9911796707
TMI Blog1989 (4) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... individual for the assessment year 1962-63 corresponding to the previous year March 26, 1961, to April 13, 1962. At the material time, the assessee was a partner in a firm, Messrs. Ramesh and Co., with a share of eight annas therein. The balance was shared by three other partners, the assessee's father, Kunjilal Agarwala, the assessee's brother, Hariram Agarwala and a stranger, Jagdish Prasad. On November 10, 1960, and on November 28, 1960, the assessee made two gifts of Rs. 21,000 and Rs. 30,000 respectively to his wife, Kaushalya Devi, from his account in the firm. On November 28, 1960, he made another gift of Rs. 11,000 to his mother, Chili Bai, from that account. It may be observed that Chili Bai received another gift of Rs. 20,000 from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Devi contributed Rs. 21,000 as capital, which came out of the gift made by the assessee on November 10, 1960. She also contributed Rs. 30,000 as capital, which amount came out of the gift made on November 28, 1960. In the course of assessment proceedings for the assessment year 1962-63 in respect of the assessee, the Income-tax Officer included the profits of the assessee's wife from the firm, Messrs. Kunjilal Hariram and Co., under section 64(1)(iii) of the Income-tax Act, 1961. An appeal by the assessee was dismissed by the Appellate Assistant Commissioner of Income-tax, who observed that the wife would not have become a partner of the firm unless she had contributed capital, and as the capital was provided by the husband, the inclusio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bute to the partnership firm, that the admission of the assessee's wife to the partnership was not in consequence of the gift, and that, therefore, upon all those circumstances, the connection between the income of the share of profits and the gifts by the assessee to his wife was too remote to be included within the provisions of section 64(1)(iii) of the Income tax Act. Section 64(1)(iii) of the Income-tax Act, 1961, as it stood at the relevant time, provides: "64(1) In computing the total income of any individual, there shall be included all such income as arises directly or indirectly- . . . (iii) subject to the provisions of clause (i) of section 27, to the spouse of such individual from assets transferred directly or indirectly to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ution 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 a strict construction as observed by this court in CIT v. Keshavlal Lallubhai Patel [1965] 55 ITR 637. 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. The income in question must aris ..... X X X X Extracts X X X X X X X X Extracts X X X X
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