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TMI Blog1978 (4) TMI 129X X X X Extracts X X X X X X X X Extracts X X X X ..... to Income-tax in this individual capacity as well as in his capacity as Kartha of the Hindu Undivided Family. His share income form the partnership firm as well as the share income of his five minor children who were admitted to the benefits of the said partnership under s. 64(1) (ii) of the IT Act 1961 were assessed in his hands as Kartha of the Hindu Undivided Family. Later, the CIT, invoking the provisions of s. 263, directed the Income-tax Officer to include the share income of the minors in the individual assessment of the assessee and exclude the same from the assessment of the Hindu Undivided Family, as in his opinion, so far as the firm was concerned the Hindu Undivided Family of Shri Thiagarajan Chettiar was not the partner, since under the Partnership Act a Hindu Undivided Family cannot be a partner. In doing so he did not accept the assessee s objection that S.64 (1)(ii) of the Act would not apply in this case because Shri Thiagarajan Chettiar was a partner in the above firm representing his Hindu Undivided Family and the share income derived by him from the said firm belonged only to the family and not to the individual. Hence the assessee went in appeal to the Tribuna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the benefits of a partnership the words "in which such individual is a partner", occurring in s. 64 prior to the above amendment have been dropped. Further he found that in the explanation before the amendment it was stated that where both the parents are members of the firm in which the minor child is a partner, the income of the minor child from the partnership shall be included in the income of that parent whose total income (excluding the income referred to in that clause) is greater, whereas after the amendment the reference to the parents being the members of the firm was dropped. In the opinion of the Judicial Member, reading of the aforesaid provisions indicated that prior to the amendment w.e.f. 1st April, 1976., the position of law was that the individual referred to in s. (64) (1) should be a partner in the firm in which the minor concerned was admitted to the benefits of the partnership. Since the provisions as it stood prior to the amendment w.e.f. 1st April, 1976., were applicable to the present case, and since it was not disputed that Thiagarajan Chettiar was not a partner in the firm in question in his individual capacity, the Judicial Member held that the share inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... countant Members on the other hand, did not agree with the findings of the Judicial Member. He was of the view that when a Kartha is the partner in a firm, he is a partner in his individual capacity because a partnership is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all and the term 'person' is not defined in the Partnership Act but an H.U.F. is not a person for that purpose. According to him the Partnership Act recognised only the person who is a contracting party and even if he is the Kartha, he is the contracting party as an individual . In his opinion there is no deeming provision in the Partnership Act to deem the Kartha as the Partner and the individual who is the Kartha is the partner. In this connection he relied on the decision in CIT vs. Bagyalakshmi Co.(4) As regards the question whether the share income of the minors can be assessed in the individual assessment of the assessee, he did not agree with the interpretation of s. 64(1) (ii) advanced by the assessee s counsel that before including the minor s income it should be shown that the share income of the partner himself was assessed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (iv) xx (v) xx Explanation :-For the purpose of cl. (i), the individual in computing whose total income (the income referred to in that clause) is to be included shall be the husband or wife whose total income (excluding the income referred to in that clause) is greater, and for the purpose of cl. (ii), where both the parents are members of the firm in which the minor child is a partner, the income of the minor child from the partnership shall be included in the income of that parent whose total income (excluding the income referred to in that clause) is greater ; and where any such income is once included in the total income of either spouse or parent, any such income arising in any succeeding year shall not be included in the total income of the other spouse or parent unless the Income-tax Officer is satisfied, after giving that spouse or parent an opportunity of being heard, that it is necessary to do so. " In our opinion this conclusion of the income referred to in Clause I and Clause II refers to the income arising to the husband or wife from the membership of the firm. If a partner has no share income, as in this case, in his individual capacity, the question will aris ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed and further as discussed below there will be no gain to the Revenue if the parents remain outside the firm leaving the minor alone admitted to the benefits of partnership. Take a case where one of the parents both of which fall under same cl. (ii) happens to be a partner without share income along with minor sons admitted to the benefits of partnership and that parent has no other share income; in that case it cannot be said that there is any gain to the Revenue if the share income attributable to the minor son is included in the hands of the parents; whereas it will be advantageous to assess the share income in the hands if the minor children alone. Thus it is clear that it is to suppress the mischief of division of profits amongst either of the parents with a view to avoid the tax that s. 64(i) and (ii) have been introduced. We may also incidentally refer to the mischief sought to be blocked by the introduction of s. 64, as it stood in the relevant assessment year. Where the father is a partner and he wants to reduce the tax burden on him, he could admit the minor children as partners and thus seek to reduce his tax burden. It is that division of the profits between him and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r and also the income of a minor child admitted to the benefits of a partnership in the total income of "such individual", Since this section creates artificial liability. it has to be construed strictly. Sankaraiah has been found to be a partner of the firm as Kartha of the joint family and the income derived form the firm was included in computing the total income of the Hindu undivided family. How can that income the firm once again be included in computing the total income of Sankaraiah as an individual, as if realised in his individual capacity from the membership of the firm of which his wife and minor child were also partners along with him, It is not the case of the Revenue that Sankaraiah was a partner of that firm in his individual capacity. It is true that a contract of partnership has no concern with the obligation of the partners to others in respect of their shares of profit in the partnership and it only regulates all rights and liabilities of the partners, A partner could be trustee. A partner could be the Kartha of a Hindu joint family or he may under an agreement express or implied be the representative of a group of person or even be a benamidar for another. As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Subramaniam, T. Annamalai T. Nagarajan, T. Sivalingam, T. Raman and T. Lakshmanan, who were all minors were each allotted Rs. 20,000. There was another partial partition on 14th April, 1970, by and under which two other sons subsequently born, namely, T. Arunachalam and T. Jayam were each allotted Rs. 20,000. On the same day, that is to say 14th April, 1970 the partnership known as M/s A.N.S. Thiagarajan Chettiar Firm was entered into between the deceased on the one hand and T. Subramaniam on the other. The deceased invested Rs.10,000 out of the funds of the Hindu Undivided Family as capital. T. Subramaniam invested Rs.10,000 out of the moneys allotted to him in the partial partition referred to above as his capital. The seven minor sons were admitted to the benefits of the partnership, each of them having contributed Rs.10,000 out of the moneys allotted to them under the aforesaid partial partitions. Thus the total capital contribution was Rs.90,000. (These facts are apparent from the recitals in the partnership deed referred to above.) Since the deceased had invested the funds belonging to the Hindu Undivided Family in the said firm his share income in the said firm was being a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Hindu Undivided Family of which he was the Karta and (ii) that even though the share income of Thiagarajan Chettiar was not assessable in his hands, the share income of his minor sons was to be included in the assessments made on him in his individual capacity under s. 64(1)(ii) of the IT Act, 1961, as it stood during the relevant assessment year. He has also opined that the Explanation did not indicate the contrary position. 6. Because of the difference of opinion between the two learned Members, who originally heard these appeals, they have been heard by the Special Bench. The learned Vice-President and the learned Judicial Member (Shri P. Venugopalan) have concurred with the view taken by the learned Judicial Member (Shri V. Rajagopalan) who originally heard the appeals. 7. The point for consideration is whether the share income of the minor sons of S. Thiagarajan Chettiar is to be included in the individual assessments made on his income for the assessment years under consideration under s. 64(1)(ii) of the IT Act, 1961. The above section was as follows:- "s. 64(1) : In computing the total income of any individual, there shall be included all such income as arises d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er and that he is not deemed to be a partner. 9. It was next contended on behalf of the assessee that only where the share income of the individual partner in a firm is assessed in his hands, the share income of his minor sons admitted to the benefits of the said firm can be included in such assessments. A reading of s. 64(1) (ii) does not warrant such an argument. It was however, stated that the above position is implicit in view of the Explanation. It was argued that the Explanation shows that only where a share income from a firm is assessable in the hands of an individual concerned, the share income of his minor sons admitted to the benefits of the said firm could be included in such assessment. This argument has been advanced because of the presence of the expression excluding the income referred to in that clause in two places in the said Explanation. 10. The true scope of an Explanation to a section in an enactment has been considered by the Supreme Court in the Bihar Co-operative Development and Cane Marketing Union Ltd., and another vs. Bank of Bihar and others (5). There the appellant Co-operative Society instituted the suit for recovery of a certain sum of money ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itted to the benefits of a firm in which both his or her parents, as the case may be, are partners. The question will arise in the former type of cases as to whether the wife s share income is to be included in the husband s assessment or as to whether the husband s share income is to be included in the wife s assessment. The question may arise in the second class of cases, as to whether the share income of the minor child is to be included in the assessment made on his or her father or is to be included in the assessment made on his or her mother. The purpose of the explanation is to secure advantage to the Revenue by way of higher tax. Hence, it provides that in the former class where the income of the two spouses, excluding the share income, is not equal, the share income of the spouse having a lesser income is to be included in the assessment of spouse having a larger income. Similarly, in the second class of cases, provision is made that where the income of the parents other than the share income from the firm is not equal, the share income of the minor child from the firm is to be included in the assessment of the parents having larger income. Such being the purpose for which ..... X X X X Extracts X X X X X X X X Extracts X X X X
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