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TMI Blog1982 (2) TMI 49X X X X Extracts X X X X X X X X Extracts X X X X ..... In the year of account, relevant to the assessment year 1967-68, the assessee's brother, one M. K. Pandya, made a gift of Rs. 17,000 on January 17, 1966, to Leelavati, the wife of the assessee. The assessee had also made a gift of Rs. 15,000 on August 12, 1965, to Smt. Shashikala, the wife of his brother, M. K. Pandya. The ITO came to the conclusion that the two brothers, namely, the assessee and his brother, M. K. Pandya, had made cross-gifts to each others' respective wives, and as such, there was directly or indirectly an accrual of income to the individual (assessee) as result of the transfer of assets to the persons concerned. The ITO, in the two assessment years, included in the total income of the assessee the share of profits which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4(iii) of the Income-tax Act, 1961, the Tribunal ought to have held that the income arising to Leelavati N. Pandya as a partner in the firm, M/s. M. Kumar Enterprises, for the assessment years 1967-68 and 1968-69, arose from the assets transferred indirectly to her by her husband, N. K. Pandya, the assessee, and, as such, was includible in the total income of the assessee for the said two assessment years ? " Before considering the arguments advanced in the case, we may usefully refer to s. 64(iii) of the said Act as it read at the relevant time. The material part of the said provision at the relevant time read thus : " 64. In computing the total income of any individual, there shall be included all such income as arises directly or ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... artner of the said concert, With the result that whatever Share of profits was received by her, must be regarded as on account of the capital contributed by her to the said firm it was, on the other hand, contended by Mr. Pandit that the share of profits received by Leelavati Could not be said to arise directly or indirectly from the transfer of the assets made to Leelavati by the assessee's brother. We find that the aforesaid submission of Mr. Pandit finds complete support from the decision of the Supreme, Court in CIT v. Prem Bhai Parekh [1970] 77 ITR 27. In that case, the assessee, who was a partner in a firm having a 7 annas share therein, retired from the firm on July 1, 1954. Thereafter, he gifted Rs. 75,000 to each of his four sons, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the judgment, that the connection between the gifts mentioned earlier and the income in question was 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 amounts of contribution made by them. But there is no nexus between the transfer of the assets and the income in question. The aforesaid decision of the Supreme Court has been followed by Division Bench of this court in Bhaichand Jivraj Muchhala v.CIT [1976] 102 ITR 385. There it was held that where a portion of the capital contributed by a lady partner in a firm comes from the money given to her by her husband, the interest paid by the firm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me derived by the assessee's wife from the deposits and shares had to be assessed in the hands of the assessee under s. 16(3)(a)(iii) of the Indian I.T. Act, 1922, It was held that the transfers in question were direct transfers and the income realised by the wife was income indirectly received in respect of the transfer of cash directly made by the assessee. There was a proximate connection between the income and the transfer of assets made by the assessee. We may point out that the ratio of the decision does not apply to the case before us, because in that case, what the wife of the assessee received was the interest earned from the deposits and not the share of profits from a firm as in the present case. Mr. Joshi next referred us to the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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