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Sahu Govind Prasad Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAllahabad High Court
Decided On
Case NumberIncome-tax Reference No. 957 of 1979
Judge
Reported in(1984)38CTR(All)297; [1983]144ITR851(All)
ActsIncome Tax Act, 1961 - Sections 64
AppellantSahu Govind Prasad
RespondentCommissioner of Income-tax
Excerpt:
- - aggrieved, the assessee filed an appeal before the aac, which failed and then took up the matter in further appeal before the tribunal. and where any such income is once included in the total income of either spouse or parent, any such income arising in any succeeding year shall not be included in the total income of the other spouse or parent unless the income-tax officer is satisfied, afler giving that spouse or parent an opportunity of being heard that it is necessary so to do......the profit of these minor sons of the firm as income of the assessee and included the same in his total income. aggrieved, the assessee filed an appeal before the aac, which failed and then took up the matter in further appeal before the tribunal. for the assessment years 1967-68 to 1969-70, in the case of the assessee and his brother, madho prasad, both of whom were partners of this firm as representing their respective hufs, and minor sons of both of whom were admitted to the benefits of partnership in this firm, this court had, agreeing with the revenue authorities and the tribunal, taken the view that the share of each of the minors in the profits of the firm was liable to be included in the income of their respective fathers in their individual status under section 64(l)(ii). this.....
Judgment:

R.R. Rastogi, J.

1. This is a reference under Section 256(1) of the I.T. Act, 1961 (hereinafter ' the Act') and at the instance of the assessee the following question of law has been referred by the Income-tax Appellate Tribunal, Delhi Bench-D (hereinafter ' the Tribunal '), for the opinion of this court ;

' 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, 1961, as the income of the assessee '

2. The material facts are these. The assessment year involved is 1972-73, the corresponding accounting period ended March 31, 1972. The assessee, Sahu Govind Prasad is an individual. He is a partner of a firm, M/s. Arvind Cold Storage by name, as karta of his HUF. His two minor sons, Sidhartha Prasad and Rahul Prasad, were admitted to the benefits of partnership in this firm. The ITO treated the share of the profit of these minor sons of the firm as income of the assessee and included the same in his total income. Aggrieved, the assessee filed an appeal before the AAC, which failed and then took up the matter in further appeal before the Tribunal. For the assessment years 1967-68 to 1969-70, in the case of the assessee and his brother, Madho Prasad, both of whom were partners of this firm as representing their respective HUFs, and minor sons of both of whom were admitted to the benefits of partnership in this firm, this court had, agreeing with the revenue authorities and the Tribunal, taken the view that the share of each of the minors in the profits of the firm was liable to be included in the income of their respective fathers in their individual status under Section 64(l)(ii). This decision is Madho Prasad v. CIT : [1978]112ITR492(All) ; following that decision the Tribunal agreed with the revenue authorities and dismissed the appeal. As stated earlier, at the instance of the assessee the question mentioned above has now been referred to this court.

3. It was submitted before us on behalf of the assessee by Sri Bharathji Agarwal that the decision in Madho Prasad's case : [1978]112ITR492(All) , requires reconsideration for two reasons: Firstly, the decision of the Supreme Court in CIT v. Sodra Devi : [1957]32ITR615(SC) , which lays down that the income of a minor child cannot be included in the total income of his mother under Section 16(3)(a)(ii) of the 1922 Act, was not taken notice of; and, secondly, that the Explanation to Sub-section (1) of Section 64 of the Act was also not brought to the notice of their Lordships in that case. The learned standing counsel, on the other hand, urged before us that this court has already taken a view on this controversy in Madho Prasad's case : [1978]112ITR492(All) , and if the assessee was aggrieved against that decision, he could have taken the matter in appeal to the Supreme Court. According to the learned counsel there is no proper reason for a reconsideration of that decision, and, further, the decision in Sodra Devi's case : [1957]32ITR615(SC) , is not applicable because it was rendered under a different Act and also on a different set of facts.

4. After a careful consideration of the respective submissions we find that the decision in Madho Prasad's case : [1978]112ITR492(All) , requires reconsideration. We shall first refer to the relevant provisions of the Act. Section 4 of the Act enacts charge of income-tax. Sub-section (1) of this section imposes income-tax upon a ' person ' in respect of his income. The scheme of the charging provision of this Act is the same as that of the corresponding provisions of the 1922 Act. Section 2(7) contains the definition of the word ' assessee '. According to this definition assessee means ' a person by whom any tax or other sum of money is payable under this Act' and includes every person in respect of whom any proceeding is taken for the assessment, (a) of his income, (b) of his loss, or (c) of the amount of refund due to him. In other words, this definition covers two categories: Firstly, persons by whom any tax, penalty or interest is payable under this Act, whether any proceedings under this Act has been actually taken against them or not and, secondly, persons against whom any of the proceedings specified under this clause has been taken, whether they are or are not liable to pay any tax, penalty or interest.

5. Under Section 2(31) 'person' includes, (i) an individual, (ii) a Hindu undivided family, (iii) a company, (iv) a firm, (vj an association of persons or a body of individuals, whether incorporated or not, (vi) a local authority, and (vii) every artificial judical person, not falling within any of the preceding sub-clauses.

6. Then we turn to Section 64 which occurs in Chap. V. This chapter makes provisions for inclusion of income of other persons in the assessee's total income. Section 64 provides for inclusion of the income of spouse, minor child, etc., in the income of an individual. We extract the relevant portion below :

' Section 64(1). In computing the total income of any individual, there shall be included all such income as arises directly or indirectly :

(i) to the spouse of such individual from the membership of the spouse in a firm carrying on a business in which such individual is a partner ;

(ii) to a minor child of such individual from the admission of the minor to the benefits of partnership in a firm in which such individual is a partner.

Explanation.--For the purpose of Clause (i), the individual in computing whose total income the income referred to in that clause is to be included shall be the husband or wife whose total income (excluding the income referred to in that clause) is greater; and, for the purpose of Clause (ii), where both the parents are members of the firm in which the minor child is a partner, the income of the minor child from the partnership shall be included in the income of that parent whose total income (excluding the income referred to in that clause) is greater; and where any such income is once included in the total income of either spouse or parent, any such income arising in any succeeding year shall not be included in the total income of the other spouse or parent unless the Income-tax Officer is satisfied, afler giving that spouse or parent an opportunity of being heard that it is necessary so to do. '

7. We have read this provision as it stood before its substitution by the Taxation Laws (Amendment) Act, 1975, with effect from 1st April, 1976, because we are concerned with the assessment year 1972-73.

8. The corresponding provision was contained in Section 16(3) of the 1922 Act and so far as it is relevant for the question under consideration reads as under:

' Section 16(3). In computing the total income of any individual for the purposes of assessment, there shall be included ;

(a) so much of the income of a wife or minor child of such individual as arises directly or indirectly :

(i) from the membership of the wife in a firm of which her husst band is a partner ;

(ii) from the admission of the minor to the benefits of partnership in a firm of which such individual is a partner;...... '

8. In Sodra Devi's case : [1957]32ITR615(SC) , the question which had come up for consideration before the Supreme Court was whether the word 'individual' in Section 16(3)(a)(ii) of the Indian I.T. Act, 1922, includes also a female and whether the income of the minor sons which arises directly or indirectly from their admission to the benefits of the partnership in a firm of which their mother is a member is to be included in computing the total income of the mother within the meaning of Sub-clause (ii) of Clause (a) of Sub-section (3) of Section 16. Bhagwati J., speaking for the majority, ruled (p. 620):

' The word 'assessee' is wide enough to cover not only an 'individual' but also a Hindu undivided family, company and local authority and every firm and other association of persons or the partners of the firm or the members of the association individually. Whereas, the word ' individual ' is narrower in its connotation being one of the units for the purposes of taxation than the word ' assessee', the word 'individual' has not been defined in the Act and there is authority for the proposition that the word 'individual ' does not mean only a human being but is wideenough to include a group of persons forming a unit. It has been held that the word 'individual' includes a corporation created by a statute, e.g., a university or a bar council, or the trustees of a baronetcy trust incorporated by a Baronetcy Act. It would also include a minor or a person of unsound mind. If this is the connotation of the word 'individual ' it follows that when Section 16(3) talks of an ' individual ' it is only in a restricted sense that the word has been used. The section only talks of ' individual ' capable of having a wife or minor child or both. It, there fore, necessarily excludes from its purview a group of persons forming a unit or a corporation created by a statute and is confined only to human beings who in the context would be comprised within that category.'

9. In other words, it has been laid down that the word 'individual' in Section 16(3) had been used in a restricted sense. It refers only to an individual capable of having a wife or minor child or both and excludes from its purview a group of persons forming a unit or a corporation. In other words, the words ' any individual ' and ' such individual ' are not intended to take within their ambit and scope an HUF. This decision will squarely apply to the instant case as welt because there is no material difference in the provision contained in Section 64(1)(i) and (ii) in so far as the present controversy is concerned. This decision was not noticed in the case of Madho Prasad : [1978]112ITR492(All) . That decision has proceeded on the basis that where a karta of a joint family enters into a partnership with others, he is a partner only as an individual though his joint family is entitled to get from him his share in the profits of the firm and the joint family is liable for its share of loss in the firm. Qua other partners of the firm he is a partner only in his individual capacity and the joint family as such, does not become a partner, nor will other members of that family become partners of that firm. From this premise their Lordships proceeded to hold that the words ' in which such individual is a partner' occurring at the end of Clause (ii) of unamended Section 64(1) merely indicate that in order to attract the liability under that clause the father of a minor admitted to the benefits of the partnership should be a partner of the firm, whether as individual or as a karta of his joint family.

10. In our opinion, for an answer to the controversy involved in the present case, the conception of the nature of the partnership of the joint Hindu family in a firm is not relevant. A plain reading of the section would show that it refers to the computation of the total income of an individual. An individual is an assessable entity and is a person under Section 2(31). A Hindu undivided family is a separate entity. In computing the total income of any individual, the income arising directly or indirectly to a minor child of such individual from the admission of the minor to the benefits of the partnership in a firm in which such individual is a partner is to be included. The words ' any individual 'and 'such individual' provide the keynote for the interpretation of this provision. The Explanation to this sub-section also supports the same conclusion. In Madho Prasad's case : [1978]112ITR492(All) , the decision of the Supreme Court in Sodra Devi's case : [1957]32ITR615(SC) and the Explanation to Sub-section (1) of Section 64 were not noticed.

11. The decision in Madho Prasad's case : [1978]112ITR492(All) , has been dissented from by the other High Courts, viz., by the Andhra Pradesh High Court in CIT v. Sanka Sankaraiah : [1978]113ITR313(AP) , by the Gujarat High Court in Dinubhai Ishvarlal Patel v. K.D. Dixit, : [1979]118ITR122(Guj) , and the Punjab and Haryana High Court in CIT v. Anand Sarup [1980] 121 ITR 873. It was also brought to our notice that the Supreme Court dismissed the Special Leave Petition moved against the decision of the Andhra Pradesh High Court in the case of Sanka Sankariah : [1978]113ITR313(AP) , by an order made on May 2, 1979. A photostat copy of that order was produced before us.

12. For the reasons discussed above, we think that the decision in Madho Prasad's case : [1978]112ITR492(All) , requires reconsideration. Hence we direct that the papers of this case may be laid before Hon'ble the Chief Justice for constituting a larger Bench for decision of this reference.


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