JUDGMENT
M.S. Shah, J.
1. In this reference at the instance of the Revenue, the following questions have been referred for the opinion of this court in respect of the assessment year 1982-83 :
“(i) Whether, in law and on facts the provisions of Section 64(1)(i) of the Income-tax Act, 1961, were not attracted for including the share income of Smt. Achalaben in the hands of the assessee, who is the father-in-law of Achalaben ?
(ii) Whether, when an assessee, the father-in-law of Smt. Achalaben, had gifted Rs. 10,000 out of which investment, she became a partner in the firm of Mira Industries, the provisions of Section 64(l)(vi) of the Income-tax Act, 1961, were not attracted ?”
2. We have heard Mr. Akil Kureshi, learned counsel for the Revenue, and Mr. Soparkar with Mr. Manish Kaji, for the respondent-assessee.
3. The assessee, an individual, filed his return of income for the assessment year 1982-83. During the course of assessment proceedings, the Income-tax Officer noted that the assessee had made a gift of Rs. 10,000 to his daughter-in-law, Smt. Achala S. Amin, on May 14, 1974, who invested the gifted amount in Meera Industries in the financial year 1974-75 and became a partner of the said firm to the extent of 14 per cent, share. On the grounds that Smt. Achalaben was not a working partner nor was possessing any technical or professional qualification nor was having any experience of the business nor had she made any further contribution to the share capital of the firm till financial year 1981-82, the Income-tax Officer held that there was a proximate connection between the assets transferred by the assessee to Smt. Achalaben and the income arising to her from Meera Industries. The Income-tax Officer, therefore, included the share income of Smt. Achalaben from Meera Industries amounting to Rs. 91,825 to the total income of the assessee. In appeal, the Commissioner of Income-tax (Appeals) relied on the decision of the Supreme Court in CIT v. Prem Bhai Parekh [1970] 77ITR 27 and held that the income of Smt. Achalaben could not have been clubbed with the income of the assessee. The Tribunal confirmed the decision of the Commissioner of Income-tax (Appeals). Hence, this reference at the instance of the Revenue.
4. Having heard learned counsel for the parties and having gone through the decision of the apex court in CIT v. Prem Bhai Parekh [1970] 77 ITR 27 and the decision of the apex court in CIT v. Smt. Pelleti Sridevamma [1995] 216 ITR 826, we find that the facts in the instant case are similar to the facts in Prem Bhai Parekh’s case [1970] 77 ITR 27 (SC) in which the apex court held that it must be established that the income in question arose directly or indirectly from the gifts in question. In the facts of Prem Bhai Parekh’s case [1970] 77 ITR 27 (SC), there was no dispute that the assessee had transferred to each of his minor sons a sum of Rs. 75,000 and that the amount contributed by those minors in the share of the partnership firm came from those amounts, but the court posed the question–whether it can be said that the income in question arose directly or indirectly from the assets transferred by the assessee to those minors when the income of the minors arose as a result of their admission to the benefit of their partnership. Even though they were admitted to the benefit of the partnership because of the contribution made by them, the court held there was no proximity between the transfer of assets and the income in question. The court held that the connection between the gifts in question and
income in question was a remote one. In our view, the facts in the instant case are similar except that instead of the donee being minor sons, in the instant case the donee was the daughter-in-law of the assessee.
5. Considering the fact that although son’s wife is included in Section 64(1)(vi) so as to be within the list of relatives to be hit by the clubbing provision, the Tribunal rightly pointed out that Explanation 3 to Section 64(1) only covered at the relevant time the assets transferred directly or indirectly by an individual to his spouse or minor child which are invested by the spouse or minor child in any business and the said Explanation did not, for the relevant assessment year, cover the son’s wife. It is clear that Explanation 3 was enacted for applying the clubbing provision to income arising from the transfer of assets to a close relative and investment of such gifted amount in a business. However, the very fact that the Legislature did not include the daughter-in-law within the sweep of Explanation 3 is an indication that the Legislature did not intend to apply such dubbing provision to the investment of the amount of gift to daughter-in-law in the business so that the income arising from the amount gifted to the daughter-in-law and invested in the business of the donor could be clubbed with the income of the business of the donor.
6. In view of the above discussion, we answer both the questions referred to us in the affirmative, i. e., in favour of the assessee and against the Revenue.
7. The Reference accordingly stands disposed of with no order as to costs.