COMMISSIONER OF INCOME TAX Vs. PELLETI SRIDEVAMMA SMT

JUDGEMENT

(1.) THE question referred to us is as follows : "Whether, on the facts and in the circumstances of the case, the capital gain of Rs. 58,000 was assessable in the hands of the assessee in terms of Section 64(1)(iv) of the Income-tax Act, 1961 ?" THE assessee is an individual having money-lending business and mica mining business. She submitted a return for the assessment year 1966-67 and claimed that an amount of Rs. 58,000 arising out of sale of house standing in the name of her minor son, Suryanarayana Reddi, is not taxable as a capital gain. In the financial year 1956-57, the assessee made a cash gift of Rs. 90,000 to her minor son. This amount was utilised for purchasing a house property and it was used by the assessee for the purpose of her business. On July 5, 1965, the said property was sold by her to Tirupathi Devastanam for Rs. 1,48,000. THE Income-tax Officer assessed the capital gain of Rs. 58,000 derived from the sale of the house in the hands of the assessee, invoking Section 64(1)(iv) of the Income-tax Act. THE assessee then preferred an appeal to the Appellate Assistant Commissioner who confirmed the order of the Income-tax Officer. On further appeal, the Appellate Tribunal allowed the appeal on the ground that there is no proximate connection between the cash gift of Rs. 90,000 and the capital gain derived by the sale of the house. THEn the Commissioner moved for reference under Section 256(1) of the Act, and as the Tribunal rejected the application, an application was filed in this court for reference of the question involved under Section 256(2) of the Act.

(2.) MR. P. Rama Rao, learned counsel for the revenue, contended that the Tribunal erred in holding that there is no proximate connection between the gift made by the assessee and the capital gain derived by the sale of the house. In support of his contention, he sought to place reliance upon the two following decisions of the Supreme Court. In Sevantilal Maneklal Sheth v. Commissioner of Income-tax, the Supreme Court observed :

(3.) IN the present case, the cash gift of Rs. 90.000 made by the assessee to her minor son was utilised for purposes of purchasing house property at Gudur. It was not purchased for the purpose of resale by the assessee but to use it as her office for carrying on her business. The sale of the house property was eight years later. What we have to see is whether there is any proximate connection between what was derived by way of capital gain and the gift of cash which she made to her son. IN other words, whether there is any direct or indirect relationship between the transfer and the income derived by the sale of the house. Section 64(1)(iv) of the INcome-tax Act is in these terms :