Law:

Section:

Section 64 of the Income-tax Act, 1961 [Corresponding to section 16(3) of the Indian Income-tax Act, 1922] - Transfer of asset - For benefit of spouse/minor child - Assessment year 1961-62 - Assessee gifted certain amount to his wife and she contributed same towards capital of a firm - She had nothing to do with day-to-day management of that firm - Whether share income received by assessee's wife from that firm was includible in total income of assessee under section 16(3)(a)(iii) of 1922 Act - Held, yes FACTS The assessee gave his wife Rs. 5,000 which. she deposited with bank subsequently, she withdrew Rs. 4,000 from that amount and contributed her share of the capital of a firm wherein her mother-in-law was the other partner. During the accounting period relevant to assessment year 1961-62, she received from the partnership as her share of the profits of the partnership Rs. 4,149. The inclusion of this income in the total income of the assessee under section 16(3)(a)( iii) of 1922 Act was confirmed by the Tribunal. On reference : HELD The answer to the question whether her share income was includible in the total income of the assessee, would depend on whether the income derived form the partnership was entirely due to the investment of Rs. 4,000 or whether in the making of that income other elements also were in operation. In the instant case the assessee's wife had nothing to do with the day-to-day management of the affairs of the partnership. There was also nothing on record to show that she had anything to do with the determination of the policy of the partnership or that she contributed towards its working anything other than the contribution of one-half of the capital of the firm and that she had any other asset of her own which would have been endangered on the basis of her personal liability for the debts of the firm. Therefore, it could be said that no other element operated and, consequently, the income that she received from the partnership should be traced wholly and exclusively to the Rs. 4,000 given to her by her husband. In view of the above, section 16(3)(a )(iii) of 1922 Act was attracted and share income of assessee's wife could be included…

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