1978 (2) TMI 10 - HC - Income Tax

Summary

Issues Involved:
1. Inclusion of minor's share income in the total income of the assessee under Section 64(ii) of the Income-tax Act, 1961.
2. Interpretation of partnership deed concerning the admission of a minor to the benefits of the partnership.

Issue-wise Detailed Analysis:

1. Inclusion of Minor's Share Income:
The primary question referred to the court was whether the share income accruing to the minor in the firm of M/s. Ganpatrai Sagarmal was rightly included in the total income of the assessee under section 64(ii) of the Income-tax Act, 1961. The court analyzed the partnership deed and other relevant documents to determine if the minor, Kanhaialal Lohariwalla, was admitted to the benefits of the partnership. The court concluded that the minor was indeed admitted to the benefits of the partnership, and thus, his share income was correctly included in the total income of the assessee as per section 64(ii).

2. Interpretation of Partnership Deed:
The court examined the partnership deed dated 3rd January 1956, along with the will of Sagarmal and other related documents, to determine the nature of the minor's involvement in the partnership. The court noted that "Benefits of partnership" means the right to participate in the property of the firm after its obligations have been discharged. The court referred to various precedents, including the Privy Council's decision in Sanyasi Charan Mandal v. Krishnadhan Banerji, which clarified that a minor admitted to the benefits of partnership has the right to participate in the property of the firm after its obligations have been discharged.

The court emphasized that the partnership deed should be construed reasonably and fairly in its entirety. It was necessary to ensure that the deed did not make the minor a full partner, as per section 30 of the Indian Partnership Act, which allows a minor to be admitted to the benefits of the partnership but not as a full partner. The court found that the clauses of the partnership deed, especially clause 6, clearly indicated that the minor would not be liable for the losses, thus supporting the conclusion that the minor was admitted only to the benefits of the partnership.

The court also referred to the Supreme Court's decision in CIT v. Dwarkadas Khetan & Co., which held that a partnership deed making a minor a full partner would be invalid. The court reiterated that if the deed indicated that the minor was only admitted to the benefits of the partnership and not as a full partner, the inclusion of the minor's income in the assessee's income under section 64(ii) would be justified.

Conclusion:
The court answered the question in the affirmative, holding that the Tribunal was correct in law in including the minor's share income in the total income of the assessee under section 64(ii) of the Income-tax Act, 1961. The decision was in favor of the revenue, and each party was directed to bear its own costs.