COMMISSIONER OF INCOME TAX Vs. PANDYA N K

JUDGEMENT

(1.) THIS is a reference under S. 256(1) of the IT Act, 1961 (referred to hereinafter as "the said Act"), made at the instance of the CIT.

(2.) THE assessee is a partner in the firm of M/s Nandlal and Company. The, relevant assessment years are 1967 68 and 1968 69. The assessee's wife Leelavati was not a partner in the said firm of M/s Nandlal and Company, but was a partner in a sister concern known as M/s M. Kumar Enterprises. In the year of account, relevant to the asst. year 1967 68, the assessee's brother, one M. K. Pandya, made a gift of Rs. 17,000 on January 17, 1966, to Leelavati, the wife of the assessee. The assessee had also made a gift of Rs. 15,000 on August 12, 1965, to Smt. Shashikala, the wife of his brother, M. K. Pandya. The ITO came to the conclusion that the two brothers, namely, the assessee and his brother, M. K. Pandya, had made cross gifts to each others' respective wives, and as such, there was directly or indirectly an accrual of income to the individual (assessee) as a result of the transfer of assets to the persons concerned. The ITO, in the two assessment years, included in the total income of the assessee the share of profits which his wife, Leelavati, received from the firm of M/s M. Kumar Enterprises, under the provisions of S. 64(iii) of the said Act. The assessee preferred an appeal to the AAC, who reversed the order of the ITO in respect of both the assessment years and the decision of the AAC was upheld by the Tribunal on appeals preferred by the ITO. The two appeals, in respect of the two assessment years have been disposed of by the Tribunal by a common judgment and this reference has been made out of the said common judgment. The questions referred to us for our determination are as follows:

(3.) IT is common ground that the provisions of cl. (i) of S. 27 of the said Act do not come into play in this case. We may at this stage also point out that the provisions of the aforesaid cl. (iii) of S. 64 of the said Act are in pari materia with the provisions of sub cl. (iii) of cl. (a) of Sub S. (3) of S. 16 of the Indian IT Act, 1922.