1986 (4) TMI 117 - AT - Income Tax

Summary

Issues:
1. Reopening of assessment based on intimation received from the ITO regarding income assessment of a family member.
2. Application of Section 64(1)(vi) of the Income Tax Act, 1961 to include income arising from assets transferred to a daughter-in-law.
3. Interpretation of the connection between a gift made by the assessee and income generated by the daughter-in-law as a partner in a firm.
4. Consideration of the daughter-in-law's status as a working partner in the firm for tax assessment purposes.

Detailed Analysis:
1. The assessment of the individual assessee was reopened based on an intimation received from the Income Tax Officer regarding the income assessment of a family member. The intimation indicated that the income of the family member had to be assessed in the hands of the assessee. The assessment was reopened with the prior approval of the Income Tax Commissioner, and the assessee was given a notice under Section 143(1) for further assessment.

2. The case involved the application of Section 64(1)(vi) of the Income Tax Act, 1961, which pertains to the inclusion of income arising from assets transferred to a son's wife by an individual. The dispute revolved around whether the income generated by the daughter-in-law, who became a partner in a firm with a gifted amount, should be included in the assessee's total income under this provision.

3. The interpretation of the connection between the gift made by the assessee and the income generated by the daughter-in-law as a partner in the firm was a crucial point of contention. The Commissioner (Appeals) upheld the inclusion of the income, stating that the daughter-in-law made an investment in the firm due to the gift from the assessee, thereby attracting Section 64(1)(vi) for tax purposes. The assessee appealed against this decision.

4. The status of the daughter-in-law as a working partner in the firm was also debated during the appeal. The counsel for the assessee argued that the daughter-in-law was a working partner based on the partnership deed and business activities of the firm. The counsel contended that the income did not directly or indirectly arise from the gift made by the assessee, citing relevant legal precedents to support the argument.

5. The Tribunal, after considering the arguments presented, found that the authorities had overlooked a relevant legal precedent and wrongly applied Section 64(1)(vi) to include the income in question. The Tribunal held that the income had only a remote connection with the gift made to the daughter-in-law and, therefore, deleted the inclusion of the income in the assessee's total income. The appeal was allowed in favor of the assessee, and the assessment was directed to be modified accordingly.