Skip to content


Commissioner of Income-tax Vs. Jhabarmal Agarwalla, - Court Judgment

LegalCrystal Citation
Subject;Direct Taxation
CourtGuwahati High Court
Decided On
Case NumberIncome-tax Reference Nos. 3, 4 and 13 of 1985
Judge
ActsIncome Tax Act, 1961 - Sections 2(31) and 64
AppellantCommissioner of Income-tax
RespondentJhabarmal Agarwalla, Netrum Beria and Ramgopal Modi
Appellant AdvocateD.K. Talukdar and B.J. Talukdar, Advs.
Respondent AdvocateNone
Excerpt:
.....the income derived from the partnership firm in which the individual is a member representing the hindu undivided family or the entity he represents, we fail to understand how the income from the same account can again be included for assessment in the income of the individual. in a taxing act, one has to look merely at what is clearly said and there is no room for an intendment. thus, the intention of the legislature is clear and section 64 of the act shall apply when a person is a partner of the firm in his individual capacity and not in his representative capacity like karta of the hindu undivided family. if the intention would have been otherwise, it would have been clearly reflected in the said section. if an individual becomes a member of a partnership firm in his representative..........of the assessee under section 64(1) as the individual was a partner in the firm representing his hindu undivided family ?' 2. we may state here that though the framing of three questions referred to us in the three references, which we shall dispose of by this common judgment, are not in the same wording the law point involved is the same, that is the interpretation of section 2(23) and section 64(1) of the income-tax act, 1961, for short the 'act', and section 4 of the indian partnership act, 1932. 3. income-tax reference no. 13 of 1985 relates to the assessment year 1978-79, income-tax reference no. 3 of 1985 relates to the assessment year 1979-80 and income-tax reference no. 4 of 1985 relates to the assessment years 1973-74 and 1974-75. in all the cases, the tribunal, relying on the.....
Judgment:

S.N. Phukan, J.

1. On an application by the Revenue, the following question has been referred by the Tribunal for the opinion of this court:

'Whether, on the facts and in the circumstances of the case, and on a proper construction of Section 4 of the Indian Partnership Act, 1932, section 2(23) and section 64(1) of the Income-tax Act, 1961, the Tribunal was justified in dismissing the Departmental appeals impliedly holding the view that the share of profits from the firm arising to the wife/minor children of the assessee from the same firm in which the assessee is a partner was not includible in the individual assessment of the assessee under Section 64(1) as the individual was a partner in the firm representing his Hindu undivided family ?'

2. We may state here that though the framing of three questions referred to us in the three references, which we shall dispose of by this common judgment, are not in the same wording the law point involved is the same, that is the interpretation of Section 2(23) and section 64(1) of the Income-tax Act, 1961, for short the 'Act', and section 4 of the Indian Partnership Act, 1932.

3. Income-tax Reference No. 13 of 1985 relates to the assessment year 1978-79, Income-tax Reference No. 3 of 1985 relates to the assessment year 1979-80 and Income-tax Reference No. 4 of 1985 relates to the assessment years 1973-74 and 1974-75. In all the cases, the Tribunal, relying on the decision of this court in CIT v. Basanta Kumar Agarwalla held that the assessing authority could not invoke section 64 of the Act and, accordingly, allowed the appeal. Regarding the facts, we may only state that the assessee was a partner in the partnership firm as a representative of the Hindu undivided family and, in the said firm, the wife/minor child being the partners, the assessing authority, by invoking section 64(1)(i), included the income of the wife/minor child of the said partners of the firm in the assessment of the assessee.

4. Heard Mr. D. K. Talukdar, learned standing counsel for the Revenue. None appeared for the assessee.

5. We may state here that in Basanta Kumar Agarwalla no ratio as such was laid down but the court dismissed the application under Section 256(2) of the Act. By the said application the following question was sought to be referred to this court (at p. 420):

'Whether, on the fads and in the circumstances of the case and on a proper construction of Section 4 of the Indian Partnership Act, 1932, section 2(23) and section 64 of the Income-tax Act, 1961, the assessee-individual was not the partner of the firm and whether the share of profits arising in the hands of the minor sons of the assessee from the said firm is not rightly includible in the assessment of the assessee-individual under Section 64(1)(ii) of the Income-tax Act, 1961 ?'

6. The Tribunal refused to refer this question on the ground that no question of law arose out of the order of the Tribunal and, as, in the application filed before this court, the Revenue failed to show that the decision reached by the Tribunal was erroneous, wrong or against the known principles of any provisions of law, this court held that the Tribunal was justified in holding that no question of law arose out of the order of the Tribunal. Thus we find that no specific law was laid down regarding section 64 of the Act regarding' the question as to whether the income of the wife/minor child from a partnership firm can be included in assessing the income of a person who was also a partner of the firm in his capacity as the karta of a Hindu undivided family.

7. We find that this question was considered by a Division Bench of this court in CIT v. Jhabarmal Agarwalla [1990] 184 ITR 434 and the question was answered in the affirmative, in favour of the assessee and against the Revenue. In view of this decision, no further discussion is necessary as we are of the view that there is no scope to give a different opinion in this question. However, Mr. Talukdar has attacked the judgment, more particularly regarding the illustration cited in the judgment and has urged that this question may be referred to a larger Bench. We have considered the matter in the light of the submissions made by learned counsel for the Revenue and we do not find it necessary to refer it to a larger Bench and we are of the opinion that as the questions before us have already been decided, all the three questions have to be answered in the affirmative and in favour of the assessee. However, as learned counsel for the Revenue has placed before us the decision of the Full Bench of the Allahabad High Court in Sahu Govind Prasad v. CIT : [1983]144ITR851(All) we would like to deal with the submissions of learned counsel and also the ratio laid down by the Full Bench. We would also like to add our views on the law point involved in this case.

8. On a perusal of the judgment of the Full Bench in Sahu Govind Prasad : [1983]144ITR851(All) we find that the question which was referred for opinion is different. The said question runs as follows :

'Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the share income of Sidhartha Prasad and Rahul Prasad, the minor sons of the assessee, from the firm, M/s. Arvind Cold Storage, had been rightly included under Section 64(ii) of the Income-tax Act, 19G1, as the income of the assessee ?'

9. Thus, from the question referred, the position of the karta being a member of a partnership firm business was not specifically referred. Whereas, in the case in hand, the question specifically is regarding the legal position in respect of Section 64 of the Act when an individual joins the partnership representing a Hindu undivided family where the wife/ minor children of the same individual are partners in the partnership firm. On this count alone, we may say that the ratio laid down in Sahu Govind Prasad's case : [1983]144ITR851(All) is not applicable to the case in hand.

10. We have gone through the judgment of the Full Bench of the Allahabad High Court and the court did not accept the ratio laid down by the Andhra Pradesh High Court in Sanka Sankaraiah's case : [1978]113ITR313(AP) wherein it was held that the expression 'individual' occurring in Section 64 of the Act only takes in a person in his individual capacity and does not take in the karta of a Hindu joint family or a trustee or one who acts as a representative of others. We find that, against the judgment of the Andhra Pradesh High Court, a special leave petition (Civil) No. 2652 of 1979, was dismissed. The Allahabad High Court noted that, while dismissing the special leave petition, no reasons were mentioned and further that 'it cannot be predicated that, by dismissing the special leave petition, the Supreme Court affirmed the decision of the Andhra Pradesh High Court on its merits'. We need not enter into the controversy regarding rejection of the special leave petition, but we may only say that we are in respectful agreement with the above ratio laid down by the Andhra Pradesh High Court in Sanka Sankaraiah's case : [1978]113ITR313(AP) . We further find that the ratio laid down by the Andhra Pradesh High Court was accepted by the Gujarat High Court in the case of Dinubkai Ishvarlal Patel : [1979]118ITR122(Guj) . It may also be noted that the opinion expressed by the Gujarat and Andhra Pradesh High Courts was also accepted by the Punjab and Haryana High Court in CIT v. Anand Samp [1980] 121 ITR 873.

11. While answering the question quoted above by the Full Bench of the High Court in the affirmative, in favour of the Revenue and against the assessee, the Full Bench of the Allahabad High Court held as follows (at page 864) :

'A karta of a Hindu undivided family has a dual position. Qua the partnership he functions in his personal capacity ; qua the third parties in his representative capacity. But in either case he is an individual. We are unable to agree that if he is a representative, he is not an individual person. He remains an individual, though the income which he earns in the representative capacity is taxable in the hands of the Hindu undivided family or the group or association of persons whom he represents. But, he is also assessable in his individual status. So a karta may be a representative, but he does not lose his individuality ; he continues to remain an individual also.'

12. The Full Bench further held that section 64 of the Act does not catch the income which is assessable in the hands of the Hindu undivided family. It confines itself to the case of an individual assessee and it seeks to add the income of the spouse or minor child in the computation of the individual's assessment. It is not necessarily confined to the share income of the individual from the partnership firm and further if the share income of the individual from the partnership firm is liable to be included while computing' such individual's total income, it may be so included. According to the Full Bench, that will be when the individual is a partner in his personal capacity, but if he is a partner in a representative capacity, with the result that the income that he gets as his share from the firm is assessed in the hands of the entity which he represents, then that share income is outside the purview of Section 64. None the less, the share income of the spouse or the minor children from that firm is liable to be included while computing the total income of such individual in his assessment in the status of an individual.

13. Thus, from a reading of the above views expressed by the Full Bench of the Allahabad High Court, we find that the court accepted that, if an individual becomes a member of the partnership firm in his representative character, the income from the firm will go to the corpus of the fund of the Hindu undivided family or the entity which he represents. Once the income of the partnership firm or the entity includes the income derived from the partnership firm in which the individual is a member representing the Hindu undivided family or the entity he represents, we fail to understand how the income from the same account can again be included for assessment in the income of the individual. We are, therefore, unable to accept with respect the views expressed by the Allahabad High Court in Sahu Prasad's case : [1983]144ITR851(All) .

14. To apply the provisions of Section 64, it requires that an individual and his wife and/or minor children are the partners of the same firm. So the crux of the problem is whether the karta of the Hindu undivided family when he becomes a partner of the firm, does so as an individual ?

15. The property belonging to a joint Hindu family is ordinarily managed by the father of the family, if alive, or, in his absence by another senior male member of the family for the time being. Such a manager of a Hindu joint family is called the karta. As the affairs of the joint family consisting of other members of the family, including ladies and children, cannot be managed by any of its members nor can be managed jointly by all the adult members, it is managed by a single male person who becomes the head of the family by reason of seniority and being superior in rank and he is called the karta, i.e., factor or agent of the family.

16. If we have a look at the various provisions of the Act, we find that the Hindu joint family is recognised by the Legislature in enacting this Act. For example, in Section 2(31), the word 'person' has been defined to include (i) an individual, (ii) a Hindu undivided family, (iii) a company, (iv) a firm, etc. This definition of 'person' is necessary in the Act as the expression 'assessee' means a person by whom any tax or any other sum of money is payable under the Act (Section 2(7)). We may also refer to section 5 of the Act which lays down the scope of total income.

17. This section, inter alia, provides that the total income of any previous year of a person who is a resident includes all income from whatever source derived. Thus, 'person' includes not only individual but also the Hindu undivided family, company, etc. If we look at section 64 of the Act, we find that the Legislature have used the word 'individual' and not the word 'person'.

18. It is a settled principle of interpretation that where the language is plain and admits of but one meaning, the task of interpretation can hardly be said to arise. The object of interpretation is to discover the intention of Parliament, and it must be deduced from the language used. In a taxing Act, one has to look merely at what is clearly said and there is no room for an intendment.

19. Coming back to section 64, we find that the Legislature has used the word 'any individual' in the said section, and this section, inter alia, provides that, in computing the tolal income of any individual, there shall be included all such income as arises directly or indirectly to the spouse and/or minor child of such individual from the membership of the spouse and/or minor child in a firm carrying on a business in which such individual is a partner. Thus, the intention of the Legislature is clear and section 64 of the Act shall apply when a person is a partner of the firm in his individual capacity and not in his representative capacity like karta of the Hindu undivided family. If the intention would have been otherwise, it would have been clearly reflected in the said section. The reason is obvious. If an individual becomes a member of a partnership firm in his representative capacity like karta of the Hindu undivided family, the income from the partnership will go to the income of the Hindu undivided family and such income from the partnership can be assessed in the hands of the Hindu undivided family and not in the hands of the individual. If we hold that the word 'individual' also includes a karta of a joint Hindu family, we will be doing violence to the language of the Act, which is not permissible in such a taxing statute.

20. Learned counsel for the Revenue had drawn our attention to the assessment order and has urged that the assessee was assessed as an individual, as such by applying section 64 of the Act the income of the spouse and/or minor child of the individual in the firm carrying on business in which the assessee was also a partner, the karta of the Hindu undivided family can be included. This aspect of the matter need not detain us as we have already stated that the income from the partnership firm where the individual was a partner in his representative capacity as karta of the family shall be included us income of the Hindu undivided family and not of the individual assessee. Learned counsel has further urged that as the assessee can be assessed on the income derived from the Hindu undivided family which income also includes the income from the partnership firm, in the income of the assessee, the income of his spouse and/or minor child can be included by applying section 64 of the Act. We are unable to accept the contention, that inasmuch as the income from the partnership firm has merged with the corpus of the Hindu undivided family, the said income from the partnership cannot be taken but while calculating the income of the individual members of the Hindu undivided family. We, therefore, reject the contention of learned counsel for the Revenue.

21. For the reasons stated above, we hold that, by applying section 64 of the Act, income of the spouse and/or minor child of any individual in a firm carrying on business in which the individual is a partner in his representative capacity, such as karta of the Hindu undivided family, cannot be included while computing the income of such individual.

22. In the result, we answer all the questions against the Revenue and in favour of the assessee.

23. The reference is answered accordingly. There will be no order as to costs.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //