Decided on July 17,1982



U.T.Shah, - (1.) THE only point involved in this appeal pertains to the applicability of Section 64(1)(vi) of the Income-tax Act, 1961 ('the Act').
(2.) The assessee is an individual. The assessment year is 1978-79 and the relevant previous year is the corresponding Diwali year, 1977. The facts in brief are : the assessee gifted Rs. 7,500 each to his two daughters-in-law, Smt. Kamlesh Kumari and Smt. Nirmala Rani, on 8-8-1973. With the help of these gifted money both the ladies became partners in a firm Kamleshji Premchand. By invoking the provisions of Section 64(1)(vi), the share income of these two ladies were included in the total income of the assessee up to the assessment year 1977-78. For the year under appeal, the assessee claimed before the ITO that since these two ladies had withdrawn Rs. 7,500 each on 7-7-1977 from the firm in which they were partners and had opened fixed deposit accounts with the Bank of Baroda, the provisions of Section 64(1)(vi) were not attracted inasmuch as the gift of Rs. 7,500 each made by the assessee to these two ladies have been withdrawn from the books of the firm in which they were partners. The ITO, however, was of the view that withdrawing of the amount of Rs. 7,500 each by the ladies from the books of the firm would not automatically absolve the assessee from the mischief of the provisions of Section 64(1)(vi). In this connection, he also relied on the order of the AAC in the assessee's own case for the assessment year 1976-77. In this view of the matter, the ITO included the share of profit of these two ladies from the firm of Kamaleshji Premchand, in the total income of the assessee.
(3.) IN appeal before the AAC, the assessee reiterated the submissions which were made before the ITO and urged that the ITO ought not to have invoked the provisions as of Section 64(1)(vi). The AAC, however, upheld the action of the ITO as under : I have examined the case of the assessee carefully. There is no doubt that the ladies became partners with the help of amounts which were received in gifts. It would also be seen that substantial amounts are lying to the credits of these ladies in the books of firm. These amounts comprise of the initial capital and the accumulated profits of several years. The ladies withdrew Rs. 7,500 but it cannot be conclusively said that the amounts withdrawn were out of gifted amounts or the accumulated profits. Section 64 speaks of income arising directly or indirectly from the transferred assets. As the ladies became partners with the help of gifted amounts, the share income has a direct connection with the gifted amounts. Even though the ladies withdrew amounts equal to the amounts of gifts from the firm the share income still continues to have a nexus with the gift. IN these circumstances, the inclusion of income from share enjoyed by the ladies is found to be for valid reasons and the same is hereby approved.;

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