1. Up to 24th October, 1946, the assessee, Chaturbhujdas, carried on a business in adat and cloth as the sole propertietor. On the 25th of October, 1956, he transferred his business to his four sons, two of whom were minors, and he executed a formal deed of gift in respect of this transfer on the 31st October, 1947. The Department sough in include the share of the profits coming to the monor sons in the total income of the assessee and the assessee contended that this income which went to the share of the profits of the minors could not be included in the total income. The question that arises is as to the applicability of section 16(3)(a)(iv) of the Income-tax Act.
2. Now, when we turn to the deed of gift which record the transaction, it is clear that what the assessee as the father has transferred to his four sons as tenants-in-common is the business together within name, goodwill, title and all other rights whatsoever. The deed of gift then makes, up certain accounts the result of which is that the father is constituted an ordinary creditor in the sum of Rs. 1,17,019-7-0 and the capital of the business is fixed at Rs. 88,000 each of the sons having a one-fourth share of this capital. Now Mr. Bajaj's contention is that the deed of gift did not require the four some to carry on the business and the partnership that was ultimately constituted was independent of the deed, of gift, and, therefore, the share of the profit that went to the two minor sons was not the result of a transfer of assets by the father to his minor sons. Mr. Bajaj says that it was open to the four sons when this transfer was made to wind up the business; that if they did carry on the business, it was by the volition of the two adult brothers who agreed to admit the minor brother into the partnership, but that transaction was not in any way to the transfer of assets and it would be wrong to suppose that the profits which the business made were the result of the transfer of assets by the father. In out opinion, that contention is entirely untenable. What is transferred to the four sons is a going business and that going business is continued by the adult sons. The minor sons have been given half share in that going business. Therefore, it is clear that the result of the transaction was that a propriety concern was converted into a partnership concern. The business that was carried on by the father as the proprietor continued to be carried on by two adult sons as partners, the minor sons having been admitted to the benefit of the partnership. Therefore, the profits, that went to the share of the minor sons were the result directly of the transfer of the business by the father and, therefore, section 16(3)(a)(iv) is attracted. It is true that is was open to the adult brother after the transfer not to carry on the business. It is true that there is no restriction placed in the deed of gift by the father upon the right of the adult sons to close the business. But what Mr. Bajaj overlooks is that what was transferred was a going business, which business, continued to function after the deed of gift. It is then suggested by Mr. Bajaj that, in any view of the case, all that can be included in the father's total income is the interest on Rs. 44,000 which is the only asset in the business which goes to the share of the two minor sons. The again in a misreading of the died of gift. Mr. Bajaj says, that when we look at the balance-sheet, it shows assets of the value of Rs. 20 lakhs, but the only provision in the deed of the gift with regard to the capital which is valued at Rs. 88,000 and the share of the two minor sons comes to Rs. 44,000. Therefore, according to Mr. Bajaj, the only income that can possibly be said to have arisen directly or even indirectly from the transfer of assets is the income which can be attributable to the Rs. 44,000, capital which has been transferred to the two minor sons. Again, Mr. Bajaj overlooks the fact that what is transferred is not any particular asset in the business, nor the capital in the business. What is transferred is the business. Therefore, the interest of the minors in the business was not restricted to a share in the capital, but their interest of the minors in the business was not restricted to a share in the capital, but their interest was in a going concern which included much more than merely capital. If that be so, then the asset transferred to the minor children was not merely a sum of Rs. 44,000, but half the share in the business, and the profit attributable to that half share must be held to have arisen directly from the transfer of assets by the father. In out opinion, therefore, the Tribunal was right in coming to the conclusion that it did.
3. We must, therefore, answer the question submitted to us in the affirmative. Assessee to pay the costs.
4. Question answered in the affrimative.