ADDITIONAL COMMISSIONER OF INCOME TAX Vs. DHARSEY KESHAVJI

JUDGEMENT

(1.) THIS is a reference on a case stated under S. 256(1) of the IT Act, 1961. The questions referred to us for our determination are as follows :

(2.) A property known as "Shambhu Kutir" was purchased by three persons, including the assessee's son, Kantilal. Kantilal paid his share of the purchase price, being of Rs. 9,000, after withdrawing the said amount from his account with the firm of M/s K. M. Suchak and Company. The assessee did not include the income in respect of this property in his returns for the relevant assessment years, namely, the asst. yrs. 1965 66 to 1969 70, as, according to him, it was his son, Kantilal, who was the owner of the one third share of the said property. The ITO, however, included the one third share of the income of the said property in the assessee's hands in the said assessment years on the basis that it was the assessee who had purchased the one third share in the said property benami, in the name of his son, Kantilal. As the sum of Rs. 9,000 paid by Kantilal for his share of the purchase price of the said property was paid by withdrawing the same from his account with M/s K.M. Suchak and Company, the dispute was as to whether it was really Kantilal or the assessee to whom the amount standing to the credit of the account in Kantilal's name in M/s K.M. Suchak and Company really belonged. It appears that the assessee gifted Rs. 51,000 on 3rd November, 1956, to his minor son, Kantilal, by debiting the said amount to his own account in M/s Keshavji Mavji and Company, of which the assessee was a partner, and by crediting the same to the account of the firm of M/s Jayantilal Navnitlal and Company. At that time Kantilal was a minor admitted to the benefits of partnership in the firm of M/s Jayantilal Navnitlal and Company. M/s Jayantilal Navnitlal and Company debited Rs. 51,000 to the account of Keshavji Mavji and Company and credited it to the account of Kantilal, and M/s Keshavji Mavji and Company credited Rs. 51,000 in its books of account to the account of M/s Jayantilal Navnitlal and Company. Interest was credited to the account of Kantilal year after year in the books of account of M/s Jayantilal Navnitlal and Company. The firm of M/s Jayantilal Navnitlal and Company was dissolved on 30th October, 1959, and a new firm was, formed in the name and style of M/s K. M. Suchak and Company. By this time Kantilal had attained majority, and the partners of M/s K. M. Suchak and Company were one Gordhandas Keshavji and Kantilal. The amounts standing to the credit of Kantilal in the books of M/s Jayantilal Navnitlal and Company was transferred to his account in the firm of M/s K. M. Suchak and Company. Interest of Rs. 3,895.31 was credited to this account in the previous year. The question, therefore, was whether the said amount of Rs. 51,000 had been validly gifted by the assessee to his son, Kantilal, in or about November, 1956, by making the entries as set out above.

(3.) IN the result, the questions referred to us are answered as follows : Question No. 1 In the affirmative. Question No. 2 In the negative. It is clarified that both the questions are answered in favour of the assessee. The CIT to pay the costs of the reference.