1971 (6) TMI 5

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..... ther, i.e., the assessee, under section 64(iv) of the Income-tax Act, 1961 ?" The material facts leading to this reference may be stated : For the assessment year 1962-63 the assessee, G. Ethirajulu, was assessed to tax in the status of individual, on a total income of Rs. 56,669. Subsequent to the completion of the assessment, the Income-tax Officer came to know that the assessee's minor son, who received from the assessee assets worth Rs. 12,000 invested the same in M/s. Ranganatha Silk House and was admitted to the benefits of the partnership. The income that fell to the share of the minor in M/s. Ranganatha Silk House for the said assessment year came to Rs. 11,663. As he was of the opinion that the said share income of the minor un .....

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..... e assets gifted to him by the assessee and hence it was not includible in the total income of the assessee. In support of the said argument the learned counsel relied upon the decisions of the Supreme Court in Commissioner of Income-tax v. Jwala Prasad Agarwala and Commissioner of Income-tax v. Prem Bhai Parekh. Sri P. Rama Rao, the learned standing counsel for the department, contended to the contra. Omitting the irrelevant portion, section 64(iv) of the Act reads as follows: "In computing the total income of any individual, there shall be included all such income as arises directly or indirectly. . . . (iv) subject to the provisions of clause (i) of section 27, to a minor child, not being a married daughter of such individual, from .....

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..... m. But there is no nexus between the transfer of the assets and the income in question. It cannot be said that the 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 strict construction as observed by this court in Commissioner of Income-tax v. Keshavlal Lallubhai Patel. 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 in favour of his wife or minor children. The connection between the transfer of assets and the income must be proximate. The income in question must arise as a result .....

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