TMI Blog1996 (3) TMI 45X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee made two gifts to his daughter-in-law, Smt. P. Vijalakshmi, totalling Rs. 12,000 of which Rs. 6,000 each was invested on April 14, 1974, as her capital in the two firms, Vijayalakshmi Colour Company and Singarappan Palayakat Co. The Income-tax Officer was of the view that but for the capital contribution by her father-in-law, Smt. Vijayalakshmi could not have contributed capital in the abovesaid two firms and derived the share income therefrom. Hence, he treated the share income earned by the daughter-in-law applying the provisions of section 64(1)(vi) of the Income-tax Act, 1961, and clubbed the same with the income of the assessee. Thus, in the assessment years 1976-77 and 1978-79, the share income derived by the daughter-in-law from the abovesaid two firms was clubbed with the income of the assessee in his assessment. On appeal, the Appellate Assistant Commissioner was of the view that there is no nexus between the share income earned by the daughter-in-law and the gifts made by the father-in-law to the daughter-in-law. According to the Appellate Assistant Commissioner, the share income arose out of the capital contributed by the daughter-in-law, who is a partner in the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd. It was claimed that the facts in the assessee's case clearly justify inclusion and the cases cited by the assessee's counsel are clearly distinguishable on the facts available in the present case. According to learned standing counsel, the partnership deed supported the conclusion that the firms had no fixed capital and her interest in partnership was for her participation and not because of capital. Therefore, inasmuch as there is nexus between the gift made by the father-in-law and the share income earned by the daughter-in-law by contributing the said gifts as capital in the partnership-firm, the provisions of section 64(1)(vi) of the Act are applicable to the facts of this case. We have heard both learned counsel appearing for the assessee as well as learned standing counsel for the Department. Section 64(1)(vi) of the Income-tax Act, 1961, authorises inclusion of income as arises directly or indirectly to the son's wife of such individual from assets transferred directly or indirectly on or after the 1st day of June, 1973, to the son's wife by such individual otherwise than for adequate consideration. It is admitted that the capital amounts contributed to the two firms b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estion came up for consideration before the Andhra Pradesh High Court in G. Ethirajulu v. CIT [1972] 85 ITR 16. In the abovesaid decision, the following question was referred to the Andhra Pradesh High Court for its opinion : " Whether, on the facts and in the circumstances of the case, the share income of the minor son from Ranganatha Silk House is liable to be included in the assessment of the father, i.e., the assessee, under section 64(iv) of the Income-tax Act, 1961 ? " While answering this question, the Andhra Pradesh High Court, following the decision of the Supreme Court in CIT v. Prem Bhai Parekh [1970] 77 ITR 27, held that :" the share income of the assessee's minor son from Ranganatha Silk House did not arise as a result of the transfer by the assessee, but arose as a result of the admission to the benefits of partnership and, as such, it was not liable to be included in the total income of the assessee under section 64(iv) of the Act." In CIT v. Prahladrai Agarwala [1989] 177 ITR 398 (SC), the facts are : The respondent made two gifts of money to his wife in November, 1960, and another gift to his mother. They became partners in a firm in which the other partners ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rm and also became a partner of that firm. For the assessment year 1977-78, the Income-tax Officer rejected the claim of the assessee that the share income amounting to Rs. 19,920 from the firm received by the daughter-in-law was not includible in the income of the assessee under section 64(1) of the Income-tax Act, 1961. The Income-tax Officer included the amount in the total income of the assessee under clause (vi) of section 64(1). On these facts, on a reference, the Madhya Pradesh High Court held that : "the share income of the daughter-in-law of the assessee arose primarily on account of the fact that she was admitted to the partnership. The said income could not be said to have arisen directly or indirectly from the investment of the gift made by the assessee to his daughter-in-law. Therefore, the Tribunal was right in holding that the provisions of section 64(1)(vi) were not attracted to the case of the assessee and that the income earned by the daughter-in-law from her share in the firm could not be included in the total income of the assessee". However, learned standing counsel for the Department, drew our attention to a decision of the Kerala High Court in Jose v. CIT [ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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