Income Tax Appellate Tribunal - Jaipur
Shivji Ram Agarwal vs Income-Tax Officer on 24 June, 1996
Equivalent citations: [1982]2ITD379(JP)
ORDER
1. The assessee made a gift of Rs. 25,000 to his daughter-in-law, Smt. Reshma Devi. Smt. Reshma Devi also became a partner of the firm where the assessee was a partner. The ITO taking recourse to the provisions of section 64(1) (vi) of the Income-tax Act, 1961 ('the Act'), added the interest allowed on the gifted amount, in the income of the assessee. He further added her share in the profits of the firm in the income of the assessee. The assessee went in appeal and the AAC confirmed the inclusion of the interest in the hands of the assessee but in respect of the share in profits from the firm, he observed as follows :
"The ITO would verify this and he would include share of profit in the same proportion which the amount of Rs. 25,000 bears to the total investment made by Smt. Reshma Devi in the firm Shivjiram Trading Co."
2. It is contended before me by the learned counsel for the assessee that while the income from interest on the deposits is includible in view of section 64(1) (vi), the share in profit is not because Explanation 3 to section 64 is not applicable to Section 64(1) (vi). It was further submitted that there was no direct nexus between the amount receive as a gift and investment in the firm and her becoming a partner in that firm. Reliance was placed on CIT v. Prem Bhai Parekh [1970] 77 ITR 27 (SC), Prahladrai Agarwala v. CIT [1973] 92 ITR 130 (Cal.), Bhaichand Jivraj Muchhala v. CIT [1976] 102 ITR 385 (Bom.) and CIT v. N. K. Pandya as also the order of the Tribunal in IT Appeal No. 599 (Jp.) of 1978-79, dated 16-1-1979. The departmental representative, on the other hand, contended that as the factum of the lady becoming a partner, was intimately related to the investment of the funds received as a gift in the firm, the relationship was intimate and, therefore, the share in profit was rightly included in the manner as directed by the AAC.
3. After hearing both the parties, I am of the view that Explanation 3 to section 64(1), is specific that it is 'for the purposes of clauses (iv) and (v)' and, hence, is applicable to Section 64(1) (iv) and 64(1) (v), but not to Section 64(1) (vi) as there is no scope for intendment in the taxing statutes. The assessee cannot be roped in under that Explanation, when the Legislature itself has not done so. It has not included the provisions of Section 64(1) (vi) in Explanation 3 and, therefore, Explanation 3 cannot be stretched to intend to include Section 64(1) (vi) as far as the share income is concerned. Apart from that, I find that the deposit of the gifted amount by the lady has no intimate connection with her becoming a partner in that firm. When the law empowers a person to enter into a contractual agreement like a partnership without investing any capital, I fail to see why this lady could not enter into such an agreement. As I find that the deposit in the firm and the lady's becoming a partner in the firm are not intimately connected and relying on the case law, relied upon by the learned counsel for the assessee, I hold the share income of the lady from the firm is not includible in the hands of the assessee in spite of Section 64(1) (vi). Before parting with this appeal, I may mention that in the earlier order of the Tribunal referred to above, the same has become final.
4. In the result, the appeal is allowed.