1982 (4) TMI 111 - AT - Income Tax

Summary

Issues:
Clubbing of minor's share income in the total income of the assessee under section 64 of the IT Act for the assessment year 1976-77.

Detailed Analysis:

Issue 1: Clubbing of Minor's Share Income
The appeal by the Revenue challenged the order of the AAC regarding the clubbing of the minor's share income in the total income of the assessee under section 64 of the IT Act. The AAC had directed the inclusion of only the proportionate share income of the minor for the period from 1st Oct., 1975 to 3rd Nov., 1975, rather than the entire income as assessed by the ITO. The Revenue contended that the entire profit of the minor should be assessed, not just a proportionate share. The Revenue relied on the Supreme Court's decision in CIT vs. Isthmian Steamship Lines to support their argument.

Issue 2: Applicability of Taxation Laws (Amendment) Act, 1975
The Tribunal considered the applicability of the Taxation Laws (Amendment) Act, 1975, which provided for the inclusion of income arising to a minor child from admission to a partnership firm in the parent's total income. The Tribunal noted that the amended law came into force on 1st Oct., 1975, falling within the previous year relevant to the assessment year 1976-77. The Tribunal emphasized that the law applicable for income tax matters is that in force in the assessment year, not the accounting year, unless otherwise specified.

Issue 3: Interpretation of Section 64 and Supreme Court Precedents
The Tribunal analyzed the provisions of section 64 of the IT Act, which mandate the inclusion of income arising to a minor child from a partnership firm in the parent's total income. Referring to the Supreme Court's decision in CIT vs. Ashokbhai Chimanbhai, the Tribunal highlighted that the right to receive share income from a firm accrues at the end of the accounting year, and profits accrue based on the method of accounting. The Tribunal applied this legal principle to the case at hand, emphasizing that the entire share income of the minor from the partnership firm should be included for the assessment year 1976-77.

Conclusion:
The Tribunal held that the AAC's decision to include only the proportionate share income of the minor was not justified. Therefore, the Tribunal set aside the AAC's order and restored that of the ITO, directing the inclusion of the entire share income of the minor in the total income of the assessee for the assessment year 1976-77. As a result, the appeal by the Revenue was allowed.