1983 (8) TMI 101 - AT - Income Tax

Summary

Issues:
- Inclusion of daughter-in-law's share from the firm in the assessee's total income under section 64(1)(vi) of the IT Act, 1961.

Analysis:

The judgment deals with two appeals by the revenue against the AAC's order related to the assessment years 1976-77 and 1977-78. The common grievance of the revenue was the inclusion of the assessee's daughter-in-law's share from the firm in the assessee's total income under section 64(1)(vi) of the IT Act, 1961. The daughter-in-law had joined the firm as a partner after receiving a gift of Rs. 10,000 from the assessee. The revenue argued that the daughter-in-law's share should be taxed in the hands of the assessee. The AAC, considering relevant judgments and submissions, held that there was no case for the inclusion of the daughter-in-law's share income in the assessee's total income for the assessment years under appeal.

The revenue contended that the AAC erred in deleting the additions made by the ITO in the respective assessment years based on judgments such as Jose vs. CIT, Smt. Mohini Thapar vs. CIT, and Potti Veerayya Sresty vs. CIT. The assessee's counsel supported the AAC's order. The Tribunal analyzed the Supreme Court's judgment in the case of Prem Bhai Parekh & Ors., where it was established that the income of a minor child must directly or indirectly arise from assets transferred by the father to be included in the father's total income. The Tribunal differentiated the present case from Jose and Smt. Mohini Thapar cases, highlighting the lack of a proximate connection between the transfer of assets and the income in question.

The Tribunal also discussed the Bombay High Court's judgment in the case of Executors of the Estate of late J. J. Kapadia vs. CIT, emphasizing that income arising from assets through business activity cannot be included under the relevant section. The Tribunal noted the timing of the gift to the daughter-in-law, which was before the firm's reconstitution, similar to the Prem Bhai Parekh case. Ultimately, the Tribunal upheld the AAC's decision, stating that there was no proximate connection between the gift and the daughter-in-law's participation in the firm's business and profit-sharing. Consequently, the revenue's appeals were dismissed.