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TMI Blog1995 (10) TMI 3X X X X Extracts X X X X X X X X Extracts X X X X ..... r child by such individual otherwise than for adequate consideration. " Reference to clause (i) of section 27 is not necessary since it has no relevance to the facts of this case. The respondent-assessee is an individual. She was carrying on the business of mica mining and was also having income from property and money-lending. During the financial year 1956-57, the respondent made a cash gift of rupees ninety thousand to her minor son, Suryanarayana Reddy. This amount was immediately utilised for purchasing a house property at Gudur. The said house property was being utilised for the purpose of the assessee's business. Eight years after the purchase of the house, i.e., on July 5, 1665, the said house property was sold to Tirupati Devasthanam for a consideration of Rs. 1,48,000. On the date of this sale also, Suryanarayana Reddy was a minor. The Income-tax Officer included the capital gain of Rs. 58,000 in the assessee's income in terms of section 64(1), which was objected to by the assessse. Her appeal to the Appellate Assistant Commissioner was dismissed. Her second appeal was, however, allowed by the Tribunal relying mainly upon the decision of this court in CIT v. Prem Bhai P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fty-eight thousand was made. Capital gain is undoubtedly a type of income. The definition of " income " in section 2(24) includes " capital gains ". It was, therefore, liable to be included in the income of the assessee. In Sevantilal Manehlal Sheth's case [1968] 68 ITR 503 (SC), the facts were the following : In the year 1951, the assessee, Maneklal, gifted 1,184 ordinary and l55 preference shares of a particular sugar mills to his wife, Bai Laxmibai. On the date of transfer, their total value was Rs. 69,730. Subsequent to the said gift, the sugar mills converted the preference shares into ordinary shares giving eight ordinary shares for each preference share, with the result that on December 31, 1954, Bai Laxmibai held a total of 2,424 ordinary shares of the said sugar mills. Out of those 2,424 ordinary shares, Bai Laxmibai sold 2,400 shares on August 1, 1956, for a Sum of Rs. 1,54,800, resulting in a capital gain of Rs. 70,860, as computed under section 12B of the Indian Income-tax Act, 1922. The whole amount so realised was deposited by Bai Laxmibai in a particular firm in which her husband, Maneklal, as well as her son, Sevantilal, were partners. The said deposit earned yearl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the purpose of assessment, there shall be included--(a) so much of the income of a wife or minor child of such individual as arises directly or indirectly ... (iv) from assets transferred directly or indirectly to the minor child, not being a married daughter, by such individual otherwise than for adequate consideration." The question that required to be answered by this court was : " whether it can be said that the income with which we are concerned in this case arises directly or indirectly from the assets transferred by the assessee to those minors ". The court answered it in the negative, in the following words : The connection between the gifts mentioned earlier and the income in question is a remote one. The income of the minors arose as a result 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 secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s whether the income derived by the assessee's wife from the deposits and shares is liable to be included in the income of the assessee husband under section 16(3) of the Indian Income-tax Act, 1922. Hegde J. observed. " The assets transferred in this case is the gift of the cash amounts made by the assessee to his wife. The transfers in question are direct transfers. But those assets, as mentioned earlier, were invested either in shares or otherwise. Hence it was urged on behalf of the Revenue that the income realised either as dividends from shares or as interest from deposits are income indirectly received in respect of the transfer of cash directly made. This contention of the Revenue appears to be sound. That position clearly emerges from the-plain language of the section ". When learned counsel for the assessee relied upon the decision in Prem Bhai Parekh's case [1970] 77 ITR 27 (SC) in support of his contention that there was no nexus between the income earned and the transfer of assets, it was repelled holding that in Prem Bhai Parekh's case [1970] 77 ITR 27 (SC), " the connection between the gifts made by the assessee and the income of the minors from the firm was a remote ..... X X X X Extracts X X X X X X X X Extracts X X X X
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