9911796707
TMI Blog1989 (4) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... n the total income of the assessee under section 64(1)(iii) of the Income-tax Act, 1961 ?" The assessee was assessed in the status of an individual for the assessment year 1962-63 corresponding to the previous year March 26, 1961, to April 13, 1962. At the material time, the assessee was a partner in a firm, Messrs. Ramesh and Co., with a share of eight annas therein. The balance was shared by three other partners, the assessee's father, Kunjilal Agarwala, the assessee's brother, Hariram Agarwala and a stranger, Jagdish Prasad. On November 10, 1960, and on November 28, 1960, the assessee made two gifts of Rs. 21,000 and Rs. 30,000 respectively to his wife, Kaushalya Devi, from his account in the firm. On November 28, 1960, he made another ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mount, if any, standing to the credit of the partner of the fifth part shall carry interest at the same rate." On November 12, 1960, Kaushalya Devi contributed Rs. 21,000 as capital, which came out of the gift made by the assessee on November 10, 1960. She also contributed Rs. 30,000 as capital, which amount came out of the gift made on November 28, 1960. In the course of assessment proceedings for the assessment year 1962-63 in respect of the assessee, the Income-tax Officer included the profits of the assessee's wife from the firm, Messrs. Kunjilal Hariram and Co., under section 64(1)(iii) of the Income-tax Act, 1961. An appeal by the assessee was dismissed by the Appellate Assistant Commissioner of Income-tax, who observed that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the income arose from the share of profits only because the other partners agreed to take the assessee's wife as partner and was allowed to contribute to the partnership firm, that the admission of the assessee's wife to the partnership was not in consequence of the gift, and that, therefore, upon all those circumstances, the connection between the income of the share of profits and the gifts by the assessee to his wife was too remote to be included within the provisions of section 64(1)(iii) of the Income tax Act. Section 64(1)(iii) of the Income-tax Act, 1961, as it stood at the relevant time, provides: "64(1) In computing the total income of any individual, there shall be included all such income as arises directly or indirectly- . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esult of their admission to the benefits of the partnership. It is true that they were admitted to the benefits of the partnership because of the contribution made by them. But there is no nexus between the transfer of the assets and the income in question. It cannot be said that that income arose directly or indirectly from the transfer of the assets referred to earlier. Section 16(3) of the Act created an artificial income. That section must receive a strict construction as observed by this court in CIT v. Keshavlal Lallubhai Patel [1965] 55 ITR 637. In our judgment before an income can be held to come within the ambit of section 16(3), it must be proved to have arisen-directly or indirectly-from a transfer of assets made by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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