1964 (2) TMI 104 - HC - Income Tax

Summary

Issues Involved:
1. Inclusion of minor son's share income in the father's assessment under section 16(3)(a)(iv) of the Indian Income-tax Act, 1922.
2. Inclusion of share income from specific firms where no contribution was made by the minor son out of the gift money from the father.

Issue-wise Detailed Analysis:

1. Inclusion of minor son's share income in the father's assessment under section 16(3)(a)(iv):

The primary issue was whether the share income of the minor son from three firms should be included in the father's income under section 16(3)(a)(iv). The assessee, a partner in Messrs. Onkarmal Jwala-prasad, had gifted Rs. 74,721 to each of his four minor sons, with the minor son in question being admitted to the benefits of three firms. The Tribunal found that the minor's share of profits from these firms was included in the father's income under section 16(3)(a)(iv), which pertains to income arising from assets transferred to a minor child by the parent.

The court analyzed that section 16(3)(a)(iv) applies to income arising directly or indirectly from assets transferred to a minor. Here, the Tribunal's decision was based on the initial capital introduced by the father in the minor's name. However, the court emphasized that the minor's share of profits could not be considered as arising from the transferred assets without clear evidence of a direct connection between the transfer and the income.

2. Inclusion of share income from specific firms where no contribution was made by the minor son out of the gift money from the father:

The second issue focused on the share income from two specific firms, Jwalaprasad Mulchand (Galla department) and Jwalaprasad Mulchand, Calcutta, where no direct contribution from the gifted money was made. The Tribunal's decision was based on the assumption of an intimate financial connection between these firms and the firm where the initial capital was introduced.

The court noted that there was no material evidence to support the claim that the minor's share of profits in these two firms was directly attributable to the original capital of Rs. 74,721 transferred by the father. The court highlighted that the mere admission of the minor to the benefits of these firms and the supposed financial connection between the firms did not suffice to include the minor's share of profits in the father's income under section 16(3)(a)(iv).

The court also addressed the argument regarding the transfer of Rs. 11,000 from the minor's account in one firm to another, stating that there was no evidence to show this amount was part of the original capital transferred by the father. The court emphasized the need for strict construction of section 16(3), which deals with notional or artificial income, and concluded that the minor's share of profits could not be included in the father's income without clear evidence of a direct connection to the transferred assets.

Conclusion:

The court concluded that both questions should be answered in the negative, meaning the minor's share of profit in any of the firms is not liable to be included in the father's assessment. The court underscored that the minor's share of profits arose from his admission to the benefits of the partnership and not directly or indirectly from the transfer of assets by the father.