COMMISSIONER OF INCOME TAX Vs. WADILAL CHUNILAL

JUDGEMENT

(1.) THE question referred to this Court by the Tribunal on this reference under S. 66(1) of the India IT Act at the instance of the Department is :

(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 Oct., 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 entities 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 asst. year 1956 - 57 for which the relevant previous year was the Samvat Year 2,011 the ITO took the view that the gift of Rs. 1,50,000 made by the assessee amounted to an indirect transfer of his assets of his own wife within the meaning of S. 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 AAC, but his appeal was dismissed. He then appealed to the Tribunal. The Tribunal reversed the finding of the Departmental authorities holding that there was no evidence to show that there was mutuality of gifts by the assessee and his son and that the later gift by the son was out of consideration already agreed upon by the assessee in making the first gift. It also pointed out that in view of the interval of time between the two gifts, the gifts were independent of each other and the gift by the father, i.e., the assessee, could not be regarded as an indirect gift to his own wife. At the instance of the Department the Tribunal drew up a statement and raised the question of law, which we have already stated, and referred it to this Court.

(3.) IN C. M. Kothari vs. CIT (1958) 34 ITR 317, which was also a case of cross -gifts and a case which was perhaps much stronger on facts than the present case, the High Court of Madras held that the cross -gifts did not amount to assets indirectly transferred by the husbands in favour of their wives. The facts of that case were as follows : K and his two sons, D and H, were three partners of a firm.