1962 (10) TMI 73 - HC - Income Tax

Summary

Issues Involved:
1. Whether the appeal of the assessee was barred under the second proviso to section 30(1) of the Indian Income-tax Act.
2. Whether the income falling to the share of the assessee's minor daughter, Gulu, could be included in the assessee's assessable income under section 16(3)(a)(ii) of the Act.

Issue-wise Detailed Analysis:

1. Bar of Appeal under the Second Proviso to Section 30(1)
The primary issue was whether the failure of the assessee to appeal against the assessment order of the firm precluded him from challenging the validity of the partnership under the deed dated 27th March 1957. The court noted that the assessment of "Kasturba Talkies" was made under section 23(3) read with section 23(5)(b). The Income-tax Officer refused the renewal of registration on the grounds that the firm was newly constituted and had not been granted registration before.

The second proviso to section 30(1) allows a partner to appeal against the determination of the total income or its apportionment among the partners but bars them from appealing against their own total income assessment if they did not appeal the firm's assessment. The court concluded that the assessee's failure to appeal against the firm's assessment precluded him from contending that no valid partnership was constituted under the deed. Thus, the first contention raised by the assessee failed.

2. Inclusion of Minor Daughter's Income under Section 16(3)(a)(ii)
The second issue was whether the income of the minor daughter, Gulu, could be included in the assessee's income under section 16(3)(a)(ii). The court noted that section 16(3)(a)(ii) requires that the minor must be admitted to the benefits of the partnership and that the individual (assessee) must be a partner in the firm. The Tribunal had not expressed an opinion on whether the arrangement constituted a partnership or merely a management agreement.

The court examined the deed dated 27th March 1957 and found that Gulu was shown as a full-fledged partner and not merely admitted to the benefits of the partnership. The deed was signed on behalf of Gulu by the assessee, and no provision for sharing losses was made. The court concluded that Gulu was not admitted to the benefits of the partnership but was made a partner, which is not permissible under section 30 of the Partnership Act.

The court held that the inclusion of Gulu's share income in the assessee's income under section 16(3)(a)(ii) was not justified. The Tribunal's decision to dismiss the appeal on the preliminary objection was incorrect, and the assessee's contention regarding the inclusion of Gulu's income should have been considered.

Conclusion:
The court answered the first question by stating that the appeal of the assessee was not barred regarding the contention that Gulu had not been admitted to the benefits of the partnership. The second question was answered in the negative, holding that Gulu's income could not be included in the assessee's income under section 16(3)(a)(ii). The Commissioner was ordered to pay the costs of the assessee.