TMI Blog1970 (4) TMI 8X X X X Extracts X X X X X X X X Extracts X X X X ..... ome-tax Act, 1922 (to be hereinafter referred to as " the Act "), against the decision of that court in a reference under section 66(1) of that Act. The two questions of law referred to the High Court by the Tribunal are : (1) Whether section 16(3) of the Act was ultra vires the Central Legislature ? and (2) Whether, on the facts and in the circumstances of the case, the income arising to the three mionor sons of the assessee by virtue of their admission to the benefits of the partnership of Messrs. Ajitmal Kanhaiyalal was rightly included in the total income of the assessee under section 16(3)(a)(iv) of the Act ? The assessee at whose instance those questions were referred did not press for an answer in respect of question No. 1. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee for that year. In appeal the Appellate Assistant Commissioner substantially upheld the order of assessment made by the Income-tax Officer but he held that the minors were entitled to only 1-9 pies share in the firm. The assessee took up the matter in appeal to the Income-tax Appellate Tribunal. The Tribunal upheld the decision of the Appellate Assistant Commissioner. On the facts found by the Tribunal, the High Court came to the conclusion that answer to question No. 2 should be in the negative and in favour of the assessee. The Tribunal found that the capital invested by the minors in the firm came from the gift made in their favour by their father, the assessee. That finding was not open to question before the High Court, nor did ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ship because of the contribution made by them. But there is no nexus between the transfer of the assets and the income in question. It cannot be said that that income arose directly or indirectly from the transfer of the assets referred to earlier. Section 16(3) of the Act created an artificial income. That section must receive strict construction as observed by this court in Commissioner of Income-tax v. Keshavlal Lallubhai Patel. In our judgment before an income can be held to come within the ambit of section 16(3), it must be proved to have arisen--directly or indirectly--from a transfer of assets made by the assessee in favour of his wife or minor children. The connection between the transfer of assets and the income must be proximate. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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