1982 (3) TMI 116 - AT - Income Tax

Summary

Issues Involved:
1. Addition of share income of assessee's wife and minor sons under Section 64 of the Income-tax Act, 1961.
2. Validity of initiation of proceedings under Section 148.
3. Determination of whether the gifts were collusive or cross-gifts.

Issue-Wise Detailed Analysis:

1. Addition of Share Income of Assessee's Wife and Minor Sons under Section 64:
The primary issue was whether the share income of the assessee's wife and minor sons from the firm Amar Lal Bishamber Lal should be added to the assessee's income under Section 64 of the Income-tax Act, 1961. The department argued that the income arose from collusive gifts of shares in the partnership firm between the assessee and his brother. The revenue contended that the income of the assessee's wife and minor sons resulted from these gifts and thus should be included in the assessee's income.

The assessee argued that the gifts were made before the formation of the new partnership firms and were not collusive. The AAC accepted the assessee's contention, holding that the income did not arise directly or indirectly from the gifts, relying on the Supreme Court decision in CIT v. Prem Bhai Parekh and other High Court decisions.

The Tribunal upheld the AAC's decision, noting that the income must arise as a result of the transfer and not merely be connected to it. The Tribunal emphasized that the connection between the gifts and the income was too remote. The income arose from the partnership profits and the agreement among partners, not directly from the gifts.

2. Validity of Initiation of Proceedings under Section 148:
The issue regarding the initiation of proceedings under Section 148 was not raised by the assessee before the ITO or the AAC. During the appeal, the assessee's counsel briefly mentioned it but did not pursue it seriously. The Tribunal did not address this issue in detail since it was not a significant point of contention in the appeal.

3. Determination of Whether the Gifts Were Collusive or Cross-Gifts:
The revenue argued that the gifts were collusive, aiming to evade tax. They relied on the Bombay High Court decision in U. S. Patel v. CIT and the Kerala High Court decision in Jose v. CIT. However, the Tribunal found no evidence of collusive or cross-gifts. The gifts were made by the assessee and his brother to their respective wives and minor sons, and there was no indication of an agreement or scheme of cross-transfers.

The Tribunal noted that tax avoidance within the legal framework is not disapproved, and suspicion alone cannot form the basis for assessment. The Tribunal found that the gifts were legitimate and not collusive, emphasizing that the connection between the gifts and the income was too remote to fall under Section 64.

Conclusion:
The Tribunal confirmed the AAC's order, holding that the share income of the assessee's wife and minor sons could not be added to the assessee's income under Section 64. The revenue's appeal was dismissed, and the AAC's findings were upheld, emphasizing the need for a proximate connection between the transfer of assets and the resulting income.