1. The only point involved in this appeal pertains to the applicability of Section 64(1)(vi) of the Income-tax Act, 1961 ('the Act').
2. The assessee is an individual. The assessment year is 1978-79 and the relevant previous year is the corresponding Diwali year, 1977.
3. The facts in brief are : the assessee gifted Rs. 7,500 each to his two daughters-in-law, Smt. Kamlesh Kumari and Smt. Nirmala Rani, on 8-8-1973. With the help of these gifted money both the ladies became partners in a firm Kamleshji Premchand. By invoking the provisions of Section 64(1)(vi), the share income of these two ladies were included in the total income of the assessee up to the assessment year 1977-78.
For the year under appeal, the assessee claimed before the ITO that since these two ladies had withdrawn Rs. 7,500 each on 7-7-1977 from the firm in which they were partners and had opened fixed deposit accounts with the Bank of Baroda, the provisions of Section 64(1)(vi) were not attracted inasmuch as the gift of Rs. 7,500 each made by the assessee to these two ladies have been withdrawn from the books of the firm in which they were partners. The ITO, however, was of the view that withdrawing of the amount of Rs. 7,500 each by the ladies from the books of the firm would not automatically absolve the assessee from the mischief of the provisions of Section 64(1)(vi). In this connection, he also relied on the order of the AAC in the assessee's own case for the assessment year 1976-77. In this view of the matter, the ITO included the share of profit of these two ladies from the firm of Kamaleshji Premchand, in the total income of the assessee.
4. In appeal before the AAC, the assessee reiterated the submissions which were made before the ITO and urged that the ITO ought not to have invoked the provisions as of Section 64(1)(vi). The AAC, however, upheld the action of the ITO as under : I have examined the case of the assessee carefully. There is no doubt that the ladies became partners with the help of amounts which were received in gifts. It would also be seen that substantial amounts are lying to the credits of these ladies in the books of firm. These amounts comprise of the initial capital and the accumulated profits of several years. The ladies withdrew Rs. 7,500 but it cannot be conclusively said that the amounts withdrawn were out of gifted amounts or the accumulated profits. Section 64 speaks of income arising directly or indirectly from the transferred assets. As the ladies became partners with the help of gifted amounts, the share income has a direct connection with the gifted amounts. Even though the ladies withdrew amounts equal to the amounts of gifts from the firm the share income still continues to have a nexus with the gift. In these circumstances, the inclusion of income from share enjoyed by the ladies is found to be for valid reasons and the same is hereby approved.
5. Being aggrieved by the order of the AAC, the assessee had come up in appeal before the Tribunal. The learned counsel for the assessee once again made the same submissions as were made by him before the income-tax authorities and contended that the income-tax authorities were not justified in invoking the provisions of Section 64(1)(vi). In support of his submission, the learned counsel for the assessee relied on a decision of the Bombay High Court in the case of Popatlal Bhikamchand v. CIT  36 ITR 577. The learned representative for the department, on the other hand, relied on the orders of the income-tax authorities and justified their action. Inviting my attention to the facts of the case of Popatlal (supra), the learned representative for the department pointed out that they are quite different from the facts with which we are concerned in the present appeal. He, therefore, submitted that the ratio laid down in the said case would not be of any help to the assessee.
6. I have carefully considered the rival submissions of the parties and I do not find any merit in the submissions made on behalf of the asses-see. The head-notes in the case of Popatlal (supra) read as under : The assessee who held 350 shares in a company transferred the shares to his minor son by way of gift. Later the minor son was allotted 744 bonus shares for his original holding of 350 shares. The question was whether the dividend income from the 744 bonus shares allotted to the minor could be included in the total income of the assessee under Section 16(3)(a)(iv) of the Income-tax Act : Held, that although the bonus shares were in the hands of the minor son undoubtedly an accretion to the assets transferred by the assessee they could not be regarded as 'assets transferred' by the assessee, the dividend income from those bonus shares could not be regarded as arising even indirectly from the assets transferred by the assessee and, therefore, the dividend income on the 744 bonus shares could not be taxed in the hands of the assessee under Section 16(3)(a)(iv) of the Act.
The Legislature has not by enacting Section 16(3)(a)(iv) sought to tax in the hands of the assessee income arising from accretions to the assets transferred by him to his minor child. (p. 577) It would be clear from the above, that the Bombay High Court was concerned with the facts which are clearly ddistinguishable from the fact with which we are concerned in the present appeal. In the instant case, the two ladies became the partners in the firm of Kamleshji Premchand with the help of the money gifted by the assessee.
Thereafter, their share of profit was credited to their respective capital accounts and in the accounting year relevant to the assessment year under appeal, both these ladies withdrew Rs. 7,500 each from their capital account and deposited the same in the Bank of Baroda. Since the money cannot be earmarked, it is difficult to believe that the withdrawal of Rs. 7,500 made by these two ladies was the very same amount which the assessee had gifted to them in the year 1973. It is no doubt true that the view taken by the income-tax authorities or taken by me may be a harsh one to the assessee. However, the authorities working under the Act, as well as the Tribunal, has to interpret the section as it is without being influenced by the fact of hardship. On the plain reading of the provisions of Section 64(1)(vi), I am of the view that the income-tax authorities have rightly included the share income of the two ladies from the firm of Kamleshji Premchand in the total income of the assessee. I have, therefore, no hesitation in upholding the order of the AAC under appeal.