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TMI Blog1978 (7) TMI 3X X X X Extracts X X X X X X X X Extracts X X X X ..... are in that firm was 36%. Under clause 13 of the partnership deed dated September 20, 1961, pursuant to which the said firm used to carry on its business, it was provided that " the death or retirement of any of the partners shall not have the effect of dissolving this co-partnership ; in such an eventuality the co-partnership business may be carried on between the surviving partner and the heirs/ legal representatives of the deceased and/or retiring partner or if mutually agreed upon between the surviving partners and heirs, etc., of the deceased or retiring partner with outsiders also ". Yudhisthir Lal died on December 18, 1967, leaving behind him his widow, Smt. Bhagwati Devi, six daughters (three married and three unmarried out of whom two were minors) and three minor sons. By two letters both dated January 11, 1968, one addressed by the widow on behalf of herself and the Hindu undivided family and the other by the four major daughters, Smt. Bhagwati Devi and the four major daughters declined to exercise the option reserved to them under clause 13 of the deed and refused to join the partnership business ; however, the three minor sons were admitted to the benefits of the partne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts capital amount which was permitted to lie with the firm for which no explanation had been offered by the assessee. He, therefore, took the view that the family of late Yudhisthir Lal continued to have interest in the business of the firm and that the share of profit allocated to the three minor sons really belonged to the Hindu undivided family, and was accordingly assessable in its hands. On appeal, the Appellate Assistant Commissioner, by his order dated March 24, 1971, confirmed the view of the Income-tax Officer. The assessee carried the matter in further appeal to the Appellate Tribunal but the Tribunal also dismissed the appeal. On a reference, the High Court following the principles and guidelines enunciated by this court in the case of Raj Kumar Singh Hukam Chandji Commissioner of Income-tax [1970] 78 ITR 33 (SC), in substance, held that the shares that had been allocated to the three minor sons in the profits of the firm were assessable in the hands of the assessee, Hindu undivided family. The assessee has come up in appeal to this court by special leave. In support of the appeal, counsel for the assessee raised two or three contentions. In the first place, he urged t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R 365 (SC) and Raj Kumar's case [1970] 78 ITR 33 (SC) could have no relevance to the case of a minor admitted to the benefits of partnership. He, therefore, urged that since the three minor son could not in law represent the Hindu undivided family in the firm and in the absence of any finding that there was any agreement between the surviving partners and any one on behalf of the heirs of Yudhisthir Lal to the effect that the Hindu undivided family was to continue to be the real owner of the shares given to the minors, neither the Tribunal nor the High Court could come to the conclusion that the share income allocated to the three minors amounting in aggregate to Rs. 3,08,187 for the period from December 19, 1967, to August 31, 1968, was liable to be assessed as the income of the Hindu undivided family. On the other hand, on behalf of the revenue it was urged by the learned Attorney-General that where a minor had been admitted to the benefits of the partnership it was not necessary to show that he was either the benamidar or nominee of the Hindu undivided family in the partnership firm for the purpose of assessing his share of profit in the firm as income of the Hindu undivided fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... falls for our determination in this case is whether the share of profits or income allocated and received from the partnership firm for the period from December 19, 1967, to August 31, 1968, by the three minor sons who were admitted to the benefits of the partnership is really the individual income of the minors or that of the Hindu undivided family ? Dealing with the factual aspect of the question we shall first indicate the broad and undisputed facts that emerge clearly on the record. Admittedly, deceased, Yudhisthir Lal represented the Hindu undivided family as its karta in the firm of M/s. Grand Smithy Works right up to the time of his death and his share of 36% in the profits of the firm was always assessed as the income of the Hindu undivided family. It is not disputed that on his death on December 18, 1967, the family continued to be joint, and as per clause 13 of the partnership deed dated September 20, 1961, the heirs of Yudhisthir Lal were given the option of joining the partnership firm but by two letters both dated January 11, 1968, the widow and the four major daughters declined the offer ; instead the three minor sons were admitted to the benefits of the partnership, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the factual interest-free retention arid utilization of the said capital amount of the Hindu undivided family by the firm for the entire relevant period, i.e., from December 19, 1967, to August 31, 1968--presumably pursuant to the said clause--clinches the said inference. It is true that the widow is not a signatory to the new deed of partnership ; it is also true that the three minor sons could not in law be regarded as the nominees or benamidars of the Hindu undivided family in the firm, but the facts and circumstances discussed above, especially the incorporation of a term like clause 6 in the new deed and the factual interest-free retention and utilization of the Hindu undivided family's funds for the relevant period by the firm, clearly lead to the inference that the new partnership under the deed dated January 11, 1968, was brought about with the tacit assent and agreement on the part of the widow representing the Hindu undivided family and that the quid pro quo for admitting the three minor sons of Yudhisthir Lal to the benefits of the partnership was the continued free of interest use of the capital amount lying in Yudhisthir Lal's account for the firm which was ensured t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... coparcener has rendered some service would not change the character of the receipt. But if on the other hand it is essentially a remuneration for the services rendered by a coparcener, the circumstance that his services were availed of because of the reason that he was a member of the family which had invested funds in that business or that he had obtained the qualification shares from out of the family funds would not make the receipt, the income of the Hindu undivided family. " In the instant case, the question raised before us gets easily answered by applying the subsidiary principles indicated at Nos. 2, 3 and 4 above as well as by applying the broader principle indicated above. There can be no doubt that the sharp income that was received by the three minor sons during the relevant period was earned with the aid and assistance of Hindu undivided family funds and was directly related to the utilization of such funds by the firm and further that the Hindu undivided family had suffered detriment in the process of realisation of such income inasmuch as the capital amount lying to the credit of the deceased, Yudhisthir Lal, was utilized by the firm free of interest. Further, in th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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