COMMISSIONER OF INCOME TAX versus SMT. PELLETI SRIDERAMMA, NELLORE

Citation: [1995] SUPP. 4 S.C.R. 206 · Decided: 11-10-1995 · Supreme Court of India · Bench: B.P. JEEVAN REDDY · Disposal: Appeal(s) allowed

Judgment (excerpt)

A 
B 
c 
COMMISSIONER OF INCOME TAX 
\'. 
SMT. PELLET! SRIDERAMMA, NELLORE 
OCTOBER l l, 1995 
IB.P . .JEEVAN REDDY AND S.B. MAJMUDAR, J.l.J 
Income Tax Act, 1961: 
Section 2(24)-'lncome'-lncludcs 'Capital Gains'. 
Section 64( I )(iv}-Assessee-Cash gift lo minor son-Money utilised to 
purchase propcrty--Prope1ty utilised for assessce's business-Sale of propc1ty 
after eight yca1:\'-Capital gains-Held liable to be included in assessce1s 
incon1e. 
D 
lncon1e Tax-Clubbing of-Assessee-lncon1e a1ising fron1 assets trans-
fe1Tcd to 1ni1101.__Proxin1it1-Rclevance of-Held proxinzity should be betl-veen 
assets tran.\fc1Ted and the incon1c in question-Tinze lag is of no significance. 
The respondent-assessee, carrying on mica mining business, made a 
cash gift of rupees ninety thousand to her minor son during the financial 
E 
year 1956-57. Immediately thereafter the said amount was ultilised for 
purchasing a house property which was utilised for the purpose of 
assessee's business. After eight )'ears \\'hen the said property was sold the 
capital gain of Rs. 58,000 was included in the assessee's income in terms 
of Section 64(1) (iv) of the Income Tax Act, 1961. Assessee's appeal was 
F 
disrnissecl by Appellate Assistant Co1un1issioner \\
1hile the Tribunal al-
lo\\'t'd her second appeal relying upon the decision in Conunissioner of 
Income Tax v. Prem Bhai Parekh & 01x., (1970) 77 ITR 27. The High Court 
too relying on the aforesaid case held in favour of the assessee on the 
ground that in vien· of the ti1ne lag of eight years bet\\'een the cash gift and 
the subsequent sale of the hou!'ie property there \Vas no proxi1nate relation-
G ship bctn·een the cash gift and the incorne arising from the sale of the 
house. 
Allowing: Revenue's appeal and setting: aside the judg1nent of the 
High Court, this Court 
J-1 
HELD: l. Clause (iv) of Section 64 (1) of the Income Tax Act, 1961 
206 
C.l.T. v. P. SRJDERAMMA [B.P . .TEEVAN REDDY.J.j 
207 
provided that in computing the total income of an individual there shall A 
he included all such inco1ne as arises directly or indirectly to a minor child 
(not being a n1arried daughter of such individual) fron1 assets transferred 
directly or indirectly to the rninor child hy such individual othenvise than 
for adet1uate consideration. The facts of this case squarely fall nithin the 
said rult~. It is true that what was gifted by the assessee to her n1inor son B 
was the cash of Ru ]lees ninety thousand but that money was utilised for 
purchasing the house property. It was only a case of substitution of one 
forn1 of property by another forrn of property. When the said house 
]Jroperty was sold, a capital gain of Rupees lilly eight thousand was made. 
Capital gain is undoubtedly a type of income. The definition of 'incon1e' in 
Section 2(24) includes "capital gains". It was, therefore, liable to be in-
C 
eluded in the income of the assessee. (209-D-F] 
2. The expression "proxin1ate" occurring in Preni Bhai Parekh case 
\\'as understood by the High Court as proximity in point of time. It is not 
a correct understanding of the ratio of the said judgment. The proximity 
referred to by this Court was not proximity in point of time but proximity D 
between the transfer of assets and the income in <1uestion. Therefore, the 
time lag, if' any, is of no significance under Section 64 (1) (iv). [213-C-D] 
('onznzissioner of lnconie Tax, West Bengal-Ill v. Prenz "Bhai Parekh & 
On-., (1970) 77 !TR 27, explained and held inapplicable. 
E 
Savantilal Maneklal Sheth v. CIT (Central) Bombay, (1968) 68 !TR 
503, S111t. Mohini 771a11ar v. Conunissioncr of lnconze Tax (Central), Calcutta 
& Ors., (1972) 83 ITR 208 and CIT v. VJ. Aleykutti, (1991) 189 ITR 711, 
referred to. 
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1053 of 
1977 
From lhe Judgment and Order daled 6.4.76 of the Andhra Pradesh 
High Court in R.C. No. 38 of 1973. 
J. Ramamurthy and R. Salhish for the Appellant. 
The Judgment of the Court was delivered by 
F 
G 
R.P. JEEVAN REDDY, J. This appeal is preferred against 1he judg-
ment of the Andhra Pradesh High Court answering the question referred H 
208 
SUPREME COURT REPORTS [1995] SUPP. 4 S.C.R. 
A 
to it in the negative, i.e., against the Revenue and in favour of the assesscc. 
B 
c 
D 
E 
The question referred is 
11whcther on the facts and in the circun1stances of 
the case, the capital gain of Rs. 58,000 was assessahlc in the hands of the 
assessee in terms of Section 64(l)(iv) of

Excerpt shown. Read the full judgment & AI analysis in Lexace.