1984 (12) TMI 16 - HC - Income Tax

Summary

Issues:
Whether the income received by minor children from a firm should be considered as the income of the assessee under section 64(1)(iii) of the Income-tax Act, 1961 for the assessment year 1976-77?

Analysis:
The case involved a situation where the assessee, an individual, had two minor children who were admitted to the benefits of a partnership in a firm but ceased to be partners from October 1, 1975. The partnership deed was subsequently amended, and the profit and loss account for the year ending March 31, 1976, showed that the minors were given a share of the profit. The assessee declared this amount in the return but claimed it should not be included in the total income. The Income-tax Officer disagreed and included the share income of the minors in the assessee's total income.

The Commissioner of Income-tax (Appeals) sided with the assessee, noting that the minors had ceased to be partners as per the partnership deed and were entitled to the share income based on a separate agreement, not the partnership terms. However, the Revenue appealed to the Tribunal, which overturned the Commissioner's decision. The Tribunal held that the share of profit accrued to the minors due to their continued partnership status and could not be excluded under section 64(1)(iii) of the Income-tax Act.

The Court agreed with the Tribunal's interpretation. Section 64(1)(iii) mandates that income arising to a minor child from being admitted to the benefits of a partnership must be included in the total income of the individual. It was irrelevant whether the share income was received when the minors ceased to be partners or when the accounts were closed. As long as the minors were legitimately entitled to the share of profit as per their partnership status, the provision of section 64(1)(iii) applied, and the income had to be included in the assessee's total income.

The Court distinguished the case from a prior Supreme Court decision cited by the assessee's counsel, emphasizing that the facts were different. Consequently, the Court answered the question in the affirmative, ruling against the assessee. No costs were awarded in the case.