TMI Blog1978 (3) TMI 53X X X X Extracts X X X X X X X X Extracts X X X X ..... O wrote to the lady as to the source of funds for capital contribution in the business. She replied that the capital came from dowry given by her father. The capital referred to was a sum of Rs. 25,381 shown in the balance-sheet of the cinema business as on 31st March, 1947. But the ITO was not satisfied with the explanation. He held that in the absence of any documentary and other evidence the capital must be held to have come from the assessee and the income from the business should, therefore, be included in the assessee's assessment under s. 16(3) of the Indian I.T. Act, 1922. He accordingly reopened the assessment of the assessee for the assessment year 1946-47, under s. 34 of the Indian I.T. Act, 1922, and included the income from the cinema business and the property in the assessment under s. 16(3) of the said Act. The assessee did not appeal against this assessment. Subsequently, after reopening the assessment of the assessee under s. 34 of the Indian I.T. Act, 1922, for the assessment year 1947-48, the ITO held that in the absence of any evidence in support of the explanation offered, viz., that the money was gifted to the assessee's wife by her father, it was income of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epted by the assessee. Afterwards, right up to the assessment year 1965-66, the assessee had returned the income from cinema business in his personal assessment. He did not contest before the ITO during the assessment proceedings against the inclusion of that income in his assessment. Even before the AAC he did not raise this ground in the original appeal but raised it only later by way of an additional ground. It was contended by way of additional ground before the AAC that the entire income from the business of Shyamasree Cinema in the name of his wife should not be included in the assessee's income but only a portion thereof could be so included. It was urged that a sum of Rs. 65,270 was only transferred to the wife by the assessee. The hall was constructed in the name of the wife out of moneys given by the assessee and, excepting for land and buildings, the other assets were out of bank overdraft obtained from the Bank of Bengal and Central Bank, Howrah, in 1944-45 on the security of the house and building in her name. It was further argued that at best the income which could be attributed to flow from the amount transferred by the assessee to the wife should be included and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a benamidar. The previous order was referred to and it was found that the assessee had paid his tax dues by debiting the capital account of the cinema business. The Tribunal after considering the rival contentions observed that there was no evidence of transfer of any asset of the business by the assessee to his wife and from the beginning, according to the Tribunal, the assessee's case was that the money that was required for purchase of the land or construction of the building or for running of the business was obtained by his wife on her own account and he did not provide anything. The Tribunal, however, observed that the explanation offered for the original investment in the business was not accepted by the department and it was held to be the assessee's undisclosed income The assessee also accepted the action of the department. The Tribunal, however, held that it did not mean that there was any transfer of assets or that the assets were acquired by the assessee's wife out of funds transferred by the assessee. The findings of the AAC, for the assessment years 1949-50 and 1951-52 which were accepted by the assessee would clearly indicate that the investment in the business was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss any appropriate order. But the amplitude of the power is circumscribed by the subject-matter of the appeal. The question, in the instant case, is whether the income belonged to the assessee or the income of the wife is to be included in the income of the assessee under s. 64(iii) of the I.T. Act, 1961. It was contended that the subject-matter of the appeal was not whether the wife was merely the benamidar of the assessee or whether the property, Shyamasree Talkies, belonged to the assessee or not. The subject-matter of the appeal, according to counsel for the assessee, was whether any portion of the income from the Shyamasree Talkies could be said to be the income arising from assets transferred directly or indirectly by the husband to the wife. In the case of Hukumchand Mills Ltd. v. CIT [1967] 63 ITR 232 the Supreme Court hold that the Tribunal had sufficient power under s. 33(4) of the Indian I.T. Act, 1922, which were in similar terms to sub-s. (1) of s. 254 of the I.T. Act, 1961, to entertain a contention of the department with regard to the application of para. 2 of the Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950, and remand the case to the ITO. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee, which carried on the business of manufacture and sale of cotton yarn, spent Rs. 93,215 for introduction of the "Casablanca Conversion System" in its spinning plant. Substantially, this involved replacement of certain roller stands and fluted rollers fitted with rubber aprons to the spinning machinery, removal of ring frames from certain existing parts, introduction, inter alia, of ball-bearing jockey-pulleys for converting the original band-drivers to tape-drivers and other additions and alterations in the drafting mechanism. The assessee claimed development rebate on the ground that introduction of the "Casablanca Conversion System" involved installation of new machinery, for the first time before the Tribunal and claimed in the alternative that the amount laid out was in any event expenditure for current repairs allowable under s. 10(2)(v) of the Indian I. T. Act, 1922. The Tribunal inspected the factory, studied the working of the machinery and considered the literature of the manufacturers and held that though development rebate was not admissible, the amount spent was admissible under s. 10(2)(v) since as a result of the stress and strain of production over a long p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Rules and the principles of justice was given to the assessee to controvert such a contention to be considered by the Tribunal. There is no dispute that such opportunity had been given to the assessee. Our attention was drawn by counsel for the revenue to the decision of the Bombay High Court in the case of J. S. Parkar v. V. B. Palekar [1974] 94 ITR 616 and reliance was placed on the observations of the court at pages 658 and 660. The said observations in our opinion only reiterated the principles we have already mentioned and do not carry the matter any further. Counsel for the assessee, however, drew our attention to the decision of a Division Bench of the Madras High Court in the case of M. R. M. Periannan Chettiar v. CIT [1960] 39 ITR 159. There the Division Bench observed that the existence of an appeal which related only to a distinct matter in controversy did not entitle the Tribunal to take up and decide the appeal in favour of the appellant on the basis of a ground not in controversy. There the court found that the only question for determination before the Tribunal was whether the remittance from Penang was made in 1941-42 or in 1947-48, and, therefore, the question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds other than the matters in issue before it and the Tribunal was justified in taking up the course it followed. The second question was whether there was any evidence before the Tribunal to come to the conclusion that Smt. Lila Devi, wife of the assessee was benamidar in respect of the cinema business styled as Shyamasree Talkies. The Tribunal has discussed the evidence. We are not concerned with the sufficiency of the evidence in support of a conclusion arrived at by the Tribunal. It cannot be said that there was no evidence before the Tribunal to come to the conclusion and it cannot also be said that the conclusion arrived at by the Tribunal was perverse. We, therefore, answer question No. 2 in the affirmative and in favour of the revenue. The third question is whether on the facts available on record the Tribunal was justified in holding that the provisions of s. 64(iii) of the I.T. Act, 1961, to the extent of the assets transferred by the assessee to his wife are not applicable in the instant case. It was contended before us as it was contended before the Tribunal that the entirety of the income of Shyamasree Talkies should not be included as arising from the assets transf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee-husband. The accretions in the shape of interest on the money gifted or loans obtained on the security of the property purchased or constructed with the gifted money or the profits made from the business carried on with the property gifted cannot be described or considered to be assets transferred indirectly. The question is, whether the income that arises from the totality of all these, viz., the money originally gifted by the assessee's husband to the wife, the accretions thereon in the shape of interest and loans obtained from the bank on the security of such property purchased with the gifted money or profits earned by running the business of the gifted money, could such entirety of that amount be described to be such income which arose either directly or indirectly from the assets gifted. The transfer was only of the money, the accretions were not transfers. The entirety of the income does not arise from the assets transferred, part of it does arise from the accretions. Such accrual of income as arising from the income of the accretions cannot properly perhaps be described as income arising indirectly from the assets transferred because such income does arise dire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e I.T. Act, 1922. It was held that the transfers in question were direct transfers and the income realised by the wife was income indirectly received in respect of the transfer of cash directly made by the assessee. There was a proximate connection between the income and the transfer of assets made by the assessee. The income derived by the assessee's wife had, therefore, to be included in the total income of the assessee under s. 16(3)(a)(iii). Following these principles enunciated by the Supreme Court, we, in the case of Prahladrai Agarwala v. CIT [1973] 92 ITR 130 (Cal), held that where an individual had gifted a sum of money to his wife and the wife invested the same in a firm and became a partner and had received a share of profits of the firm, such share of profits arose primarily because the partnership made a profit. Though that had a connection with the gift, it did not arise as a result of the gift. Secondly, the income arose only because the other partners had agreed to take the individual's wife as a partner and had allowed her to contribute to the capital of the firm. This was not a result of the gift. The income from share of profits in the firm arising to the indiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 502 (Cal) has considered this question. There, the assessee who was assessed as an individual filed his return for the assessment year 1966-67 showing an income of Rs. 6,071. The ITO determined the assessee's total income at Rs. 28,404 on the ground that the assessee had gifted a plot of land to his wife and that a building was constructed on the plot of land during the year under consideration. Though the building stood in the name of the wife, the income thereof was included in the assessment of the assessee. The assessee contended that the building was constructed by his wife by her own initiative with moneys borrowed from a bank which occupied two floors in the building at a monthly rent of Rs. 2,652. The assessee also filed a copy of the lease agreement along with the declaration from his wife to the effect that she was absolutely the owner of the building. The ITO and the AAC rejected the contention of the assessee. On a further appeal, the Tribunal found that the assessee's wife had no other source of income and there was no investment by the wife or anything of her own on the building constructed and that it was by hypothecating the land and taking advance rent, on the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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