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TMI Blog1967 (3) TMI 39X X X X Extracts X X X X X X X X Extracts X X X X ..... nt with the firm, Kapurchand Co., in which his income from the firm used to be credited and his withdrawals for personal and other expenses used to be debited. The Samvat year 2012 of this account commenced with a credit balance of Rs. 2,07,119-6-10. Then he made several withdrawals including payments for his own personal expenses. We are not concerned with these items of personal expenses, but on 16th December, 1955, he withdrew from this account a sum of Rs. 3,75,000. This amount was taken from the firm Kapurchand Co. and deposited with Messrs. Kapurchand Ltd. forthwith on the same day in the name of his minor son, Narendra, to whom he admittedly gifted the amount. As a result of the withdrawal of this amount and the other transactions entered into in Samvat year 2012, his account with the firm was overdrawn to the extent of Rs. 53,305 at the end of the year. On his borrowings from the firm an amount of 9,004-14-0 was charged to him on account of interest by the firm and this is found debited to his account on 2nd November, 1956, practically at the end of the account year. In the next year, Samvat year 2013, there were items of withdrawal and deposit and the sum total of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w of the Appellate Assistant Commissioner and held : "In our opinion, in deciding this point, we have only to look to the purpose of the borrowing by the assessee at the time when the borrowings were made. That purpose was simply to make the gift to his minor child. The fact that the minor child subsequently invested the amount with another concern and earned income thereon, which interest in turn was included in the income of the assessee, is, in our opinion, too remote to be taken into consideration. We would, therefore, hold that, as the amount in question was borrowed or withdrawn for the purpose of making a gift and as the gift was actually made and the assessee ceased to be the owner of the amount in question, he was not entitled to a deduction of the interest paid by him on the borrowing of the amount against the amount of interest which was included in his total income by virtue of the provisions of section 16(3)." It will be noticed, therefore, that the controversy between the parties gives rise clearly to two independent questions. The first question is whether the assessee is at all entitled to claim that the amount of interest paid in the year of account on the sum of R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fits or gains as are referred to in sub-section (1). In other words, a person who is liable for the tax is the person who is entitled to the allowance. The income referred to in the sub-section (2) by the use of the words "such income" is the income mentioned in sub-section (1), i.e., "income, profits and gains of every kind which may be included in his total income". The words "which may be included in his total income" are of importance. They include in the income of an assessee the income which is really the income of another person but is statutorily to be included in the assessee's income. What is thus included is indicated by the words which occur in section 16(3) in the opening clause "in computing the total income of any individual for the purpose of assessment there shall be included". Prior to 1939, instead of the words "which may be included in his total income", in section 12(1) there were used the following words "and from every source to which this Act applies". The sources of income are dealt with in section 6 of the Act under heads of income chargeable to income-tax and one of the heads is "Income from other sources", which is dealt with in section 12. The second po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the department, has, however, sought to support the view taken by the Tribunal, viz., that the assessee, not being the owner of the amount of Rs. 3,75,000 after he transferred it to his son in the books of Kapurchand Ltd., could not say that the interest received in respect of that amount was his own property and "as the assessee ceased to be the owner of the amount in question, he was not entitled to a deduction of the interest paid. . . . . . . ." In support of this view, Mr. Joshi relied upon the provisions of section 16(3). Since the amount was transferred by the assessee to his son, it will be the provisions of sub-clause (iv) of clause (a) of section 16(3) that will apply and that provision runs as follows : "16. (3) In computing the total income of any individual for 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." There is no doubt that the amount gifted was not transferred for adequate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enkatasubbaiah v. Commissioner of Income-tax, merely followed the decision of the Division Bench. In both these cases, the courts were considering the position as it emerged upon the provisions of section 16(3), prior to the income of the wife or minor child being included in the income of the assessee. They were not concerned with the position which emerges after its inclusion ; much less were they considering what would be the position upon the application of section 12(1) read with section 12(2), which is the case here. However, for the purposes of the point before us it is not necessary to consider further the scope and ambit of those decisions, for we are prepared to assume for the purposes of the point before us, that the amount of interest received on the sum of Rs. 3,75,000 in the relevant year was the income of the minor son of the assessee prior to its inclusion in the income of the assessee. Even so, it does not displace the construction we have placed above on the provisions of section 12. Section 16(3) says that so much of the income of the minor child as arises directly or indirectly from the assets transferred to him shall be included in computing the total incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the minor child statutorily taxable in the hands of his father, the assessee, and that so regarded it is itself a new source of income and therefore it is unnecessary to consider whether it falls under any head of charge as enumerated in section 6. Section 6 of the Indian Income-tax Act opens with the words "save as otherwise provided by this Act, the following heads of income, profits and gains, shall be chargeable to income-tax in the manner hereinafter appearing." The words "save as otherwise provided by this Act" obviously do not make any exceptions to the provisions of section 6, but refer only to the exemptions granted under the Act. The meaning of the opening words of section 6, therefore, is clear that the charge of income-tax shall be only on the enumerated heads of income, profits and gains, that is to say, on the heads of income falling under one or more of the six heads mentioned in the section. We do not think, therefore, that it would be permissible to hold having regard to the provisions of this section and to the entire scheme of the Act that there can be some other source of income other than the six heads enumerated in section 6, such as income which is statutori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom the nature of the action itself. In this respect we find the following statement in the statement of the case itself : "From his account with this firm he (the assessee) withdrew Rs. 3,75,000 on December 16, 1955, in S.Y. 2012." and later on "The aforesaid withdrawal of Rs. 3,75,000 was deposited with Kapurchand Ltd. forthwith on December 16, 1955, in the name of Harendra, the minor son aforesaid, to whom he had gifted the money. On this deposit interest of Rs. 25,375 was credited by the company for the S. year 2014". Therefore, the sequence of events indicating the conduct of the assessee was that on the very day that he withdrew the sum of Rs. 3,75,000 from the firm, Kapurchand Co., he laid it out to earn interest with Kapurchand Limited in the name of his son. The amount was lying in his account, with a firm engaged in business. He took it out from this account which mostly represented his profits of that firm and laid it out at interest by way of deposit with Kapurchand Ltd. Surely it was not to be expected that a business man like the assessee deposited that amount without the purpose of earning something over it. In fact, from the very day of the deposit he stipulat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in that case applies with equal force in the present case. When the Tribunal used the word "purpose" in its finding, it had in its mind the ulterior motive or ultimate object in depositing the amount and not the object or thing intended by the assessee. Much the same distinction is found drawn in article 19, at page 372, of Salmond on Jurisprudence, 12th edition, where the distinction is thus put : "Motives, though closely related and similar to intentions, differ from intentions in certain respects. First, an intention relates to the immediate objectives of an act, while a motive relates to the object or series of objects for the sake of which the act is done." The finding, therefore, which we have quoted above is not a finding of fact in the first place and, in the second place, it had regard more to the motive than for the purpose in its true sense and therein the Tribunal made a clear error of law. We hold that, upon all the facts and circumstances of the present case, the assessee deposited the amount of Rs. 3,75,000 with Kapurchand Ltd. solely for the purpose of earning an income from such deposit. His motive may have been to help his son or to provide an income for his ..... X X X X Extracts X X X X X X X X Extracts X X X X
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