2003 (4) TMI 66 - HC - Income Tax

(i) Whether, Tribunal was justified in holding that the share income derived by the minor, Shri T. Surya Baparao, by reason of his admission to the benefits of partnership should be regarded as share income of the HUF represented by the minor? - (ii) Whether, Tribunal was justified in holding that the share income derived by the minor, Shri T. Surya Baparao by reason of his admission to the benefits of partnership was not his individual income and hence the provisions of section 64(1)(iii) did not apply? - (iii) Whether, Tribunal was justified in holding that the minor, Shri T. Surya Baparao who under the Partnership Act could not at all become a partner but only be admitted to the benefits of partnership could represent his Hindu undivided family in a firm? - We answer all the questions referred to us in the affirmative, against the Revenue and in favour of the assessee.

Issues Involved:
1. Whether the share income derived by the minor from his admission to the benefits of the partnership should be regarded as share income of the Hindu undivided family (HUF) represented by the minor.
2. Whether the share income derived by the minor from his admission to the benefits of the partnership was not his individual income and hence the provisions of section 64(1)(iii) did not apply.
3. Whether the minor, who could not become a partner but only be admitted to the benefits of partnership, could represent his HUF in a firm.

Detailed Analysis:

Issue 1: Share Income as HUF Income
The court examined whether the share income derived by the minor from his admission to the benefits of the partnership should be regarded as share income of the HUF. The minor was admitted to the benefits of the partnership through his guardian mother by investing HUF funds. The Tribunal held that there was a direct nexus between the family funds and the share income earned by the minor, thus it should be assessed in the hands of the HUF. The court agreed with this view, citing the Supreme Court's decision in Y.L. Agarwalla v. CIT, which established that income derived from the benefits of a partnership due to HUF funds should be considered HUF income.

Issue 2: Individual Income and Section 64(1)(iii)
The court considered whether the share income derived by the minor was his individual income and thus subject to section 64(1)(iii) of the Income-tax Act, 1961. The Tribunal had concluded that the income did not belong to the minor individually but to the HUF, as it was derived from the investment of HUF funds. The court upheld this view, stating that the income received by the minor was directly related to the HUF's investment in the partnership business, and thus could not be included in the income of the minor's mother under section 64(1)(iii).

Issue 3: Minor Representing HUF in a Firm
The court addressed whether a minor, who could not legally become a partner but could be admitted to the benefits of a partnership, could represent his HUF in a firm. The Tribunal had held that there was no bar for the minor to represent the joint family. The court agreed, reiterating that the share income earned by the minor was due to the investment of HUF funds and not any personal service rendered by the minor. Therefore, the minor could represent the HUF in the firm.

Conclusion:
The court answered all the questions in the affirmative, supporting the Tribunal's decision that the share income derived by the minor should be regarded as HUF income, not individual income, and thus not subject to section 64(1)(iii) of the Act. The minor could represent the HUF in the firm, and the income derived from the partnership benefits should be assessed in the hands of the HUF, not the individual minor or his mother.

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