1961 (8) TMI 3 - SC - Income Tax

Whether the assessee is entitled to earned income relief on the share income of the two minor sons for 1949-50 assessment year and on the share income of one minor son for 1950-51 assessment year included in the computation of the total income of the assessee under the provisions of section 16(3)(a)(ii) of the Income-tax Act ? Held that - The section can only be read as enacting that for purposes of earned income relief, such income will be included which, though it is the income of another person, has been earned by the assessee, or, in the case of a firm, where the assessee is a partner, by his being actively engaged as partner in the conduct of the business. The words where the assessee is a partner must be given effect to, ever when the income of the minor or the wife is considered under the latter part, and they also point to the same conclusion. In reading the definition in this way, no violence is done to the language of it. The condition that the assessee must have worked actively as a partner is thus applicable also to the latter part of the definition. In our opinion, the High Court was right in the answer which it gave. Appeal dismissed.

Summary

Issues:
- Interpretation of earned income relief under section 2(6AA) of the Income-tax Act
- Whether earned income relief can be granted on the share income of minor sons in a Hindu undivided family partnership

Analysis:
The Supreme Court heard two appeals concerning the interpretation of earned income relief under section 2(6AA) of the Income-tax Act. The case involved a Hindu undivided family where the manager, Marimuthu Nadar, and his minor sons were partners in a firm. The key question was whether Marimuthu Nadar was entitled to earned income relief on the share income of his minor sons included in his total income. The High Court had ruled in favor of the assessee, leading to an appeal by the Commissioner of Income-tax, Madras. The dispute centered on whether earned income relief could only be granted on the individual share of profits or also on the share of minors as partners in the firm.

The definition of "earned income" under section 2(6AA) was crucial in determining the eligibility for earned income relief. The section specified that earned income includes income of another person included in the assessee's income under the Act. The court analyzed the conditions for granting earned income relief, emphasizing that the income should be actively earned by the assessee or the partner actively engaged in the business. The case raised the question of whether the minor sons' share income could qualify for earned income relief based on the father's active involvement in the business.

The court deliberated on the different interpretations presented by the parties regarding who must actively earn the income to qualify for relief. It considered scenarios involving minors and spouses in partnership businesses and the practical implications of granting earned income relief. The judgment highlighted the intention of the section to provide relief when income of minors or spouses is included in the assessee's total income. The court concluded that earned income relief should be granted based on the active involvement of the assessee or partner in the business, even if the income initially belonged to minors or spouses. The judgment upheld the High Court's decision, dismissing the appeals and affirming the entitlement to earned income relief on the share income of minor sons in the partnership.

In essence, the Supreme Court's judgment clarified the conditions for earned income relief under the Income-tax Act, emphasizing the active participation of the assessee or partner in earning the income included in the total income. The ruling provided a comprehensive interpretation of the statutory provisions and upheld the entitlement to relief on the share income of minor partners in a Hindu undivided family partnership, setting a precedent for similar cases involving earned income relief.