribunal later affirming the AAC’s decision. The Tribunal based its ruling on the fact that the flat was registered under the name of the assessee’s wife, who was a member of the housing society, and that the ITO had failed to prove that she was a benamidar of the assessee. However, on reference, the court determined that the entire investment in the flat was made by the assessee, and not his wife, who had no source of income as per the ITO’s findings.
In such cases, the court held that the income from the property should be taxed in the hands of the real owner, who is entitled to receive the income in his or her own right, having regard to the ground realities and the object of the Act. Thus, when the entire investment was made by the husband and the flat was only in the name of his wife, the income from the property must be taxed in the hands of the husband, and not in the hands of his wife.
The Supreme Court’s decision in CIT v. Podar Cement (P) Ltd. (1997) 226 ITR 625/92 Taxman 541 (SC) supports this ruling, emphasizing that the Act’s objective is to tax the income in the hands of the real owner. The court emphasized that the Tribunal did not specify the type of materials that should be considered in such cases, which led to its decision being overturned.
Overall, in the assessment year 1981-82, the income from the flat purchased by the assessee’s wife should have been taxed in the hands of the assessee since he made the entire investment and his wife had no independent source of income. This decision is in line with the Supreme Court’s view in CIT v. Podar Cement (P) Ltd. (1997) 226 ITR 625/92 Taxman 541 (SC), which emphasizes the importance of taxing income in the hands of the real owner. The ruling also highlights the need to consider the ground realities and the object of the Act in determining who the real owner of a property is.
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