Commissioner of Income Tax v. V. Nellaiappan — 1994 DIGILAW 703 (MAD)

Judgment :- THANIKKACHALAM J. At the instance of the Department, the following common question of law is referred to us for our opinion relating to the assessment years 1972-73 to 1974-75 "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the inclusion of the share income of the minor children from the firm Messrs. Rm. K. V. Textiles made under section 64(1)(ii) of the Income-tax Act, 1961, in the assessee's individual assessment is not correct ?"* These reference applications relate to the assessment years 1972-73 to 1974-75. The assessee is an individual. He was a partner in the firm, Rm. K. V. Textiles, representing the Hindu undivided family, consisting of himself and his wife. In making the assessment, the Income-tax Officer included the share income of the assessee's minor children, Viswanathan, Loganayaki and Seethalakshmi, from the firm for the respective assessment years under section 64(1)(ii) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"). The assessee preferred an appeal before the Appellate Assistant Commissioner, who directed the exclusion of such share income relying on the earlier decision of the Tribunal on this point and also of the decision of the Andhra Pradesh High Court in CIT v. Sanka Sankaraiah. As against this order, the Revenue preferred appeals before the Appellate Tribunal. The Appellate Tribunal pointed out that the decision of the Andhra Pradesh High Court in Sanka Sankaraiah's case was followed by the Gujarat High Court in the decision in Dinubhai Ishvarlal Patel. The Tribunal has also noted that the Allahabad High Court has taken a different view in Madho Prasad, Pilibhit v. CIT. The Appellate Tribunal pointed out that the decision of the Andhra Pradesh High Court in Sanka Sankaraiah's case was followed by the Gujarat High Court in the decision in Dinubhai Ishvarlal Patel. The Tribunal has also noted that the Allahabad High Court has taken a different view in Madho Prasad, Pilibhit v. CIT. Following the above-mentioned two decisions, the Tribunal confirmed the order of the Appellate Assistant Commissioner in respect of the assessment years in questionBefore this court, learned standing counsel for the Revenue submitted that though in the earlier decision, the Supreme Court in CIT v. Anand Sarup, has held that the income of the minors could not be included in the total income of the assessee, who is the father and a partner in the firm, in his capacity as karta of the Hindu undivided family, in the later decision of the Supreme Court in the case CIT v. Dharampal Ram Kumar, it was held that the income arising out of the share in the firm in the name of the wife is includible in the hands of her husband, who is also a partner in the capacity as karta of the Hindu undivided family. We have also heard learned counsel for the assessee, who relied upon the earlier decision of the Supreme Court in CIT v. Anand Sarup. The fact remains that in the present case the assessee filed his return as an individual. He is a partner in the firm in his capacity as karta of the Hindu undivided family. The minor children of the assessee were admitted to the benefits of the partnership firm. The Income-tax Officer included the minors' income from the firm in the hands of the father in his individual assessment by invoking the provisions of section 64(1)(ii) of the Act. The point for consideration is whether the income arising from the share belonging to the minor in the partnership firm is includible in the hands of the father, who is also a partner in the firm in his capacity as the karta of the Hindu undivided family. Such income is not includible in the individual assessment of the father, as per the decision of the Gujarat High Court in Dinubhai Ishvarlal Patel's case and that of the Andhra Pradesh High Court in CIT v. Sanka Sankaraiah. Such income is not includible in the individual assessment of the father, as per the decision of the Gujarat High Court in Dinubhai Ishvarlal Patel's case and that of the Andhra Pradesh High Court in CIT v. Sanka Sankaraiah. The decision of the Supreme Court in CIT v. Anand Sarup, clearly points out that the income arising out of the share of the minor children is not includible in the hands of the assessee, who is their father, since he happened to be a partner in the firm in his capacity as karta of the Hindu undivided family. In the later decision of the Supreme Court in CIT v. Dharampal Ram Kumar, the question was where the assessee is a partner in the firm in his capacity as karta of the Hindu undivided family, the share of profits derived by his wife from the firm can be included under section 64 of the Act, in the individual assessment of the assessee in the status of individual. While considering this question, the Supreme Court pointed out that the question with regard to the includible nature of the share income belonging to the wife under section 64 of the Act in the hands of her husband in his individual assessment, was not considered and decided on the merits in CIT v. Anand Sarup. Therefore, the Supreme Court directed the Tribunal to refer the question and state the case to the High Court under section 256(2) of the Act. In such circumstances, the above-said question arising in CIT v. Dharampal Ram Kumar was not finally decided by the Supreme Court. Hence, we have CIT v. Anand Sarup, where the question arising in this reference was finally heard and decided. In view of the aforementioned discussion, we hold that the Tribunal was correct in its conclusion that the income arising out of the shares belonging to the minors in the firm is not includible in the hands of the father, who is also a partner of the firm in his capacity as the karta of the Hindu undivided family in his individual assessment in the status of individual. Accordingly, we answer the question referred to us in the affirmative and against the Department in respect of all the assessment years under consideration. No costs. Counsel fee is fixed at Rs. 1, 000 (one set).