1980 (9) TMI 19 - HC - Income Tax

Summary

Issues:
1. Inclusion of share income of minor children in the total income of the assessee under section 64(ii) of the Income-tax Act, 1961.
2. Treatment of a partner in a representative capacity for the purposes of section 64(1)(ii) of the Income-tax Act, 1961.

Analysis:
The judgment delivered by the High Court of Delhi involved four Income-tax References with a common question of fact and law regarding the inclusion of share income of minor children in the total income of the assessee under section 64(ii) of the Income-tax Act, 1961. The cases of two individuals, Shri Prayag Dass Rajgarhia and Shri Kanhaya Lal Rajgarhia, were considered. Shri Prayag Dass Rajgarhia, as the karta of a joint Hindu Family, entered into a partnership where his minor daughters were admitted to the benefits of the partnership. The Tribunal had added the share income of the minor daughters to the individual income of Shri Prayag Dass Rajgarhia under section 64(ii) of the Act. On the other hand, Shri Kanhaya Lal Rajgarhia, also a karta of an HUF, had minor children benefiting from his partnership in various firms. The Tribunal had given conflicting decisions in these cases, with one in favor of the Department and the other in favor of the assessee.

The Full Bench decision of the Tribunal had held that the income of individual minors admitted to the benefits of the partnership should not be included in the individual income of their father if the father became a partner only as a representative of the HUF and not on his own account. This decision was supported by various High Court judgments, including Madho Prasad, Pilibhit v. CIT, where it was held that the minor partner's share of income from the firm should be included in the income of the father. However, this view was differed from by other High Courts such as the Andhra Pradesh High Court, Gujarat High Court, and Punjab and Haryana High Court, which held that a partner in a representative capacity should be treated differently for the purposes of section 64(1)(ii) of the Act.

In line with the views expressed in the judgments differing from Madho Prasad, Pilibhit, the High Court of Delhi answered the questions referred to them in favor of the assessee and against the Department. They held that the share income of the minor children should not be included in the total income of the assessee. Therefore, in the cases of both Shri Prayag Dass Rajgarhia and Shri Kanhaya Lal Rajgarhia, the High Court decided that the share of profits of the minor children from the various firms could not be included in the personal assessment of the assessee. Despite the controversy surrounding the questions, the High Court directed the parties to bear their own costs.