1. The assessed was betrothed to one Shri Ashok Kumar Gupta prior to April, 1977. Under a deed of partnership executed on 12-4-1977 she became a partner in the firm of Textile Centre, Chandani Chowk, Delhi, the partnership being effective from 1-4-1977. Along with the assessed there were three other partners, viz., Shri Rajendra Pd. Gupta, Smt. Annapurna Devi Gupta and Smt Bimala Devi Gupta. Smt. Annapurna Devi Gupta is the mother of Shri Ashok Kumar Gupta, to whom the assessed was engaged at the time of the formation of the partnership.
2. The ITO completed the assessment of the firm of the assessment year 1978-79 on 7-3-1981. This is what he stated in that order :
'During this year Smt. Sharda Gupta was admitted to the partnership firm vide partnership deed dated 12-4-1977 with effect from 1-4-1977. As per preamble to the partnership deed Kumari Sharda daughter of Shri Vasudev was betrothed to Shri Ashok Kumar Gupta, son of Shri Hari Ram Gupta. Regarding the details of investment made by her of Rs. 50,000 in the firm she had received gifts of Rs. 13,000 and Rs. 12,500 from Smt. Annapurna Devi Gupta and Hari Ram Gupta, who are her mother-in-law and father-in-law respectively. Vide this office letter dated 4-2-1981 the assessed-firm was specifically was specifically asked that before becoming partner in the firm Smt. Sharda Gupta was betrothed to Shri Ashok Kumar Gupta son of Shri Hari Ram Gupta. She had received gifts from Shri Hari Ram Gupta and Smt. Annapurna Devi Gupta on 24-3-1977, 25-4-1977 and 29-4-1977 respectively. The gifts were given to her by her father-in -law and mother-in-law in consideration of the fact that she was to be married to their son, Shri Ashok Kumar Gupta. They were required to show cause why the provisions of section 64(3) should not be applied. In reply it has been stated that the gifts were given to Smt. Sharda Gupta. prior to date of marriage and further in their letter dated 2-3-1981 it has been stated section 64(3) is not applicable since no marital relationship had come to exist on the date of gift. They are referred to the last para of page 1043 on Volume 2 of the Commentary of Income-tax by Chaturvedi. This commentary refers to gifts made to husband and wife and not mother-in-law and father-in-law. From the above facts it is quite clear that Smt. Sharda Gupta had received gifts of Rs. 12,500 and Rs. 13,000 from her mother-in-law and father-in-law for investment in the firm for total investment of Rs. 50,000. thereforee, 50 per cent of her share would be taxed in the hands of Shri Hari Ram Gupta and Smt. Annapurna Devi Gupta respectively. Share allocation of the partners is made as under : (sic)'
3. In the meanwhile the assessed filed her return of income for the first time for the assessment year 1980-81. (It was stated before me by the assesseds authorised representative Shri K. Sampath that this was because, having no taxable income, she did not file any returns for the assessment year 1978-79 and 1979-80. ) The ITO completed the assessment of the assessed for the year under appeal here with the following observations :
'The only source of income is share income from Textile Centre. As per assessment of the firm dated 18-2-1982, the assesseds share income comes to Rs. 33,525. She became partner in this firm by investing Rs. 50,000, out of this investment of Rs. 50,000 she got gifts of Rs. 12,500 and Rs. 13,000 from her father-in-law, Shri Hari Ram and mother-in-law, Smt. Annapurna Devi. As per records of the firm it was clearly mentioned in the partnership deed that the lady is betrothed to Shri Ashok Kumar Gupta s/o Shri Hari Ram. The gifts were given to the lady assessed by her father-in-law and mother-in-law because of the fact that she was the prospective wife of their son. thereforee, section 64 of the Income-tax Act comes into play. Out of her share income of Rs. 33,525, Rs. 8,381 would be assessed in the hands of her father-in-law and mother-in-law respectively. Full facts have been discussed in length in the assessment order dated 7-1-1981 in the firms case for 1978-79. However, as the assessed has shown the full share income from the firm it is assessed in her hands on a protective basis.
The assessed appealed.
4. The AAC, however, dismissed the appeal. He observed that the ITO had made the assessment on the declared income of the assessed on protective basis by invoking the provisions of section 64 of the Income-tax Act, 1961. There was no addition or alteration to the declared income of the assessed. Hence, the action of the ITO was justified.
5. In further appeal Shri Sampath submits that the AAC erred in not directing the ITO for issuing speaking orders. Explaining the grounds of appeal Shri Sampath invited attention to the decision of the Supreme Court in the case of Philip John Plasket Thomas v. CIT : 49ITR97(SC) . He also invited attention to section 64(1) (vi) which reads as under :
'In computing the total income of any individual, there shall be included all such income as arises directly or indirectly -
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(vi) to the sons wife, or sons minor child, of such individual, from assets transferred directly or indirectly on or after the 1st day of June, 1973, to the sons wife or sons minor child by such individual otherwise than for adequate consideration; and'
According to Shri Sampath when Smt. Annapurna Devi and Shri Hari Ram Gupta made the cash gifts, there was no transfer by them to their sons wife because as on the date of the gifts, the assessed had not been married to Shri Ashok Kumar Gupta. Shri Sampath invites attention to the copy of the wedding invitation at page 14 of the paper book. This shows the date of wedding as 8-5-1977 whereas the cash gifts were on the following dates.
Name of the donor
Smt. Annapurna Devi
Smt. Hari Ram Gupta
Smt. Annapurna Devi
Shri Sampath does not dispute that the ITO has every right to make a protective assessment. He also agreed that the assessment has been made on the income is returned. He, however, takes strong exception to the very basis given by the ITO for considering the assessment as a protective assessment. According to Shri Sampath such a basis is wholly against the law of the land, laid down by the Supreme court in the case of Philip John Plasket Thomas (supra). He, thereforee, submits that the very basis for making a protective assessment not being there in law, the observations of the ITO required to be declared as such. For the revenue Shri Khullar supported strongly the reasoning of the AAC. He submitted that there could be no right of appeal against mere observations in an assessment order. He also pointed out that the firm of Textile Centre has already gone in appeal for the assessment year 1978-79 on this very issue and, hence, this appeal also should be heard along with that appeal.
6. I have considered the submissions. There cannot be any doubt about the ITOs right to makes a protect assessment. This was readily conceded by Shri Sampath himself. However, I do find substance in the claim for the assessed that the protective assessment has been made for reasons which are wholly bad in law. This is because of the decision of the Supreme court in the case of Philip John Plasket Thomas (supra). The facts on record clearly show that at the time of the cash gifts. Shri Hari Ram Gupta and Smt. Annapurna Devi Gupta were not the father-in-law and the mother-in law of the assessed. That came about much later. Hence, there is no question of applying section 64(1) (vi) in this case. In this view of the matter, the ITOs observations with regard to the applicability of such a provision have no legal basis. Assessment of such share income has to be assessed in the assesseds own name and in her own right. To this extent the objections for the assessed are sustained.
7. The appeal is deemed to be allowed for statistical purposes.