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Issues:
1. Whether the share of the assessee's wife in the firm, other than the interest on the capital contributed by her, should be included in the assessment for the year 1962-63? Analysis: The case involved the transfer of Rs. 60,000 by the assessee to his wife, who then entered into a partnership with her son in a firm called Indian Sandal Oil Industries. The wife earned a share of profits and interest on the transferred sum, which the tax authorities sought to include in the assessee's assessment under section 64(iii) of the Income-tax Act, 1961. The Appellate Assistant Commissioner initially ruled that the wife was not admitted as a partner due to her capital contribution and that only the interest earned by her was assessable in the assessee's hands. The department appealed to the Tribunal, which held that the wife's share of profit, other than the interest on the capital, should not be included in the assessee's assessment. The court referred to a Supreme Court decision and a similar case from the Calcutta High Court to analyze the situation. In the Supreme Court case, it was held that the income of minors from a partnership could not be included in the total income of the assessee if the connection between the gift and the income was remote. Similarly, in the Calcutta High Court case, it was ruled that the wife's share of profit in a firm could not be included in the husband's income if it arose primarily from the partnership's profit and not directly from the gift. Based on these precedents, the High Court concluded that the wife did not become a partner in the firm solely due to her capital contribution but by her own right, actively participating in the firm's activities. Therefore, her share of profit should not be included in the assessee's assessment. The court answered the referred question in the affirmative, in favor of the assessee, who was also awarded costs.
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