TMI Blog1980 (9) TMI 70X X X X Extracts X X X X X X X X Extracts X X X X ..... accretion and that the income from the estate subsequently purchased at Vellayur village with the consideration of the sale of the minor's estate at Nilambur is the income assessable at the hands of the applicant under section 9(2) of the Agrl. Income-tax Act? 3. Whether, on the facts and in the circumstances of the case, the Tribunal is justified in holding that the entire income from the estate purchased at Vellayur is assessable as the income of the applicant when he has advanced only Rs. 28,000 for the purchase of the estate at Nilambur and whether only proportionate income on the investment of Rs. 28,000 is liable to be assessed under section 9(2) of the Act at the hands of the applicant ? " The respondent is an assessee on the file of the Addl. Agrl. ITO, Alwaye. On June 5, 1967, he had purchased an area of 40 acres of rubber estate at Nilambur in Ernad Taluk in the name of his minor son, Babu Paul, for a consideration of Rs. 28,000. The income from this estate had been assessed in the hands of the respondent by the assessing authority under s. 9(2) of the Act for the assessment years commencing with April 1, 1968, onwards on the ground that the consideration for the pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as been cast wide, the Legislature must be assumed to have been fully aware of the conditions of the people and the widespread nature of the fraudulent device commonly adopted in the matter of the evasion of tax and thought it necessary to enact such a provision for counteracting such evasive tactics. Under s. 9(2) what is relevant is to find out whether the income in question, whose liability to be taxed in the hands of the assessee is in dispute, has arisen directly or indirectly from an asset transferred by the assessee directly or indirectly to the minor son. There must be proximate connection between the income derived and the transfer of the asset effected by the assessee and it is only if such connection is established that the provisions of s. 9(2)(a)(iv) will get attracted. This position is now well established by the pronouncement of the Supreme Court in CIT v. Prem Bhai Parekh [1970] 77 ITR 27. It was strenuously argued before us by the learned advocate appearing for the assessee that what was transferred by the assessee in favour of the son of the assessee was only a sum of Rs. 28,000 and that hence the Tribunal was in error in holding that the purchase of the estate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rest from such investment a sum of Rs. 9,288. Two questions arose for decision before the Bombay High Court. The first was whether the profit of Rs. 70,860 resulting from the transaction of sale of shares could be included in the total income of the husband under the head "Capital gains" on the ground that it was income that arose from assets transferred by him to his wife so as to attract the provisions contained in s. 16(3)(a)(iii) of the Indian I.T. Act, 1922. The second question was whether the interest of Rs. 9,288 received annually by the wife from out of the investment of sale proceeds in a company by name M/s. Bhivandiwala and Co. also could be included in the taxable income of the husband under s. 16(3)(a) of the said Act. On the first question the Bombay High Court held that the amount of Rs. 70,860 which was the profit resulting from the sale of the shares effected by the wife was liable to be included in the total income of the husband as income derived by way of capital gains from assets transferred by him to the, wife. In other words the High Court treated the entirety of the sale proceeds realised by the sale of the shares effected by the wife as representing assets ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g at page 507 of that report is of particular assistance in the present context: " It was argued, in the first place, that what comes within the ambit of section 16(3)(a)(iii) was 'the income from the assets ', i. e., the income which the asset produces while it continues to remain in the hands of the assessee and does not include the gain which the assessee makes by selling the asset and parting with possession of it. We see no justification for this argument. In our opinion, there is no logical distinction between income arising from the asset transferred to the wife and arising from the sale of the assets so transferred. The profits or gains which arise from the sale of the asset would arise or spring from the asset, although, the operation by which the profits or gains is made to arise out of the asset is the operation of the sale. If the asset is employed, say by way of investment and produces income, the income arises or springs from the asset; the operation, which causes the income to spring from the asset, is the operation of the investment. In the operation of the investment, income is produced while the asset continues to belong to the assessee, while in the operation o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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