BARODAWALA S S Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) BY this reference under S. 256(1) of the IT Act, 1961 made at the instance of the assessee, the Income tax Appellate Tribunal ("Tribunal") has referred the following question of law to this Court for opinion :

(2.) THIS reference relates to two assessment years, viz., 1971 72 and 1972 73, the relevant previous years being the financial years 1970 71 and 1971 72 respectively. In making the assessment of the income of the assessee, the Income tax Officer ("ITO") included in his income for the two assessment years sums of Rs. 56,236 and Rs. 53,834 respectively under S. 64(1)(v) of the IT Act, 1961 ('the Act'), being the shares of the two minor sons of the assessee from a family trust known as the Shaikhali Family Trust. The ITO did so as he found that the assessee and two others had settled a sum of Rs. 1 lakh each in the said trust for the benefit of their respective children numbering six as mentioned in the trust deed and a property had been constructed with the said funds and other borrowed funds for Rs. 5,90,000. Income arose from the said property and the addition mentioned above to the income of the assessee under S. 64(1)(v) represents the shares of the two minor sons of the assessee in the income from the said property.

(3.) AGGRIEVED by the orders of the AAC, the Revenue preferred appeals before the Tribunal. The contention of the Revenue was that in view of the clear language of S. 64(1) of the Act which provides for inclusion of income arising "directly or indirectly"from the transferred assets in the income of the transfer or, the AAC was not justified in restricting the inclusion to notional income which might have arisen directly on investment of the transferred asset. It was pointed out to the Tribunal by the Departmental Representative that there was a marked difference in the language of existing S. 64(1)(v) and the corresponding provision contained in S. 16(3)(b) of the 1922 Act as a result of which the decisions rendered by the Courts in cases under the old Act were no more relevant. The contention of the Revenue was accepted by the Tribunal and it was held that the entire income arising from the property was assessable in the hands of the assessee for both the years. In that view of the matter, the Tribunal allowed the appeals of the Revenue and set aside the order of the AAC and restored the order of the ITO for both the years. Hence, this reference at the instance of the assessee.