No clubbing of interest-free loan given by ‘Shahrukh Khan’ to his wife from whom she had purchased assets

IT : 'Shahrukh Khan' gave interest-free loan to his wife, Gauri Khan, who in turn, purchased a residential house and jewellery from said loan amount. The department clubbed the value of loan amount in the net wealth of 'Shahrukh Khan'. Extending cash loan, to wife does not come within the definition of asset as provided under Section 2(ea) of the wealth tax Act, thus, it could not be said that there was a transfer of asset; the impugned loan amount was not includible in net wealth of assessee

Facts:

(a)		Shahrukh Khan (assessee) gave interest free loan to his wife, Gauri Khan, who, in turn, purchased residential house and jewellery in her name from such loan amount.
(b)		The Assessing Officer ('AO') opined that the loan given by the assessee to his wife would be treated as indirect "transfer of asset" within the meaning of section 4(1)(a)(i) of the Wealth Tax Act. Accordingly, he clubbed the value of loan amount in the net wealth of the assessee.
(c)		On appeal, the CIT(A) affirmed the view of the AO against which the assessee had filed the instant appeal before the Tribunal.

The Tribunal held in favour of assessee as under:

(1)		Section 4(1)(a)(i) of the Wealth-tax Act, 1957 provides as under:
		In computing the net wealth of an individual, there shall be included, the value of any asset which are held by 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.
(2)		Extending cash loan, to wife does not come within the definition of asset as provided under Section 2(ea) of the wealth tax Act, thus, it could not be said that there was a transfer of asset as alleged by the department.
(3)		The instant case was not of tax avoidance as in the instant case assessee gave the loan to his wife and the same was duly declared. There is distinction between the term "transfer" and "loan". In act of transfer, some legal interest is created in the transferee over the subject matter of transfer, whereas in case of lending, except a possessory interest, which may be momentary also, no other interest is created.
(4)		In the instant case, the wife of assessee was having independent source of income, filing her return and even subsequently repaid part of the loan. Therefore, there was no "transfer of asset" or "colourable device", as assessee was not the owner of "any asset" which was transferred to the wife, rather a new property was purchased from a third party out of the interest free cash loan taken by the wife from her husband.
(5)		The CIT(A) had opined that it amounts to indirect transfer of asset within meaning of Section 4(1)(a)(i) of the Wealth Tax Act. This angle of CIT(A) was on weak footing as in the instant case there was no transfer of asset rather interest-free loan was given by the assessee to his wife.
(6)		Thus, the impugned loan amount was not includible in wealth of assessee. Accordingly the order of CIT(A) was to be reversed.