1978 (5) TMI 10 - HC - Income Tax

Summary

Issues Involved:

1. Whether the Tribunal was justified in holding that Jagmohandas, the minor, is only a benamidar of his father, Manaklal.
2. Whether the Tribunal was justified in holding that the share income of the minor, Jagmohandas, from the firm M/s. Manaklal Gordhandas should be clubbed with the income of his father, Manaklal.

Detailed Analysis:

Issue 1: Whether the Tribunal was justified in holding that Jagmohandas, the minor, is only a benamidar of his father, Manaklal.

The Tribunal initially held that Jagmohandas, the minor, was a benamidar for his father, Manaklal. This conclusion was based on the premise that the gift of Rs. 12,500 to Jagmohandas was from Manaklal. However, it was later clarified that the gift was actually from Ranchhoddas, the maternal grandfather of Jagmohandas. The High Court found that the source of the Rs. 12,400 deposited in the newly constituted firm was a gift from Ranchhoddas, not from Manaklal. Since the gift was from Ranchhoddas and not from Manaklal, there was no basis to consider Jagmohandas as a benamidar for his father. The High Court concluded that the Tribunal was not justified in holding that Jagmohandas was a benamidar for his father, Manaklal.

Issue 2: Whether the Tribunal was justified in holding that the share income of the minor, Jagmohandas, from the firm M/s. Manaklal Gordhandas should be clubbed with the income of his father, Manaklal.

The Tribunal had clubbed the income of Jagmohandas with that of his father, Manaklal, on the grounds that Jagmohandas was a benamidar. However, the High Court found that the gift of Rs. 12,500 to Jagmohandas was from his maternal grandfather, Ranchhoddas, and not from his father, Manaklal. The High Court referred to the Supreme Court decision in CIT v. Prem Bhai Parekh [1970] 77 ITR 27, which held that the income arising to minors from a partnership firm, where the capital was a gift from a third party and not the father, could not be included in the father's income. Since the gift was from Ranchhoddas, there was no connection between the income earned by Jagmohandas and his father, Manaklal. Therefore, the High Court concluded that the Tribunal was not justified in clubbing the share income of Jagmohandas with the income of his father, Manaklal.

Conclusion:

(a) The Tribunal was not justified in holding that Jagmohandas, the minor, is only a benamidar of his father, Manaklal.

(b) The Tribunal was not justified in holding that the share income of the minor, Jagmohandas, from the firm M/s. Manaklal Gordhandas should be clubbed with the income of his father, Manaklal.

Costs:

Both parties were directed to bear their own costs of this reference.