Summarize the following court judgment. ivil Appeal No. 575 (NT) of 1975. From the Judgment and Order dated the 24.4.1973 of the Calcutta High Court in Income Tax Reference No. 202 of 1969. B. Ahuja and Ms. A. Subhashini for the Appellant. K.P. Bhatnagar	 S.P. Mittal and B.P. Maheshwari for the Respondent. The Judgment of the Court was delivered by PATHAK	 CJ. This appeal by special leave is directed against the judgment of the High Court at Calcutta answering the following question in favour of the assessee and against the Revenue: "Whether	 on the facts and in the circum stances of the case	 the share of profit of the assessee 's wife was includable in the total income of the assessee under section 64(1)(iii) of the Income Tax Act	 1961?" 739 The assessee was assessed in the status of an individual for the assessement year 1962 63 corresponding to the previ ous year 26 March	 1961 to 13 April	 1962. At the material time the assessee was a partner in a firm	 Messrs Ramesh and Co.	 with a share of eight annas therein. The balance was shared by three other partners	 the assessee 's father	 Kunjilal Agarwala	 the assessee 's brother	 Hariram Agarwala and a stranger	 Jagdish Prasad. On 10 November	 1960 and on 28 November	 1960 the assessee made two gifts of Rs.21	000 and Rs.30	000 respectively to his wife	 Kaushalya Devi	 from his account in the firm. On 28 November	 1960 he made anoth er gift of Rs. 11	000 to his mother Chili Bai from that account. It may be observed that Chili Bai received another gift of Rs.20	000 from her husband	 Kunjilal	 effected by similarly drawing from his account with the firm. The assessee 's wife	 Kaushalya Devi	 as well as his mother Chili Bai became partners with three other persons in a newly constituted firm	 Messrs Kunjilal Hariram & Co. The three other partners were the assessee 's grand father	 Moharilal Agarwala	 the assessee 's brother	 Hariram Agarwala and the stranger	 Jagdish Prasad Gup. The Partnership Deed dated 10 November	 1960 provided that the business was to commence from 12 November	 1960. The preamble to the deed stated: "Whereas the partner of the Fifth Part who has extensive experience and outstanding talent of organisation in Jagree and Grains Trade but little finance requested the partners of the First four Parts to enter into co partnership with him on contributing the necessary finance to carry on business in Jagree and Grains and also act as Commission Agents in Jagree Grains and allied commodities to which request they acceded." Clause 4 of the Partnership Deed stipulated: "That the partners of the First Four Parts shall initially contribute Rs.25	000 each to be put in within six months from the commence ment of the partnership. The said contribu tions augmented by further deposits and prof its or depleted by withdrawals and tosses shall carry interest at the rate of 6% per annum. The amount if any	 standing to the credit of the partner of the Fifth Part shall carry interest at the same rate." 740 On 12 November	 1960 Kaushalya Devi contributed Rs.21	000 as capital	 which came out of the gift made by the assessee on 10 November	 1960. She also contributed Rs.30	000 as capital	 which amount came out of the gift made on 28 November	 1960. In the course of assessment proceedings for the assess ment year 1962 63 in respect of the assessee the Income Tax Officer included the profits of the assessee 's wife from the firm	 Messrs. Kunjilal Hariram & Co.	 under section 64(1)(iii) of the Income Tax Act	 1961. An appeal by the assessee was dismissed by the Appellate Assistant Commissioner of Income Tax	 who observed that the wife would not have become a partner of the firm unless she had contributed capital	 and as the capital was provided by the husband the inclusion of the wife 's share of income in the assessment of the assessee was justified. In second appeal	 it was conceded by the assessee before the Income Tax Appellate Tribunal that the interest received by the assessee 's wife on her capital contribution to the firm was includible in the total income of the assessee	 but it was contended that the balance of the share of profit was not so includable as the assessee 's wife had become a part ner in the firm in her own right	 and it was immaterial that the capital invested by her had been provided as a gift by the assessee. The Appellate Tribunal found that the admis sion of the assessee 's wife as partner in the firm was solely on account of her contribution of capital to the firm	 that the assets in the form of cash were transferred directly by the assessee to his wife otherwise than for adequate consideration	 and that the income must be said to have arisen indirectly from the assets transferred. The second appeal was dismissed. At the instance of the assessee the question of law set forth earlier was referred to the High Court at Calcutta for its opinion. The High Court has taken the view that the share of profits arose to the assessee 's wife primarily because the partnership made a profit and although it had connection with the gift it did not arise as a result of the gift	 that the income arose from the share of profits only because the other partners agreed to take the assessee 's wife as partner and was allowed to contribute to the partnership firm	 that the admission of the assessee 's wife to the partnership was not in consequence of the gift	 and that	 therefore	 upon all those circumstances	 the connection between the income of the share of profits and the gifts by the assessee to his wife was too remote to be included within the provisions of section 64(1)(iii) of the Income Tax Act. 741 S.64(1)(iii) of the Income Tax Act	 1961	 as it stood at the relevant time	 provides: "64(1) In computing the total income of any individual	 there shall be included all such income as arises directly or indirectly (i) xx xx xx (ii) xx xx xx (iii) subject to the provisions of cl. (i) of section 27	 to the spouse of such individual from assets transferred directly or indirectly to the spouse by such individual otherwise than for adequate consideration or in connec tion with an agreement to live apart. " The income may arise directly or indirectly	 but there must be a proximate connection between the accrual of the income and the assets transferred by the assessee. In Commissioner of Income tax	 West Bengal 111 vs Prem Bhai Parekh and Others	 this Court held that the income of minor sons	 who had invested capital in the firm out of moneys gifted to them by their father (the assessee) could not be included in the assessment of the assessee. The Court observed: "Before any income of a minor child can be brought within the scope of section 16(3)(a) (iv)	 it must be established that the said income arose directly or indirectly from assets transferred directly or indirectly by his father. There is no dispute that the assessee had transferred to each of his minor sons	 a sum of Rs.75	000. It may also be that the amount contributed by those minors as their share in the firm came from those amounts. But the question still remains wheth er it can be said that the income with which we are concerned in this case arises directly or indirectly from the assets transferred by the assessee to those minors. The connection between the gifts mentioned earlier and the income in question is a remote one. The income of the minors arose as a result of their admission to the benefits of the partnership. It is true that they were admitted to the 742 benefits of the partnership because of the contribution made by them. But there is no nexus between the transfer of the assets and the income in question. It cannot be said that income arose directly or indirectly from the transferor the assets referred to earlier. Section 16(3) of the Act created an artificial income. That section must receive strict construction as observed by this court in Commissioner of Income tax vs Keshavlal Lal lubhai Patel	 In our judgment before an income can be held to come within the ambit of section 16(3)	 it must be proved to have arisen directly or indirectly from a transfer of assets made by the assessee in favour of his wife or minor children. The connection between the transfer of assets and the income must be proximate. The income in question must arise as a result of the transfer and not in some manner con nected with it. " It seems to us that the observations of this Court in that case fully cover the case before us. There is no doubt that the wife became a partner because of the capital contributed by her in the firm	 but	 as observed by the High Court	 in the judgment under appeal	 it was upon agreement by the remaining partners that she became a member of the partner ship. The mere contribution of the capital by the wife into the firm would not automatically have entitled her to part nership in the firm. The partnership was based on agreement	 and it is the event of agreement between the partners that brought the assessee 's wife into the firm as partner. Learned counsel for the Revenue relies on Commissioner of Income tax	 Bangalore vs J.H. Gotla	 ; Commissioner of Income tax	 Assam Tripurn and Manipur vs Jwalaprasad Agarwala	 ; V.D. Dhanwatey vs Commissioner of Income tax	 Madhya Pradesh	 Nagpur and Bhandara	 and Smt. Mohini Thapar vs Com missioner of ' Income tax (Central)	 Calcutta	 and Others	 but we are not satisfied that those cases are of assistance to the Revenue. Reliance was placed on Potti Veerayya Sresty vs Commissioner of Income Tax	 A.P.	 where the Andhra Pradesh High Court upheld the inclusion of the wife 's income from cloth business carried on by her	 into which cloth business she had invest ed a portion of the assets transferred by the assessee. It is sufficient to observe that the cloth business was her own business and	 as the High Court pointed out	 there was no necessity to depend upon the agreement of others. It is on that basis that the High Court distinguished Prem Bhai Parekh 's case (supra). 743 We are of the view that the High Court is right in answering. the . question referred to it in the negative	 in favour of the assessee and against the Revenue. In the result the appeal fails and is dismissed with costs. R.S.S. Appeal dismissed.

The respondent assessee was one of the partners In a firm in which the five other partners were his wife	 mother	 grand father	 brother	 and a stranger. His wife had contrib uted Rs.51	000 as capital in the firm	 which amount came out of two gifts made to her by the assessee. in the course of assessment proceedings for the assessment year 1962 63 in respect of the assessee	 the Income Tax Officer included the profits of the assessee 's wife from the firm	 under section 64(1)(iii) of the Income Tax Act	 1961. The.assessee 's appeal was dismissed by the Appellate Assistant Commissioner who observed that the wife would not have become a partner of the firm unless he had contributed capital which was provided by the husband. The Appellate Tribunal	 while dismissing the second appeal of the assessee	 found that the admission of the assessee 's wife as a partner in the firm was solely on account of her contribution of capital to the firm. It was conceded by the assessee before the Tribunal that the interest received by the assessee 's wife on her capital contribution to the firm was includible in the total income of the assessee. The High Court	 while answering the question referred to it in favour of the assessee	 took the view that the income arose from the share of profits only because the other partners agreed to take the assessee 's wife as partner and she was allowed to contribute to the partnership firm	 and that the admission of the assessee 's wife to the partnership was not in consequence of the gift. Dismissing the Revenue 's appeal	 it was HELD: (1) The income may arise directly or indirectly	 but for application of the provisions of section 64(1)(iii) of the Income Tax Act	 738 1961 there must be a proximate connection between the accru al of the income and the assets transferred by the assessee. [741D] Commissioner of Income tax	 West Bengal 111 vs Prem Bhai Parekh	 followed. (2) The mere contribution of the capital by the wife into the firm would not automatically have entitled her to partnership in the firm. The partnership was based on agree ment	 and it is the event of agreement between the partners that brought the assessee 's wife into the firm as partner. [742E] Commissioner of Income tax	 Bangalore vs J.H. Gotla	 ; Commissioner of Income tax	 Assam	 Tripura and Manipur vs Jwalaprasad Agarwala	 ; V.D. Dhanwatey vs Commissioner of Income tax	 Madhya Pradesh	 Nagpur and Bhandara	 ; Smt. Mohini Thapar vs Commissioner of Income tax (Central)	 Calcutta	 ; Potti Veerayya Sresty vs Commissioner of Income tax	 A.P.	 distinguished.