- (1.)TWO questions have been referred to us in this reference under S. 256(1) of the IT 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 s. 64(iii) of the IT Act, 1961 , the Tribunal was justified in law in holding that the income arising to Smt. Shashikala M. Pandya in respect of the amount of Rs. 15,000 deposited by her in the firm of M/s Nandlal and Company, for the asst. yrs. 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 August 12, 1965, which she deposited in the partnership firm, M/s Nandlal and Co., 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 January 17, 1966, which she contributed as part of her capital as partner in the sister partnership firm, M/s 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 M. Pandya and Smt. Shashikala M. Pandya, for the purpose of S. 64(iii) of the IT Act, 1961 ?"

(2.)THE facts giving rise to this reference have been set out in some detail in IT Ref. No. 31 of 1973 (CIT vs. N. K. Pandya) and hence there is no need to recapitulate the same in detail here. This reference relates to the asst. yrs. 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, M. 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 M/s Nandlal & Company and received interest on this deposit. The question is whether this interest is liable to be included in the income of her husband, the assessee.
As far as question No. 2 set out above is concerned, the relevant order of the ITO 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 ITO 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 ITO has not been disputed either before the AAC or the 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 M/s Nandlal & 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 M/s Nandlal & Company and received interest thereon.

(3.)IN Smt. Mohini Thapar vs. CIT (1972) 83 ITR 208 (SC), 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 S. 16(3)(a)(iii) of the Indian IT 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 S. 16(3)(a)(iii) of the Indian IT Act, 1922, are in pari materia with the provisions of S. 64(iii) of the IT Act, 1961, with which we are concerned in this case. In Bhaichand Jivraj Muchhala vs. CIT (supra), it has been held by a Division Bench of this Court that where a portion 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 S. 16(3)(a)(iii) of the Indian IT 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.