Law: Income Tax Act, 1922

Section: 16(3)(a)(iii)

- Section 16(3) - Income-tax Act, 1922 CASES REFERRED TO Commissioners of Inland Revenue v. Clarkson-Webb [1932] 17 Tax Cas. 451 and Kothari, C.M. v. CIT [1958]34 ITR 317 . JUDGMENT V.S. Desai, J.-The question referred to this court by the Tribunal on this reference under section 66(1) of the Indian Income-tax Act at the instance of the department is : "Whether, on the facts and in the circumstances of the case, the two gifts of Rs. 1 lakh and Rs. 50,000 made by the assessee were hit by the provisions of section 16(3)(a)( iii) of the Indian Income-tax Act, 1922?" 2. The facts which give rise to this question may be briefly stated as follows : The assessee, Shri Wadilal Chunilal, is a partner along with his son, Kanchanlal, and three strangers in the firm of M/s. Kanchanlal Wadilal & Co. The assessee has a wife, Vasantibai, by whom he has no issue and who is the step-mother of his son, Kanchanlal. The son, Kanchanlal, has his wife, Padma, and a minor son, Pradeep. On the 26th of October, 1954, the assessee made a gift of Rs. 1 lakh to his daughter-in-law, Padma, wife of Kanchanlal. On the same day he also made a gift of Rs. 50,000 to his minor grandson, Pradeep, son of Kanchanlal. Thus on the said date the assessee made gifts aggregating to Rs. 1,50,000 to the wife and minor child of Kanchanlal. Nearly five months later on the 25th of March, 1955, the assessee's son, Kanchanlal, made a gift of Rs. 1,50,000 to Vasantibai, wife of the assessee. The gifts were effected by passing the necessary transfer entries in the books of the firm of M/s. Kanchanlal Wadilal & Co., in which the assessee and his son were partners. In the assessment of the income of the assessee in the assessment year 1956-57 for which the relevant previous year was the Samvat Year 2,011 the Income-tax Officer took the view that the gift of Rs. 1,50,000 made by the assessee amounted to an indirect transfer of his assets to his own wife within the meaning section 16(3)(a)(iii ) of the Act and, therefore, included the interest earned by Bai Vasantibai in the assessment of Wadilal. The assessee appealed to the Appellate Assistant Commissioner, but his appeal was dismissed. He then appealed to…

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