9911796707
TMI Blog1988 (2) TMI 29X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of the Income-tax Act, 1961. In the assessment of M/s. Sri Hari Mills Private Limited, for the assessment years 1965-66 and 1967-68 to 1971-72, certain amounts were disallowed as attributable to the personal user by the managing director, the assessee, of the cars and telephone provided by the company. Those amounts were included in the assessment of the assessee as perquisites received by him from the company. The value of the perquisites was fixed at the same amounts as were disallowed in the company's assessment. Thus, a sum of Rs. 11,007 was included in the assessment of the assessee for the year 1965-66 as value of the perquisites received by him. Similarly, sums of Rs. 22,692, Rs. 20,870, Rs. 10,598, Rs . 20,500 and Rs. 20,500 were included in the hands of the assessee as value of perquisites received by him from the company for the assessment years 1967-68, 1968-69, 1969-70, 1970-71 and 1971-72 respectively. The assessee preferred appeals to the Appellate Assistant Commissioner against the said orders of assessment. The Appellate Assistant Commissioner accepted the contention of the assessee regarding the inclusion of the interest income for the year 1965-66 and direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t year 1965-66 under section 64(1)(iii) of the Income-tax Act, 1961 ? 2. Whether, on the facts and in the circumstances of the case, the entirety of the amount disallowed in the assessment of M/s. Sri Hari Mills Private Ltd. for the assessment years 1965-66, 1967-68 to 1971-72 as attributable to the user by the assessee of the cars, telephones, etc., should be considered as perquisites and brought to tax in the assessments made on the assessee for the above-mentioned assessment years ?" Taking up the second question for consideration, it is seen that the Appellate Assistant Commissioner made the correct approach in assessing the value of the perquisites in the hands of the assessee. The principles relevant therefor have been laid down in CIT v. P. R. Ramakrishnan [1980] 124 ITR 545 (Mad). It was held in that case that what was chargeable as perquisites in the hands of a director of a company would depend on the extent of benefit derived by him. In other words, how much it would have cost the assessee to keep a car or a telephone on his own for his exclusive use or for the use of his family would alone be the criterion and that it would not be proper to take into account the amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld be no such evasion as the assets transferred were agricultural lands and the income therefrom was not liable to tax. Learned counsel contended that when the income from the agricultural lands transferred to his wife by the assessee could not be taxed as such, the income from the sale proceeds of such lands would not be liable to tax. According to him, what cannot be done directly by the Revenue cannot be done indirectly. Learned counsel submitted that, on the facts of this case, there could be no nexus between the income in question and the assets transferred, in view of the long lapse of time between the date of transfer and the conversion of the assets into money. Learned counsel submitted that the relevant test to be applied has been laid down by the Supreme Court in CIT v. Prem Bhai Parekh [1970] 77 ITR 27 (SC) and that in the present case, the same has not been satisfied. Learned counsel also invited our attention to the decision of the Andhra Pradesh High Court in CIT v. Smt. Pelleti Sridevamma [1976] 105 ITR 887 in which the time lag between the date of transfer of assets and the date of conversion thereof has been held to be a relevant factor in deciding the question as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iding that a particular income arises directly or indirectly from the transferred assets. The following passage in the judgment is relevant (p. 30): "That section must receive strict construction as observed by this court in CIT v. Keshavlal Lallubhai Patel [1965] 55 ITR 637 (SC). 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 of the transfer and not in some manner connected with it." (underlining ours). The significance of the word " proximate " used by the Supreme Court in the above passage cannot be lost sight of. It is clear therefrom that the income sought to be taxed and the transfer of assets must be connected with each other by proximity in every respect. That would take in the time limit also. The two must be so near to each other that it would form one chain of causation. What has to be really considered is whether the income in question can be linked with the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tural lands. By merely transferring those agricultural lands, it cannot be said that the assessee wanted to evade payment of income-tax. The liability to pay tax arose only when the lands were sold by the wife and the sale proceeds were deposited with the company, thereby giving rise to the interest income. There can be no doubt that such interest cannot be treated as agricultural income. Unless it is shown that the transfer of agricultural lands by the assessee to his wife was itself with a view to convert the lands into money or other assets yielding income and such income should be kept out of the assessment of the assessee, it cannot be held that there is a nexus between the transferred assets and the income. For deciding whether the object of the transfer was evasion of tax, the time gap between the transfer of assets and the conversion thereof will be an important factor to be taken into account. In this case, the transfer of agricultural lands was in 1954. It was only five years later in 1959, that they were sold by the wife. In view of the lapse of time between the date of transfer and the date of conversion of the assets into money, it is not possible to say that the conne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce of Rs. 5,000. 17 days thereafter, the transaction was completed and the sale deed was taken in the names of one of the sons and the wives of the father and the other son. The two ladies paid 1/3rd share of Rs. 85,000 and the amounts which were paid respectively by their husbands as part of the earnest money. Actually, the amounts paid by the ladies were remitted to their bank accounts by the firm. While the amount credited to the mother's account was debited to the son in the firm's accounts, the amount paid to the daughter-in-law was debited to the account of the father in that firm. These were really cross-gifts. Though the purchases were not treated as benami purchases by the Tribunal, it is clear from the facts of the case that the transfer of funds were made by the father and one son for the purpose of the purchase of the property and the entire transaction was a single continuous one. In those circumstances, the income from the house was treated by the Revenue as income in the hands of the partners, who were the assessees, under section 16(3) of the Act of 1922. That was affirmed by the Tribunal. But, on a reference to the High Court, the question was answered against the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on urged before this court that the income from house property could not be referred to the cash gift made by the husband to the wife, was, therefore, negatived as the ruling of the Supreme Court in CIT v. C. M. Kothari [1963] 49 ITR 107 (SC) applied directly to the facts of that case. In Sevantilal Maneklal Sheth v. CIT [1968] 68 ITR 503, the only question argued before the Supreme Court was that capital gains arising from sale of the transferred assets would not fall within the ambit of section 16(3)(a)(iii) of the Act as it was not income from the transferred asset. That contention was negatived by the Supreme Court, and it was held that income would include capital gains also. The Supreme Court observed thus (p. 507): "There is nothing in the context or language of section 16(3)(a)(iii) of the Act to suggest that capital gains are excluded from its scope. We see no reason why a restricted interpretation should be given to the provisions of section 16(3)(a)(iii) as contended for the appellant. On the contrary, the object of the enactment of the section is to prevent avoidance of tax or reducing the incidence of tax on the part of the assessee by transfer, of his assets to hi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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