Madhya Pradesh High Court
Commissioner Of Income-Tax vs Kanji Bhai Tivraj Bhai on 21 November, 1988
Equivalent citations: [1989]176ITR273(MP)
JUDGMENT
G.G. Sohani, Actg. C.J.
1. By this reference under Section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), the Income-tax Appellate Tribunal, Jabalpur Bench, Jabalpur, has referred the following question of law to this court for its opinion :
"Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the provisions of Section 64(1)(vi) were not attracted to the case of the assessee and the income earned by Mrs. Pragnya Devi, the daughter-in-law of the assessee, from the share in the firm, Pragnya Oil Industries, could not be included in the hands of the assessee ?"
2. The material facts giving rise to this reference, briefly, are as follows :
The assessee was a partner in the firms, Nirmalkumar & Co. and Pragnya Oil Industries. The assessee gifted a sum of Rs. 25,100 to his son's wife, Smt. Pragnya Devi, who contributed that amount to the capital of the firm, Pragnya Oil Industries, and became a partner of that firm. While framing the assessment for the assessment year 1977-78, the claim of the assessee that the share income amounting to Rs. 19,920 from the firm, Pragnya Oil Industries, received by his daughter-in-law was not includible in the income of the assessee under Section 64(1) of the Act was rejected by the Income-tax Officer who held that the said income was includible in the total income of the assessee under the provisions of Clause (vi) of Section 64(1) of the Act. Aggrieved by the order passed by the Income-tax Officer, the assessee preferred an appeal which was dismissed. On further appeal before the Tribunal, the Tribunal held, following the decision of the Calcutta High Court in Prahladrai Agarwala v. CIT [1973] 92 ITR 130, that the share income of the daughter-in-law of the assessee could not be held to have arisen directly or indirectly as a result of the gift made by the assessee to his daughter-in-law. In this view of the matter, the Tribunal allowed the appeal. Aggrieved by the order passed by the Tribunal, the Revenue sought reference and it is at the instance of the Revenue that the aforesaid question of law has been referred to this court for its opinion.
3. Having heard learned counsel for the parties, we have come to the conclusion that this reference must be answered in the affirmative, in favour of the assessee and against the Revenue. In Prahladrai Agarwala's case [1973] 92 ITR 130, the Calcutta High Court held, following the decision of the Supreme Court in CIT v. Prem Bhai Parekh [1970] 77 ITR 27, that when income was received by a person as a result of admission to the benefits of the partnership, then such income arises primarily because of the participation by that person as a partner and not as consequence of investing the gift made in favour of that person by the assessee. We respectfully agree with the decision of the Calcutta High Court. The decision referred to by learned counsel for the Revenue in Mohini Thapar (Smt.) v. CIT [1972] 83 ITR 208 (SC), is distinguishable on facts. In the instant case, the share income of the daughter in-law arose primarily on account of the fact that she was admitted to the partnership. The said income could not be held to have arisen directly or indirectly from the gift; made by the assessee in favour of his daughter-in-law. In our opinion, therefore, the Tribunal was right in holding that the provisions of Section 64(1)(vi) of the Act were not attracted to the case of the assessee and the income earned by his daughter-in-law from the share in the firm, Pragnya Oil Industries, could not be included in the hands of the assessee.
4. The reference is accordingly answered in the affirmative and in favour of the assessee and against the Revenue. There shall be no order as to costs of this reference.