9911796707
TMI Blog1997 (12) TMI 47X X X X Extracts X X X X X X X X Extracts X X X X ..... company, and the assessee is one of the partners. The assessments under the provisions of the Income-tax Act in the case of the assessee for the assessment years 1976-77 and 1977-78 were completed on the basis of the returns submitted by the assessee. The assessee also derived share income from some other concerns, interest income and income from other sources. Subsequent to the completion of the assessments for the years 1976-77 and 1977-78, the Income-tax Officer found that the minor child of the assessee, viz., J. Muthukumar, had derived certain share income from A. S. R. M. Subbiah Pillai company and the same was includible in the hands of the assessee as per the provisions of clause (iii) of sub-section (1) of section 64 of the Income-tax Act, 1961 (hereinafter to be referred to as "the Act"). The assessments were reopened under section 147(b) of the Act for both the assessment years 1976-77 and 1977-78 and in the reassessments made, the minor's share income from the firm was included in the total income of the assessee. In so far as the assessment years 1978-79 and 1979-80 are concerned, the income of the minor was included in the hands of the assessee even in the original as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... joint family as there was no question of any service rendered by the minor and the share income must be regarded as a return to the family because of the investment of the family funds in the business. In this view of the matter, the Tribunal confirmed the order of the Appellate Assistant Commissioner and held that the minor was admitted to the benefits of the partnership firm only as a nominee of the Hindu undivided family in which he was a member along with his mother and minor sisters and since he was representing the joint family and he was not admitted to the benefits of the partnership firm in his individual capacity, the income cannot be included in the hands of the assessee under section 64(1)(iii) of the Act. Accordingly, the Tribunal dismissed the appeals preferred by the Revenue. The Revenue having failed to get a reference approached this court and on the basis of the directions of this court in T. C. P. Nos. 473 to 476 of 1985, dated January 23, 1984, the Tribunal has stated a case and referred the following questions of law for our consideration : "1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsidered the provisions of section 64(1)(iii) of the Act. Mr. Janakiraman, learned counsel for the assessee, on the other hand, contended that the minor was admitted to the benefits of the partnership firm and the funds of the joint family were employed in the firm and, therefore, the share income received is really the income of the Hindu undivided family and as the character of the property is the joint family property, the income also should belong to the joint family. He, therefore, submitted that since it is not the income of the minor, the provisions of section 64(1)(iii) of the Act are not applicable to the facts of the case. We have carefully considered the submissions of learned counsel for the respective parties. We have already set out the facts. There was a dispute as regards certain factual aspects of the matter. But, there is no dispute and it was not disputed before the Tribunal that Jayarama Pillai was the karta of the joint family and his share income was assessed in his hands in the status of individual, but in the estate duty proceedings, it was taken as joint family property. The Tribunal, in our view, rightly proceeded on the basis that Jayarama Pillai as k ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayarama Pillai in this firm on July 22, 1973, to his credit in his capital and current accounts have been closed and transferred in the name of minor Muthukumar, in the account of A. Selvaraj, guardian and maternal uncle." Under the above clause, the amounts standing to the credit of Jayarama Pillai both in capital accounts and the current accounts were closed and transferred to the name of the minor son in the accounts of A. Selvaraj who was representing the minor in the firm. A reading of the relevant clause of the document left by the said Jayarama Pillai clearly shows that the entire property, viz., capital as well as the amounts standing in the current accounts of Jayarama Pillai would go to the minor son and the minor son should have been assessed only in the capacity of an individual, as he has no male issue on the date of devolution of the property in his favour. Therefore, the Tribunal proceeded, in our view, on the wrong basis that the property devolving on the minor son should be taken as joint family property and the Tribunal was wrong in characterising the document left by Jayarama Pillai as a document to look after and manage the affairs of the minor in the firm. Mr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income of the minor includible in the total income of the assessee. The same view has also been reiterated by the same court in CIT v. Sobhagwantibai [1988] 169 ITR 588. This court in an earlier decision in the case of CIT v. K. M. S. Lakshmanier [1941] 9 ITR 668, has taken a view that the minor's share income could be included in his father's income, even though the minors had contributed to the partnership assets their shares of the joint family property. The reasoning of this court runs as under : "On behalf of the assessee it has also been contended that as the minors were not admitted gratis into the firm, but owe their membership to the fact that they contributed to the assets their shares in the joint family property, section 16(3)(a)(ii) can have no application. The suggestion is that unless the minors are admitted to the benefits of the partnership without any contribution to the assets section 16(3)(a)(ii) has no application. This is really putting the first contention in another way. There is nothing in the section which justifies the court in drawing a distinction between a case where a minor's property is with a firm and the case where the minor is allocated a sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome of the minor is includible in the hands of the assessee, invoking the provisions of section 64 of the Act, we have already held that under the provisions of section 64(1)(iii) of the Act, the income accrues to the minor child in the partnership firm for being admitted to the benefits of the partnership firm and once the income accrues, due to the fact of admission of the minor to the benefits of the partnership firm, it is not necessary to probe further into the question, what is the source of the investment of the minor in the partnership firm. In Kanga and Palkhivala's The Law and Practice of Income-tax (eighth edition, volume 1), with regard to section 64 of the Act, the learned author observed as under : "This section applies irrespective of whether the assessee's spouse or minor children are allowed a share in the firm without any contribution on their part to the capital or assets of the firm, or whether they bring their own capital or become members of the firm in their own right. Thus this section applies to a case where the members of a Hindu family, upon severance of the joint family status, continue to run the family business in partnership and a minor son's shar ..... X X X X Extracts X X X X X X X X Extracts X X X X
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