J.V. Gupta, J.
1. This order will dispose of Income-tax Reference No. 91 of 1977 relating to the assessment year 1972-73 and Income-tax Reference No. 17 of 1978, relating to the assessment year 1973-74, in which the question referred to this court at the instance of the revenue is the same as in the earlier reference. The question referred in Income-tax Reference No. 91 of 1977 is as under :
'Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the share income of the assessee's wife from the firm, M/s. Vinod Trading Co., could not be clubbed with his income under Section 64(1)(i) of the Income-tax Act, 1961?'
2. Briefly stated the facts are that Shri Anand Sarup was assessed in the status of an individual prior to the assessment year 1970-71. The assessee was a partner in the firm, M/s. Vinod Trading Co., Ludhiana. During the assessment year 1970-71, the assessee, vide declaration dated 10th September, 1969, had impressed all his capital in the aforesaid firm together with all rights, title and interest in the aforesaid firm, with the character of a HUF, consisting of his wife and five sons. Thus, he ceased to be the partner of M/s. Vinod Trading Go. from the assessment year 1970-71, He simply represented the HUF in the firm from that year onwards. In respect of the share in the firm, M/s. Vinod Trading Co., the ITO took the status of the assessee as that of an individual and in view of Section 64(1)(i), he clubbed the share income of the assessee and of his wife' in the former'shands. When the matter was challenged before the AAC by the assessee, the AAC accepted his plea that he represented the HUF in the said firm and, accordingly, ordered the deletion of the share income which was assessed in the hands of the assessee. The AAC accepted the status of the HUF in that respect but on the question of clubbing the income of the assessee's wife in the hands of the assessee, he took the view that that was rightly clubbed under Section 64 in his hands. However, on second appeal by the assessee before the Appellate Tribunal, the assessee's contention was accepted and the Tribunal found as under :
'The limited question for consideration is whether or not Section 64has been rightly invoked by the lower authorities, as respects the incomewhich accrued to the assessee's wife from the firm, M/s. Vinod Trading Co.Clause (i) of Section 64, Sub-section (1), can be invoked only when theincome arises to the spouse of the individual member in a firm carrying onbusiness in which such individual is also a partner. The contention of theassessee is that he is not a partner, of the firm, M/s. Vinod Trading Co.,and, therefore, any income accruing to his wife from the said firm cannotbe assessed in his hands. We agree with the contention of the assessee. Itis clear from Clause (i) of Section 64, Sub-section (1), that both the individual as well as the spouse, whose income is to be clubbed with the indivi-dual's income, should be the partners of the firm. The assessee ceased tobe the partner of M/s. Vinod Trading Co. after he impressed his entirecapital and other interest in the said firm with the character of HUFduring the assessment year 1970-71. This fact has been accepted by theAAC, inasmuch as he deleted the share income which was considered to bethe income of the assessee by the Income-tax Officer. In respect of theshare income which was included in the hands of the assesssee, the Appellate Assistant Commissioner held that that belonged to the HUF and notto the assessee., This finding clearly shows that the assessee ceased to bethe partner in his individual capacity. He is only representiug the HUFin the firm, M/s. Vinod Trading Co., at present. In these circumstances,the income accruing to assessee's wife from the said firm cannot be assessedin the hands of the assessee, because he is not a partner the firm, M/s.Vinod Trading Co. We, therefore, think that Section 64, (sic) Secction (1), Clause (i), has not been rightly invoked by the lower authority (sic) far asthe income of the assessee's wife is concerned.'
3. Before us, the main contention of the learned counsel for (sic)evenue is that under the law of partnership, HUF, as such, could not become a partner of the firm. The karta who wants to join the partnership firm as its member may do so after shedding his representative capacity. Any income accruing to such partner will be treated as his individual income. In support of his contention, he relied upon two Supreme Court judgmentsFirm Bhagat Ram Mohanlal v. CEPT : 29ITR521(SC) and CIT v. Bagyalakshmi & Co. : 55ITR660(SC) and the judgments of the Allahabad High Court in Madho Prasad v. CIT : 112ITR492(All) and Addl. CIT v. Yashwant Lal : 119ITR18(All) . On behalf of the assessee, the learned counsel has relied, upon a judgment of the Andhra Pradesh High Court in CIT v. Sanka Sankaraiah : 113ITR313(AP) and that of the Gujarat High Court in Dinubhai Ishwarlal Patel v. K. D. Dixit, ITO : 118ITR122(Guj) . After hearing the learned counsel for the parties and considering the various contentions raised by the learned counsel for the revenue, we agree with the view taken by the -Gujarat High Court in Dinubhai's case : 118ITR122(Guj) and the Andhra: Pradesh High Court in Sanka Sankaraiah's case : 113ITR313(AP) . In Firm Bhagat Ram Mohanlal's case : 29ITR521(SC) , what was stated by the Supreme Court is this (p. 525):
'It is well settled that when the karta of a joint Hindu family enters into a partnership with strangers, the members of the family do not ipso facto become partners in that firm. They have no right to take part in its management or to sue for its dissolution. The creditors of the firm would no doubt be entitled to proceed against the joint family assets including the shares of the non-partner coparceners for realisation of their debts. But that is because under the Hindu law, the karta has the right when properly carrying on business to pledge the credit of the joint family to the extent of its assets, and not because the junior members become partners in the business. In short, the liability of the latter arises by reason of their status as coparceners and not by reason of any contract of partnership by them.'
4. From these observations of the Supreme Court, it is clear that whenthe karta of a joint Hindu family enters into a partnership, the other members of the family do not become its partners automatically, and, therefore,they have no right to take part in its management or to sue for its dissolution. At the same time, the creditors of the firm would no doubt beentitled to proceed against the joint family assets, including the shares ofthe non-part (sic)coparceners for realisation of their debts. This authority only (sic)hts the role of karta of a H'UF in case a HUF is a partner of the (Sic) This nowhere lays down that the profit/loss falling to theshare of (sic) HUF from the firm will be the income/loss of the karta inhis indiviuual capacity. On the other hand, the creditors of the firm havebeen held to be entitled to proceed against the property of the juniormembers of the HUF.
5. Similarly, in Bagyalakshmi's case : 55ITR660(SC) , the position of law was enunciated as under (p. 664):
'A partnership is a creature of contract; under Hindu law a joint family is one of status and right to partition is one of its incidents. The income-tax law gives the Income-tax Officer a power to assess the income of a person in the manner provided by the Act. Except where there is a specific provision of the Income-tax Act which derogates from any other statutory law or personal law, the provision will have to be considered in the light of the relevant branches of law. A contract of partnership has no concern with the obligation of the partner to others in respect of their shares of profit in the partnership. It only regulates the rights and liabilities of the partners. A partner may be the karta of a joint Hindu family; he may be a trustee ; he may enter into a sub-partnership with others ; he may, under an agreement, express or implied, be the representative of a group of persons ; he may be a benamidar for another. In all such cases he occupies a dual position. Qua the partnership, he functions in his personal capacity ; qua the third parties, in his representative capacity. The third parties, whom one of the partners represents, cannot enforce their rights against the dther partners nor the other partners can do so against the said third parties. Their right is only to share in the profits of their partner-representative in accordance with law or in accordance with the terms of the agreement, as the case may be.'
6. From these observations also, it is clear that it only relates to the manner in which the karta, as a member of the partnership, functions. Using the words of their Lordships, qua the partnership, he functions in his personal capacity ; qua the third party in his representative capacity.
7. The Allahabad High Court in Madho Prasad's case : 112ITR492(All) , has placed reliance upon these two judgments of the Supreme Court, but the conclusions arrived at by the hon'ble judges, with respect, from the aforesaid enunciation of law by the Supreme Court is wrong as the same is not warranted therefrom, and, therefore, we do not agree with the view taken by the Allahabad High Court.
8. It is well known that what is being taxed under the I.T. Act is the income of a person, which includes an individual, a HUF, a company, a firm and an association of persons or a body of individuals, whether incorporated or not, a local authority and other artificial juristic persons not falling within the preceding categories. Section 64 of the Income-tax Act, 1961 (hereinafter called 'the Act '), provides that 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. The word 'assessee ', as defined in Section 2(7) of the Act, means a person by whom anytax or any other sum of money is payable under this Act and includesevery person who is deemed to be an assessee under any provisions of thisAct. From these provisions, it is apparent that the question is of theincome of an individual and the concept of an individual has a differentconnotation from a HUF and othef categories which are included in thedefinition of 'person' under Section 2(31) of the Act.'
9. The word 'assessee' is wide enough not only to cover an individualbut also a HUF, a company or a local authority and every firm and otherassociation of persons or the partners of the firm or the members of theassociation individually. The section talks of only income of any individual capable of having a wife or minor children or both. It, therefore,necessarily excludes from its purview a group of persons' forming a unit ora corporation created by a statute. The Andhra Pradesh High Court inSanka Sankaraiah's case : 113ITR313(AP) differed from the view takenby the Allahabad High Court and it was pointed out at page 318, afterrelying upon the decision of the Supreme Court in Bagyalakshmi's case : 55ITR660(SC) , thus (at p. 318 of 113 ITR):
'Qua the partnership, he functions in his individual capacity; qua the third parties, in his representative capacity. Where a person represents as trustee or as karta or as a benamidar, Section 64, in our view, cannot be invoked. If we are to agree with the learned counsel for the revenue that Section 64 applies to a karta or a trustee, then it would lead to certain absurd situations. Take for instance the case of a trustee as a partner in a firm. If the trustee's spouse or a minor child are to be a partner of that firm, the income realised by the spouse or the minor child in that firm will have to be added to the income of the trustee earned from sources other than partnership in his individual capacity.....We are unable to share the view of the Allahabad High Court that the words 'in which such individual is a partner' take in a karta or trustee or representative of a group of persons. The expression 'individual' 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.'
10. This view of the Andhra Pradesh High Court was followed by the Gujarat High Court in Dinubhai's case : 118ITR122(Guj) , with the following observations:
'We respectfully agree with these observations of the learned judges of the Andhra Pradesh High Court because that is the conclusion that we have independently arrived at on our own reasoning in the light of the decisions of the Supreme Court in Sodra Devi's case : 32ITR615(SC) and in Bagyalakshmi's case : 55ITR660(SC) .'
11. We are in respectful agreement with the view, taken by the Gujarat High Court in Dinubhai Ishvarlal Patel's case : 118ITR122(Guj) and theAndhra Pradesh High Court in Sanka Sankaraiah's case : 113ITR313(AP) . In cases under Section 64(1) (i) and (ii), the income of the spouse or a minor child of such individual is to be clubbed with the income of the assessee only if he is a partner as an individual in a firm. If such an 'individual' represents a HUF as its karta and the income in his hands goes to the HUF then for the purposes of Section 64(1) (i) and (ii), it cannot be held that it is the income of an individual. If the contention of the revenue is correct, then there can be no income from the partnership to the HUF whose karta as such is the partner thereof. This position, as such, is not tenable and cannot be accepted. In the present case it has been found as a fact that the assessee is only representing the HUF in the firm, M/s. Vinod Trading Co., at present. In this/view of the matter, we find that the view taken by the Appellate Tribunal is correct and the answer to the question is in the affirmative, i.e., against the revenue and in favour of the assessee. However, there will be no order as to costs.