Law: Income Tax Act, 1961

Section: 256(1)

Income-tax----Transfer of asset-Meaning. In the present case, the assessee made a gift of certain amount to his sister-in-law (say 'A') which she contributed as part of her 'capital as partner of a firm. The assessee's brother (say 'B') being the husband of A made a gift of certain amount to the assessee's wife (say 'C') who deposited the amount in the sister partnership firm in which her husband (the assessee) and 'B' were partners and received interest on this deposit. Held that the income arising to 'C' in respect of the amount deposited by her in the firm arose from the assets transferred indirectly to her by the assessee and as such was includible in the total income of the assessee. Held further that the making of the gifts by 'B' to 'C' and by the assessee to 'A' constituted indirect transfers of assets by 'B' and by his brother, the assessee to their respective wives. (1976) 102 I T R 385 (Bom.) and. 83 I T R 208 (S C) ref. JUDGMENT 'Two questions have been referred to us in this reference under section 256 (1) of the Income-tax 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 section 64(iii) of the I.-T Act, 1961, the Tribunal was justified in law in holding that the income arising to Smt. Shashikala M. Pandya in respect of the amount `if Rs.15, 000 deposited by her in the firm of Messrs Nandlal and Company, for the assessment years 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 12-8-1965 which she deposited in the partnership firm Messrs Nandlal and Company 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 17-1-1966 which she contributed as part of her capital as partner in the sister partnership…

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