Pathak, C. J. I - (1.) -This appeal by special leave is directed against the judgment of the High Court at Calcutta* answering the fol1owing question in favour of the assessee and against the Revenue:"Whether, on the facts and in the circumstances of the case, the share of profit of the assessee's wife was includible in the total income of the assessee under Section 64(1)(iii) of the Income Tax Act, 1961 '
(2.) The assessee was assessed in the status of an individual for the assessment year 1962-63 corresponding to the previous year 26 March, 1961 to 13 April, 1962. At the material time the assessee was a partner in a firm, Messrs Ramesh and Co., with a share of eight annas therein. The balance was shared by three other partners, the assessee's father, Kunjilal Agarwala, the assessee's brother, Hariram Agarwala and a stranger, Jagdish Prasad. On 10 November, 1960 and on 28 November, 1960 the assessee made two gifts of Rs. 21,000/- and Rs. 30,000/- respectively to his wife, Kaushalya Devi, from his account in the firm. On 28 November, 1960 he made another gift of Rs. 11,000/- to his mother Chili Bai from that account. It may be observed that Chili Bai received another gift of Rs. 20,000/- from her husband, Kunjilal, effected by similarly drawing from his account with the firm.
(3.) The assessee's wife, Kaushalya Devi, as well as his mother Chili Bai became partners with three other persons in a newly constituted firm, Messrs Kunjilal Hariram and Co. The three other partners were the assessee's grand father, Moharilal Agarwala, the assessee's brother, Hariram Agarwala and the stranger, Jagdish Prasad Gupta. The Partnership Deed dated 10 November, 1960 provided that the business was to commence from 12 November, 1960. The preamble to the deed stated: "Whereas the partner of the Fifth Part who has extensive experience and outstanding talent of organisation in Jagree and Grains Trade but little finance requested the partners of the first four parts to enter into copartnership with him on contributing the necessary finance to carry on business in Jagree and Grains and also act as Commission Agents in Jagree Grains and allied commodities to which request they acceded." Clause 4 of the Partnership Deed stipulated: "That the partners of the First Four Parts shall initially contribute Rs. 25,000/ - each to be put in within six months from the commencement of the partnership. The said contributions augmented by further deposits and profits or depleted by withdrawals and losses shall carry interest at the rate of 6% per annum. The amount if any, standing to the credit of the partner of the Fifth Part shall carry interest at the same rate." On 12 November, 1960 Kaushalya Devi contributed Rs. 21,000/- as capital, which came out of the gift made by the assessee on 10 November, 1960. She also contributed Rs. 30,000/- as capital, which amount came out of the gift made on 28 November, 1960.;