COMMISSIONER OF INCOME TAX Vs. K GOVINDARAJULU

JUDGEMENT

(1.) THE assessee, who died during the pendency of these tax cases, was the managing director of M/s. Sri Hari Mills Private Limited. He gifted certain agricultural lands to his wife, who has been brought on record in these cases as the third respondent, under a document dated May 8, 1954. She sold the lands in 1959 for a sum of Rs. 65, 000 and deposited the sale proceeds with the company M/s. Sri Hari Mills Private Limited. She received a sum of Rs. 5, 790 by way of interest on the deposit from the company during the accounting year ending with March 31, 1965. While making assessment for the year 1965-66, the Income-tax Officer held that the aforesaid sum of Rs. 5, 790 was income received from an asset transferred by the assessee to his wife and, therefore, it was liable to be assessed in the hands of the assessee under section 64(1)(iii) of the Income-tax Act, 1961 In the assessment of M/s. Sri Hari Mills Private Limited, for the assessment years 1965-66 and 1967-68 to 1971-72, certain amounts were disallowed as attributable to the personal user by the managing director, the assessee, of the cars and telephone provided by the company.

(2.) THOSE amounts were included in the assessment of the assessee as perquisites received by him from the company. The value of the perquisites was fixed at the same amounts as were disallowed in the company's assessment. Thus, a sum of Rs. 11, 007 was included in the assessment of the assessee for the year 1965-66 as value of the perquisites received by him. Similarly, sums of Rs. 22, 692, Rs. 20, 870, Rs. 10, 598, Rs . 20, 500 and Rs. 20, 500 were included in the hands of the assessee as value of perquisites received by him from the company for the assessment years 1967-68, 1968-69, 1969-70, 1970-71 and 1971-72 respectively.The assessee preferred appeals to the Appellate Assistant Commissioner against the said orders of assessment. The Appellate Assistant Commissioner accepted the contention of the assessee regarding the inclusion of the interest income for the year 1965-66 and directed deletion thereof. As regards the value of the perquisites, the Appellate Assistant Commissioner held that whatever had been disallowed in the assessment of the company could not be automatically treated as the value of the perquisites in the hands of the assessee. Taking note of the facts that the assessee had owned a car in the previous year relevant to the assessment year 1965-66 and that his wife had owned a car in the previous years relevant to the assessment years 1968-69, 1969-70 and 1970-71, the Appellate Assistant Commissioner concluded that the value of the perquisites enjoyed by the assessee by the use of the company's car could be fixed at Rs. 250 per mensem for the assessment years 1965-66, 1968-69, 1969-70 and 1970-71 and at the rate of Rs. 500 for the other assessment years. Accordingly, he directed deletion of the excess amounts for the respective assessment yearsAggrieved by the order of the Appellate Assistant Commissioner, the Revenue took the matter to the Tribunal on appeal.

(3.) THE connection between the transfer of assets and the income must be proximate. THE income in question must arise as a result of the transfer and not in some manner connected with it."(underlining ours)THE significance of the word" proximate" *used by the Supreme Court in the above passage cannot be lost sight of. It is clear therefrom that the income sought to be taxed and the transfer of assets must be connected with each other by proximity in every respect.