1988 (3) TMI 42 - HC - Income Tax

Summary

Issues:
1. Interpretation of provisions of section 60 of the Income-tax Act, 1961 regarding transfer of assets and income arising from it.
2. Validity of a gift made by the assessee in favor of a minor and the liability for losses on the gifted share.
3. Inclusion of share of profits from the partnership firm in the hands of the assessee.

Analysis:
1. The case involved a reference under the Income-tax Act related to the assessment year 1977-78. The main issue was whether the provisions of section 60 of the Income-tax Act applied due to the transfer of assets from which income arose. The court analyzed a declaration of gift made by the assessee regarding a share in a partnership firm. The court concluded that as the gift included not only profits but also the corpus of the share itself, the provisions of section 60 did not apply in this case.

2. The validity of the gift made by the assessee to a minor was questioned, particularly regarding the liability for losses on the gifted share. The court examined the declaration of gift and clarified that the minor was not made a partner in the firm, and therefore, the question of burdening the minor with losses did not arise. The court affirmed that the gift was valid, even if it included a provision for recovering losses from the minor.

3. The issue of whether the share of profits from the partnership firm corresponding to the gifted share should be included in the assessee's assessment was also considered. The court noted that the gift deed explicitly mentioned the transfer of the corpus along with the profits to the donee. Therefore, the court ruled that the share of profits from the gifted share should not be included in the assessee's assessment.

In conclusion, the court answered all three questions in favor of the assessee, ruling that the provisions of section 60 did not apply, the gift was valid, and the share of profits from the gifted share should not be included in the assessee's assessment. The court directed the Commissioner of Income-tax to pay the fee of the amicus curiae who provided valuable assistance in the case.