1961 (7) TMI 86 - HC - Income Tax

Summary

Issues:
1. Assessment of income of minors in the hands of guardians as the income of a Hindu undivided family.

Analysis:
The case involved the assessment of income of minors in the hands of their guardians as the income of a Hindu undivided family for the assessment year 1954-55. The father of the minors, who was previously assessed as an individual, passed away, leaving his widow and two minor sons. The widow also passed away, and the guardianship of the minors was appointed to two individuals. The Income-tax Officer assessed the guardians as an "association of persons" for the income earned from the business. The Appellate Assistant Commissioner directed separate proceedings for each minor, but the Appellate Tribunal reversed this decision, holding that the guardians should be assessed as a Hindu undivided family. The key question was whether the guardians could be taxed as a Hindu undivided family or only on the income received on behalf of the minors individually.

The interpretation of sections 40 and 41 of the Income-tax Act was crucial in determining the liability of the guardians. Section 40 imposes a vicarious liability on guardians for the income received on behalf of minors, and it does not extend to taxing the guardians as a Hindu undivided family. The guardians were appointed to manage the income of the minors separately, and their liability was limited to the income of each minor individually. The court emphasized that the guardians could not be taxed as a Hindu undivided family under section 40, as their responsibility was towards the individual minors and not as a joint family entity.

The court rejected the argument that the business income should be treated as joint family property inherited by the minors. The focus remained on the guardians' role in managing the income of the minors separately, and the absence of evidence to treat the business income as joint family property. The court held that the guardians could only be taxed on the share of profit received for each minor individually, as per the provisions of section 40. Therefore, the court answered the question referred in the negative, concluding that the guardians could not be taxed as a Hindu undivided family for the total income.

In conclusion, the court's decision clarified the scope of liability under sections 40 and 41 of the Income-tax Act concerning guardians of minors. The judgment emphasized the guardians' responsibility towards managing the income of individual minors separately and rejected the notion of taxing the guardians as a Hindu undivided family for the total income earned from the business. The court's interpretation upheld the principle of vicarious liability of guardians for the income of minors and affirmed that the guardians should be taxed based on the income received on behalf of each minor individually.