9911796707
TMI Blog1973 (4) TMI 10X X X X Extracts X X X X X X X X Extracts X X X X ..... two gifts to his wife, Kaushalya Debi, Rs. 21,000 on 10th November, 1960, and Rs. 30,000 on the 28th November, 1960. The assessee also made a gift of Rs. 11,000 to his mother, Smt. Chilli Bai, on 28th November, 1960, by similarly drawing from his account with the firm. Smt. Chilli Bai also received another gift of Rs. 20,000 from her husband, the said Kunjilal, which was also made by him similarly drawing from his account with the firm. The assessee's wife, Smt. Kaushalya Debi, as well as Smt. Chilli Bai, assessee's mother, became partners with three others in the newly constituted firm of M/s. Kunjilal Hariram & Co. The five partners of the firm were : Moharilal Agarwala, assessee's father, Hariram Agarwala, assessee's brother, who was also a partner with the assessee in the firm of M/s. Ramesh & Co., Chilli Bai, assessee's mother, Smt. Kaushalya Debi, assessee's wife, and Jagdish Prosad Gupta, a stranger. The partnership deed provided that the business was to commence from 12th November, 1960, and the said deed was drawn up on 10th November, 1960. The preamble to the deed stated as follows : " Whereas the partner of the first part (Jagdish Prosad Gupta) who has extensive and o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t case, the assessee's wife was admitted to the partnership because of contributing capital to the firm as a pre-condition to the admission. In those circumstances the Tribunal was of the opinion that the profit arising to the wife from the said partnership should be included in the assessee's income under section 64(iii) of the Income-tax Act, 1961. The Tribunal further accepted the argument made on behalf of the revenue that there could not be any distinction between the interest earned and the share of profit in the partnership firm. The Tribunal pointed out that in so far as the interest was concerned, inasmuch as it had been conceded that the interest was to be included, there was no reason why the share of profit should also not be included. Upon these considerations, the Tribunal confirmed the order of the Appellate Assistant Commissioner and dismissed the appeal. Thereupon, an application having been made the aforesaid question of law has been referred to this court. We are not concerned in this case with the question whether interest arising from the investment made in the firm by the assessee's wife out of the gift made by the assessee should be included in the assessee' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me of the assessee under section 16(3)(a)(iv) of the Indian Income-tax Act, 1922. The Supreme Court found that the connection between the gifts made by the assessee and the income of the minors from the firm was a remote one and it could not be said that the income arose directly or indirectly from the transfer of the assets. The income arising to the three minor sons of the assessee by virtue of their admission to the benefits of the partnership in the firm, it was held, could not be included in the total income of the assessee. The Supreme Court observed at page 30 of the report as follows : " Before any income of a minor child can be brought within the scope of section 16(3)(a)(iv), it must be established that the said income arose directly or indirectly from assets transferred directly or indirectly by his father. There is no dispute that the assessee had transferred to each of his minor sons a sum of Rs. 75,000. It may also be that the amount contributed by those minors as their share in the firm came from those amounts. But, the question still remains whether it can be said that the income with which we are concerned in this case arises directly or indirectly from the assets ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by his father, but on account of the fact that the other partners had agreed to admit him to the benefits of a partnership. It was observed by the Andhra Pradesh High Court that, on those facts, the Supreme Court had held that there was no nexus between income earned and the asset transferred. In the case before the Andhra Pradesh High Court the wife had invested assets in a business of her own and earned an income. In the instant case also if we separate the question of interest from the share of profits then the profits earned by a partner cannot be said to be the result of the assessee's making the gift, but it was because of the assessee's wife's participation in the partnership which was because of the agreement with the other partners. The profits did not arise as a consequence of investing the gifts made, but on account of the participation in the partnership firm in agreement with other partners. In the case of Smt. Mohini Thapar v. Commissioner of Income-tax the assessee made certain cash gifts to his wife. From out of these cash gifts, she purchased certain shares and invested the balance in deposit. The question was whether the income derived by the assessee's wife from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case, as in the case of Commissioner of Income-tax v. Prem Bhai Parekh, the share of profits arose primarily because the partnership made a profit and though that had connection with the gift it did not arise as a result of the gift ; secondly, the income arose from the share of profits only because other partners had agreed to take the assessee's wife as a partner and had allowed her to contribute to the partnership firm. This was also not as a result of the gift. In those circumstances, it appears to us that the connection between the income of the share of profits and the gifts made by the assessee to his wife was too remote to be included in the total income under the provisions of section 64(iii) of the Income-tax Act, 1961. The Tribunal was unable to accept the distinction between the interest earned by an investment made by the assessee's wife and the share of profit earned by the assessee's wife in the partnership firm. It is true that both these had connection with the gifts made. But in the case of interest there is no question of the participation in the business of the firm in agreement with other partners. Interest earned by an investment in a partnership firm is jus ..... X X X X Extracts X X X X X X X X Extracts X X X X
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