1986 PLP 480 (PTD)

(1976) 102 I T R 385 (Bom.) and. 83 I T R 208 (S C) ref. R.J. Joshi with R.L. Butani for Applicant. V.J. Pandit with V.H. Patil for Respondent. 'Two questions have been referred to us in this reference under section 256 (1) of the Income-tax Act, 1961. The said questions are as follows:- (1) "Whether on the facts and in the circumstances of the case, and on a proper construction of section 64(iii) of the I.-T Act, 1961, the Tribunal was justified in law in holding that the income arising to Smt. Shashikala M. Pandya in respect of the amount `if Rs.15, 000 deposited by her in the firm of Messrs Nandlal and Company, for the assessment years 1967-68 and 1968-69 arose from the assets transferred indirectly to her by her husband Shri M.K. Pandya, the assessee, and as such is includible in the total income of the assessee for the said assessment years?". (2) "Whether on the facts and in the circumstances of the case, the making of a gift of Rs.15, 000 by Shri N. K. Pandya to his brother's wife Smt. Shashikala M. Pandya on 12-8-1965 which she deposited in the partnership firm Messrs Nandlal and Company in which her husband Shri M. K. Pandya and Shri N. K. Pandya were partners and the making of a gift of Rs.17,000 by Shri M.K. Pandya to his brother's wife Smt. Leelavati N. Pandya on 17-1-1966 which she contributed as part of her capital as partner in the sister partnership firm Messrs M. Kumar Enterprises constituted indirect transfers of assets by Shri N.K. Pandya and his brother Shri M. K. Pandya to their respective wives Smt. Leelavati N. Pandya and Smt. Shashikala M. Pandya for the purpose of section 54 (iii) of the I.-T. Act, 1961?"

2. The facts giving rise to this reference have been set out in some-detail in Income-tax Reference No. 31 of 1973 and hence there is no need to recapitulate the same in detail here. This reference relates to the assessment years 1967--68 and 1968-69. Very briefly stated the facts are that the assessee made a gift of Rs.17,000 to his sister-in-law Smt. Leelavati N. Pandya and the assessee's brother N.K. Pandya, being the husband of Smt. Leelavati, made a gift of Rs.15,000 to Smt. Shashikala M. Pandya, the wife of the assessee. Shashikala Pandya deposited the amount given to her as a gift by the said N.K. Pandya, as aforesaid, in the partnership firm of Messrs Nandlal and Company and received interest on this deposit. The question is whether this interest is liable to be included in "he income of her husband, the assessee

3. As far as question No. 2 set out above is concerned the relevant order of the I.-T.O. shows that the gifts made by the assessee and his brother to the respective wives of each other, were admitted to be cross-gifts before the I.-T.O. and no dispute was raised on this point before the higher authorities. Mr. Pandit, the learned counsel for the assessee, has fairly conceded that this finding of the I.T.O. has not been disputed either before the Appellate Assistant Commissioner or the Income-tax Appellate Tribunal in view of this, it is clear that the said sum of Rs.15,000 deposited by Smt. Shashikala M. Pandya with the firm of Messrs Nandlal and Company was an asset transferred' indirectly to her by her husband the assessee herein. Similarly, there was an indirect transfer of assets by N.K. Pandya to his wife Leelavati.' Shashikala invested this amount in the said partnership firm of Messrs Nandlal and Company and received interest thereon.

4. In Smt. Mohini Thapar v. Commissioner of Income-tax (Central), Calcutta (1972) 83 I T R 208; 1972 Tax LR 444 (S C), the assessee made certain cash gifts to his wife. From out of these cash gifts, she purchased certain shares and invested the balance in deposits. The question was whether the income derived by the assessee's wife from the deposits and shares had to be assessed in the hands of the assessee under section 16(3)(a)(iii) Of the Indian Income-tax Act, 1922. It was held in that case 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. We may; mention here that the provisions of section 16(3)(a)(iii) of the Indian" Income-tax Act, 1922 are in pari materia with the provisions of section' 64(iii) of the I.-T. Act, 1961 with which we are concerned in this case. In Bhaichand Jivraj Muchhala v. Commissioner of Income-tax (1976) 102 ITR 385, it has been held by a Division Bench of this Court that where aportion of the capital contributed by a lady partner in a firm comes from money given to her by her husband, the interest paid by the firm on that portion of the capital will be includible in her husband's income under section 16(3)(a)(iii) of the Indian Income-tax Act, 1922. In view of these two decisions, and the aforesaid undisputed position regarding cross-gifts, which we have referred to, it is clear that both the questions raised will have to be answered in the affirmative and against the assessee. The said questions are answered accordingly. Looking to all the facts and, circumstances of the case, there will be no order as to costs. M. B. A. Reference answered in affirmative.