1999 (7) TMI 3 - SC - Income Tax

Expressions any individual and such individual in section 64(1)(i) and (ii) are employed in a restricted sense and do not include a karta of a Hindu undivided family - Tribunal was right in law in holding that the income of the minor children of the assessee from the two firms was not includible in his individual assessment under section 64(1)(i)

Summary

Issues Involved:
1. Interpretation of the term "individual" in section 64(1)(i) and (ii) of the Income-tax Act, 1961.
2. Inclusion of income of minor children in the total income of a Hindu undivided family (HUF) karta.
3. Divergence of opinions among various High Courts regarding the interpretation of "individual."

Issue-wise Detailed Analysis:

1. Interpretation of the term "individual" in section 64(1)(i) and (ii) of the Income-tax Act, 1961:
The central issue in these cases revolves around the interpretation of the term "individual" as used in section 64(1)(i) and (ii) of the Income-tax Act, 1961. The court examined whether the term "individual" includes the karta of a Hindu undivided family (HUF). Various High Courts had conflicting opinions on this matter. The High Courts of Andhra Pradesh, Gujarat, Punjab and Haryana, Delhi, Karnataka, Kerala, and Rajasthan held that the karta of an HUF does not fall within the meaning of "individual." Conversely, the High Courts of Allahabad, Madras, Madhya Pradesh, and Orissa held the opposite view.

2. Inclusion of income of minor children in the total income of a Hindu undivided family (HUF) karta:
The court analyzed whether the income arising to the minor children of an HUF karta from their admission to the benefits of a partnership firm should be included in the total income of the karta. The respondent, in his capacity as karta, argued that section 64 of the Income-tax Act did not apply to him. The Income-tax Officer, however, included the share income of the minors in the respondent's total income. The Appellate Assistant Commissioner upheld this decision, but the Income-tax Appellate Tribunal set it aside, favoring the respondent. The High Court of Punjab and Haryana affirmed the Tribunal's decision, prompting the Revenue to appeal to the Supreme Court.

3. Divergence of opinions among various High Courts regarding the interpretation of "individual":
The Supreme Court noted the conflicting judgments from different High Courts. The court referred to previous cases and the legislative history to discern the true meaning of "individual." The court emphasized that the term "individual" is not defined in the Act and is not a term of art. It analyzed the term's ordinary meaning and its usage in a legal context, concluding that "individual" refers to a single person, not in a representative capacity.

Judgment:
The Supreme Court held that the term "individual" in section 64(1)(i) and (ii) of the Income-tax Act, 1961, does not include the karta of a Hindu undivided family. The court reasoned that the karta, while functioning in his personal capacity within the partnership, acts in a representative capacity for the HUF. Therefore, the income of the minor children of the karta cannot be included in the karta's individual income under section 64(1)(i) and (ii).

The court approved the judgments of the High Courts of Andhra Pradesh, Gujarat, Punjab and Haryana, Delhi, Kerala, Rajasthan, and Karnataka, which held that the karta of an HUF is not included in the term "individual." It overruled the contrary judgments of the High Courts of Allahabad, Madras, Madhya Pradesh, and Orissa.

The appeals filed by the Revenue were dismissed, and the appeals filed by the assessees were allowed. The court answered the referred question in the affirmative, in favor of the assessee and against the Revenue, stating that the share income of the assessee's wife from the partnership firm cannot be included in the total income of the assessee under section 64 of the Income-tax Act, 1961.

The court concluded that the expressions "any individual" and "such individual" in section 64(1)(i) and (ii) are employed in a restricted sense and do not include a karta of a Hindu undivided family. There shall be no order as to costs.