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TMI Blog1977 (7) TMI 48X X X X Extracts X X X X X X X X Extracts X X X X ..... t to the extent of the valuation of the land gifted by the assessee upon which the building has been constructed with the monies taken as advance and borrowed from the National Grindlays Bank Ltd. " The facts of the case have been set out in the statement of the case. The facts material for the purpose of this reference may be briefly noted. The relevant assessment year is the assessment year 1966-67, the corresponding financial year ending on the 31st March, 1966. The assessee is assessed in the status of an " individual ". For this year he filed a return admitting an income of Rs. 6,071. The Income-tax Officer determined the assessee's total income at Rs. 28,404 under section 143(3) of the Income-tax Act, 1961 (hereinafter referred to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uilding was constructed on the land gifted by the husband with money borrowed by mortgage of the said land from the bank. The Appellate Assistant Commissioner, therefore, held that the income of the assessee had been derived indirectly from the land which was transferred by the assessee to his wife and he dismissed the appeal. Against the said order of the Appellate Assistant Commissioner the assessee preferred a further appeal to the Tribunal. The Appellate Tribunal for reasons recorded in its order dismissed the said appeal. As the Tribunal refused to refer any question to this court on the application of the assessee because the Tribunal was of the opinion that no questions of law were involved, the assessee had applied to this court u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her own on the building construction. Everything spent on it was money raised on the security of the gifted property and the improvement sought to be constructed thereon. The assessee's learned representative argued that the investment on the construction was with funds raised by the wife on her own initiative and the income thus being the reward of such enterprise of the wife had no proximate connection with the gifted assets and hence the ratio of the Supreme Court decision in Prem Bhai Parekh's case [1970] 77 ITR 27 was clearly applicable here. We find it difficult to agree. As it was by hypothecating the land and taking advance rent showing the building to be constructed as security that the amounts were raised, we feel that this is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssion that this initiative on the part of the wife in raising funds by mortgaging the land and by collecting advance rent for constructing the building, brings this case within the principles enunciated by the Supreme Court in the case of Prem Bhai Parekh [1970] 77 ITR 27. Mr. Bhattacharyya has placed particular reliance on the following observation of the Supreme Court at page 30 : " 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 [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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons stated by the Tribunal in its order are sound and have our approval. It has to be noted that the building was constructed with a loan borrowed from the bank on the mortgage of the land which was gifted by the assessee. The amount borrowed on the mortgage of the land was utilised for the purpose of construction of the building and the wife had no independent or other source of income for construction. The construction cost had also been met out of the advance rent realised by the wife. The income derived by way of rent from the building which was built with money borrowed on the mortgage of the land and money received by way of advance rent, therefore, arises directly and, in any event, indirectly from the transfer of the land by the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X
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