1. These four groups of appeals in the case of the four assessees involve identical dispute for our decision. With the consent of the parties, the appeals are disposed of by this consolidated order.
2. In the case of the assessee, Shri S. Krishna Iyer, in IT Appeal Nos.
373 to 376 (Mad.) of 1981, he was-a partner in the firm of S. Krishna Iyer & Bros., Palani, on behalf of and for the benefit of the HUF as its karta. The income sought to be assessed in his hands by reference to Section 64(1)(iii) of the Income-tax Act, 1961 ('the Act') represents the share of profits of his minor sons in the said firm.
Similar are the facts in the case of Sri S.T. Balasubramaniam Chettiar who was partner in the firm of S.T. Balasubramaniam Chettiar & Sons, Kamayagoundanpatti, Madurai District, in representative capacity as karta of HUF. In the case of Sri. C. Subbiah Chettiar, his minor sons were admitted to the benefits of partnership in the firm of Jayalakshmi Javuli Stores, Cumbum, but it is stated that he was not a partner in the said firm in any capacity. In the case of Shri P.A. Venkataraman, the only fact disclosed on record is that his minor childrens' share income from the firm of Jawaharlal & Jagadeesh is sought to be assessed in his hands and there is nothing on record to show whether he was a partner in the same firm representing his HUF as its karta or not.
3. The dispute common to all these appeals is on the question of the assessment in the hands of each of the assessee the share income from certain firms of his minor children for the relevant assessment years under Section 64(1)(iii). It is not necessary for us to go into the actual figures of share incomes included in the assessment of each assessee and the details or the particulars of the firm from which the share income was derived by the minor children by their admission in the said firms because the dispute is one on a question of law concerning the interpretation of the provisions of Section 64(1)(iii).
The common material fact on which the dispute turns is that in each case the assessee concerned had no other income of his own for any of the years involved in the appeals apart from the share income of the minor children included under Section 64(1)(iii)." The short dispute between the assessees and the department is as to whether even where a parent-assessee, as in the case of each of the assessee in these appeals, does not have any other income assessable in his hands for the concerned assessment years, the amounts of share income arising to the minor children from their admission in the partnership concerns can be included in the parent-assessee's income under the provisions of Section 64(1)(iii). This dispute has come up before the Special Bench of the Tribunal in view of conflicting views taken by the two benches of the Tribunal on this point. Having stated these preliminary and necessary facts, we proceed to state and consider the submissions of the parties.
4. The learned departmental representative, Shri K. Venkataraman, in the first place relied on the order of the Madras Bench 'C' of the Tribunal in the case of P. Alwarswamy [IT Appeal Nos. 1171 and 1148 of 1979], dated 12-5-1980, which supports the contention of the revenue that as from the assessment year 1976-77 by virtue of the amendment in Section 64(1)(iii) introduced by the Taxation Law (Amendment) Act, 1975, with effect from 1-4-1976, the income of the minor children will be included automatically under that provision and there is no precondition in the statute which requires that before such inclusion is made the parent-assessee must have some other income to be computed in his hands for the purpose of the assessment. He referred in this connection to the heading of Chapter V reading 'Income of other persons, included in the assessee's total income' and submitted that the interpretation of the provisions of the Act should be such as to give effect to the intention and scheme of the Act, so as to make it workable. Section 64, it is pointed out, is couched in mandatory terms with the use of the word 'shall' and Clause (Hi) thereof after the amendment from 1-4-1976 clearly envisages the inclusion of the income arising directly or indirectly to a minor child of an assessee from the admission of the minor to the benefits of partnership in a firm and no other precondition is attached. Thus, according to the learned departmental representative's submission, the language is clear and unambiguous and the inclusion provided is mandatory. He also sought support for this contention on the provisions of Section 139 where it is stated that every person, if his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded . . . shall furnish a return of his income or the income of such person . . . etc. It is further submitted that it is not necessary to establish that by the inclusion of the share income of the minor children in the parent's hands, the revenue is benefited as no such consideration is material or relevant as income includes the negative figure or loss and if the amount sought to be included under Section 64 represents a loss or a minus figure, still the amount has to be included under Section 64. Reference in this connection was made and reliance placed on the decision of the Mysore High Court in the case of Dr. T.P. Kapadia v. CIT  87 ITR 511. In this connection the observations of the Supreme Court in CIT v.Harprasad & Co. (P.) Ltd.  99 ITR 118 are referred to wherein it is observed that from the changing provisions of the Act it is discernible that the words 'income' or 'profits and gains' should be understood as including losses also so that in one sense 'profits and gains' represent 'plus income' whereas losses represent 'minus income', in other words, loss is negative profit and both positive and negative profits are of revenue character and must enter into computation wherever it becomes material in the same mode of the taxable income of the assessee. The decision of the Allahabad High Court in Madho Prasad v. CIT  112 ITR 492 is also referred to and relied. In this decision the share income arising to the minor child of an individual was held to be includible in the personal assessment of the individual notwithstanding the fact that he was a partner in a firm in which the minor was admitted to the benefits of the partnership only on behalf of the HUF as its karta.
It is submitted that by virtue of Section 64, the parent becomes an assessee in respect of the income contemplated therein and the object of the enactment is to defeat avoidance of tax by diversion of source of income to a minor child.5. The learned counsel for the assessee on the other hand contended that Section 64(1)(iii) providing for inclusion of the income arising directly or indirectly to a minor child of an individual from the admission of the minor to the benefits of the partnership pre-supposes the existence of the individual or parent's income. Otherwise, the question of inclusion in the income of the individual concerned does not arise. Strong reliance was placed on the Explanation and it is argued that where the parent has no individual income of his own, Section 64(1)(iii) does not come into play. Reference was also made to the order of the Madras Bench 'B' of the Tribunal in IT Appeal Nos.
1242, 1243 and 1244 (Mad.) of 1979, dated 30-8-1980 and in particular to the observations at para 5. On behalf of the assessee, reference was also made to the decisions in CIT v. Sanka Sankaraiah  113 ITR 313 (AP), Dinubhai Ishvarlal Patel v. K.P. Dixit, ITO  118 ITR 122 (Guj.) and CIT v. Anand Sarup  121 ITR 873 (Punj. & Har.), taking a view contrary to the Allahabad High Court decision relied on by the learned departmental representative in the case of Madho Prasad (supra).
6. The learned counsel, Shri K. Srinivasan, contended that Section 64 is not a deeming provision which makes the income specified therein the total income of the parent-individual and it only provides for inclusion of such income in the total income of the individual himself and this naturally pre-supposes the existence of the separate individual income of the parent. The scheme of the section, it is submitted, is to keep the minor's income intact and not to treat it as income of the parent, but only to include it in determining the parent's total income. Reference was also made to the marginal note to Section 64 reading 'Income of individual to include the income of spouse, minor child, etc.'. Reference was also made to and reliance placed on the decision of the Madras High Court in K.P.M. Abdul Majeed v. ITO  78 ITR 124. In this case it was held that where a person denudes himself of the entire land owned by him making gift thereof to his wife or minor children, under the terms of Section 10(1) of the Madras Agricultural Income-tax Act and the definition of the expression 'to hold' contained in the said Act, the provisions of the Act would be inapplicable to him and there is nothing in Section 9(2) to alter the position and, consequently, the transfer cannot, in such a case, be assessed to tax in respect of the income arising from the lands transferred by him to his wife and minor children.
7. On a careful consideration of the facts and submissions of the parties, we hold that there is no merit in the department's appeal. The reference made to, and reliance made by the parties on, the decision of the Allahabad High Court in the case of Madho Prasad (supra), the Andhra Pradesh High Court in the case of Sanka Sankaraiah (supra), the Gujarat High Court in the case of Dinubhai (supra) and the Punjab and Haryana High Court in the case of Anand Sarup (supra) is not apposite of the dispute in those appeals because the point involved in all these decisions was different though the fact appears to be similar to the facts in the case of the assessees, Shri S. Krishna Iyer and Shri S.T.Balasubramaniam. The dispute that was considered and decided in those cases was on the point as to whether even though the assessee in each case was a partner in a firm, not for his own individual benefit or on his own behalf but as karta representing his HUF, the share of profit arising to his minor children by admission to the same firm where he was a partner was required to be included under Section 64 of the 1961 Act or the corresponding provision of the 1922 Act. The claim of the assessees accepted in the cases relied on by the assessee but negatived in the case relied on by the department was that since the assessee was not a partner in his individual capacity in the firm concerned and Section 64 requires inclusion of the minor childrens' share of income from the firm in which an individual is partner, the provisions of Section 64 are not attracted. On the other hand, the dispute which arises for our decision in this appeal is, as already stated, as to whether in order that the income arising to the minor children from the admission to the benefit of the partnership firm is held to be includible in the parent's hands by virtue of Section 64(1)(iii), it is a condition precedent that such parent or individual should have a total income which can be computed under the provisions of the Act apart from the minor childrens' share income from the firm. The decision of the Madras High Court in Abdul Majeed (supra) relied on behalf of the assessee is also distinguishable on facts.
8. The scheme and provisions of Section 64 are intended, as observed in the Supreme Court decision in CIT v. Manilal Dhanji  44 ITR 876 in regard to corresponding provisions of Section 16(3) of the 1922 Act, to overtake and circumvent tendency on the part of taxpayers to endeavour to avoid or reduce incidence of tax by devices adopted by means of settlement or by admission of minor children to the benefits of partnership in a firm. The requirement of the section, as it originally stood, to attract its operation in regard to inclusion of the minor childrens' share income from a firm, was that such income should arise to the minor child in a firm in which the parent is a partner. But this requirement appears to have been done away with by the amendment brought about by a newly substituted Section 64(1) with effect from 1-4-1976 by Section 13 of the Taxation Laws Amendment Act, 1975. As pointed out in the order of the Tribunal relied on by the assessee, neither the Notes on Clauses accompanying the said Taxation Laws Amendment Bill nor the Select Committee Report gives any reasons as to why the reference to the membership of the parent also in the firm in which the minor derives the benefit was omitted by the amendment and it is difficult to know the mischief which is sought to be remedied. Even assuming, but not finally expressing any opinion on the point, that there is an implicit statutory presumption in the provision that the income arising to the minor child by way of admission to the benefits of a partnership firm is an attempt by the individual concerned to divert his income or source of income which otherwise would be chargeable in his hands, we are unable to uphold the department's contention that there is no requirement of the parent, in whose hands the minor's share income is sought to be assessed, having any other income before the provisions of Section 64(1)(iii), requiring the inclusion, are attracted. Though it may be possible to hold that the parent concerned need not necessarily have a taxable income, in the sense that, apart from the share income of the minor sought to be included, he must have other income which is itself exigible to tax and it is enough that he has some income of his own even if it is below the taxable limit and the section would be effectively attracted if such income together with the income sought to be included under Section 64(1)(iii) exceeds the non-taxable limit. The requirement of a total income which can be computed in accordance with the provisions of the Act apart from the share income of the minor sought to be included in the hands of the parent, cannot be dispensed with having regard to the provisions of the section read as a whole including Explanation 1. It may be noted that under the Explanation, before resorting to the provisions of Section 64(1)(iii), the question has to be determined as to in which parent's hands the income of the minor child arising from the admission to the benefits of the partnership shall have to be included, namely, whether the father or the mother, and for that purpose it is necessary to ascertain the total income of each such parent, because the Explanation provides that the share of the minor's income from the firm concerned has to be included in the income of that parent whose total income excluding the income sought to be included, namely, the share income of the minor, is greater. This condition, therefore, clearly, in our view, pre-supposes the computation of total income in the hands of either parent, apart from the minor's share income required to be included under Clause (iii) of Section 64(1).
9. The question as to whether the concept of 'income' and as a corollary the 'total income' would comprehend a negative figure or loss, and even if a parent has such a negative income or loss from any of the sources the provisions of Section 64(1)(iii) for inclusion of the minor's share income from the firm will be attracted or not, need not engage our attention in these appeals because even assuming that Section 64(1)(iii) would be attracted in such a case of negative income or loss being determined as 'total income' in the hands of the parent, it necessarily pre-supposes the existence of a separate source of income of the parent under which any positive income or loss is or can be determined. None of the appeals before us involves a case where the assessee has or had during the relevant previous year any particular source of income and the computation of income therefrom resulted in a negative figure. Even assuming that the object of the provision is to circumvent attempts of persons to divert their income or source of income so as to avoid heavy burden of tax and in such circumstances to ignore the effect of the transfer or diversion and to aggregate all the income including the diverted income in the hands of a parent even if the other source of income produce a negative income or loss, the section will have no application where the parent has no source of income at all.
10. In view of the foregoing reasons, we reject the objection of the department and uphold the orders of the first appellate authorities.