- (1.) THIS appeal is preferred against the judgment of the Andhra Pradesh High Court answering the question referred to it in the negative, i. e., against the Revenue and in favour of the assessee. The question referred is "whether on the facts and in the circumstances of the case, the capital gain of Rs. 58,000 was assessable in the hands of the assessee in terms of S.64(1) (iv) of the Income Tax Act, 1961." The assessment year concerned herein is 1966-67. S.64(1)(iv), as it stood at the relevant time, read thus: "64(1). In computing the total income of any individual, there shall be included all such income as arises directly or in directly- * * * (iv) subject to the provisions of clause (i) of S.27, to a minor child, not being a married daughter of such individual, from assets transferred directly or indirectly to the minor child by such individual otherwise than for adequate consideration." Reference to clause (i) of S.27 is not necessary since it has no relevance to the facts of this case.
(2.) THE respondent assessee is an individual. She was carrying on the business of mica mining and was also have income from property and money lending. During the financial year 1956-57, the respondent made a cash gift of Rupees ninety thousand to her minor son, Suryanarayana Reddy. This amount was immediately utilised for purchasing a house property at Gudur. The said house property was being utilised for the purpose of the assessee's business. Eight years after the purchase of the house, i. e., on July 5, 1967, the said house property was sold to Tirupati Devasthanam for a consideration of Rs. 1,48,000/-. On the date of this sale also, Suryanarayana Reddy was a minor. The Income Tax Officer included the capital gain of Rs. 58,000/-. in the assessee's income in terms of S.64(1), which was objected to by the assessee. Her appeal to the Appellate Assistant Commissioner was dismissed. Her second appeal was, however, allowed by the Tribunal relying mainly upon the decision of this Court in Comm. of Income Tax, West Bengal- III v. Prem Bhai Parekh 1970 (77) ITE 27). Thereupon, the said question was referred for the opinion of the High Court at the instance of the Revenue. The High Court too held in favour of the assessee, again relying mainly upon the decision in Prem Bhai Parekh. Sri J. Ramamurthy, learned counsel for the Revenue, submits that the High Court has misunderstood the ratio of Prem Bhai Parekh. He submits that the ratio of the said decision has no application herein. On the contrary, the learned counsel submits, the facts of Sevantilal Maneklal Sheth v. Comm. of Income Tax (Central). Bombay, 1968 (68) ITR 503) are quite similar to the facts of this case and that the ratio of the said decision squarely governs it and concludes the issue in favour of the Revenue. Learned counsel also pointed out that the decision in Prem Bhai Parekh (AIR 1970 SC 1518) was explained and distinguished by this Court in Smt. Mohini Thapar v. Comm. of Income Tax (Central), Calcutta 1972 (83) ITR 208). Counsel submits that though both these decisions were brought to the notice of the High Court, it has erred in distinguishing these two decisions and in following Prem Bhai Parekh. (AIR 1970 SC 1518). We are inclined to agree with Sri Ramamurthy.
(3.) LET us first see what does clause (iv) of S.64(1) say. In computing the total income of an individual, it says, there shall be included all such income as arises directly or indirectly to a minor child (not being a married daughter of such individual) from assets transferred directly or indirectly to the minor child by such individual otherwise than for adequate consideration. The facts of this case squarely fall within the said rule. The respondent - assessee made a gift of Rupees ninety thousand to her minor son, Suryanarayana Reddy. The said money was utilised immediately for purchasing a house property. As a matter of fact, the said house property was also being utilised for the purpose of assessee's business until it was sold eight years later. Even at the time of the said sale, Suryanaryana Reddy was a minor. It is true that what was gifted by the assessee to her minor son was the cash of Rupees ninety thousand but it cannot be forgotten that that money was utilised for purchasing the said house property. It was only a case of substitution of one form of property by another form of property. When the said house property was sold, a capital gain of Rupees fifty eight thousand was made. Capital gain is undoubtedly a type of income. The definition of "income" in S.2(24) includes " capital gains". It was, therefore, liable to be included in the income of the assessee.;