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Prayag Dass Rajgarhia Vs. Commissioner of Income-tax, Delhi - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtDelhi High Court
Decided On
Case NumberIncome-tax References Nos. 73 of 1971 and 219 to 221 of 1976
Judge
Reported in[1982]138ITR291(Delhi)
ActsIncome Tax Act, 1961 - Sections 64 and 64(1)
AppellantPrayag Dass Rajgarhia
RespondentCommissioner of Income-tax, Delhi
Cases ReferredIn Dinubhai Ishwarlal Patel v. K. D. Dixit
Excerpt:
- .....way as if the father was a partner of the firm in his individual capacity. it was held that the minor partner's share of income from the firm was to be included in the income of their father, i.e., the individual income of the father. 6. this decision has been deferred from by three different high courts. in cit v. sanka sankaraiah : [1978]113itr313(ap) , it was held by the andhra pradesh high court that when a person was a partner in a special capacity as a representative, i.e., as a trustee or a karta or a benamidar, then the income arising from the firm did not belong to that partner personally. accordingly, it could not be held that the said person was a partner in his individual capacity. accordingly income arising to a minor child of such person from the same firm could not be.....
Judgment:

D.K. Kapur, J.

1. Four Income-tax References have been heard together. These involve a common question of fact and law. Shri Prayag Dass Rajgarhia is the karta of a joint Hindu Family. He entered into a partnership with one Shri Satya Pal under the name and style of M/s. Prayag Dass Rajgarhia & Co. with effect from 1st November, 1964. He had four minor daughters who were admitted to the benefits of the partnership. The share income of the four minor daughters was Rs. 18,753 in the accounting period relevant to the assessment year 1965-66. This amount was added to the applicant's individual income by operation of s. 64(ii) of the I.T. Act, 1961. The Tribunal's order dated 23rd December, 1970, gives the reasons for this. For this year, the question 'Whether, on the facts and in the circumstances of the case, the share income from the firm of M/s. Prayag Dass Rajgarhia & Company arising to the assessed's four minor daughters is includible in the total income of the assessed under s. 64(ii) of the Income-tax Act, 1961 ?' has been referred to us.

2. The other three cases which have been heard along with this case are the cases of Shri Kanhaya Lal Rajgarhia who was also the karta of the HUF. He became a partner in a firm, M/s. Kanhaya Lal Ashok Kumar & Co., and the benefits of partnership were given to his minor children consisting of two minor sons and one minor daughter. The assessed was also a partner in two other partnership firms, M/s. Oriental Steel & Wire Industries and M/S. Delhi Paper Marketing Co., and there also a similar question was involved. This question was the subject of numerous decisions of the Tribunal and in this case the matter was referred to a Full Bench of the Tribunal which held that the income of the minor children was not to be included in the assessed's income. On these facts and circumstances, the following question was referred for our opinion :

'Whether, on the facts and in the circumstances of the case, the share of profits of the minor children from the various firms in which the assessed was a partner, representing his HUF, could be included in the assessed of the assessed-individual under section 64(ii) of the Income-tax Act, 1961, for the assessment years 1967-68, 1968-69 and 1969-70 ?'

3. Although the income-tax references before us are four in number, actually the questions are only two, one in the case of Shri Prayag Dass Rajgarhia and the other in the case of Shri Kanhaya Lal Rajgarhia. In one case, the answer by the Tribunal was in favor of the Department and in the other case the answer was in favor of the assessed.

4. The Full Bench decision of the Tribunal has given extensive and cogent reasons for coming to the conclusion that the income of the individual minors who were admitted to the benefits of the partnership are not to be included in the individual income of their father because the father in the cases in question became a partner only as a representative of the HUF and not on his own account. We would have examined these reasons in greater detail, but we find that there are already four reported decisions covering the same point.

5. In Madho Prasad, Pilibhit v. CIT : [1978]112ITR492(All) , the Allahabad High Court held that although the partner who was the karta of an HUF represented that family in the partnership, since only an individual could be a partner, for the purpose of applying s. 64 of the Act it must be held that that karta was an individual who was a member of a firm and hence the minor children of that karta who were admitted to the benefits of partnership and derived income from that partnership had to be treated exactly in the same way as if the father was a partner of the firm in his individual capacity. It was held that the minor partner's share of income from the firm was to be included in the income of their father, i.e., the individual income of the father.

6. This decision has been deferred from by three different High Courts. In CIT v. Sanka Sankaraiah : [1978]113ITR313(AP) , it was held by the Andhra Pradesh High Court that when a person was a partner in a special capacity as a representative, i.e., as a trustee or a karta or a benamidar, then the income arising from the firm did not belong to that partner personally. Accordingly, it could not be held that the said person was a partner in his individual capacity. Accordingly income arising to a minor child of such person from the same firm could not be included in that person's individual income. This was the ground for differing from the Allahabad High Court judgment.

7. In Dinubhai Ishwarlal Patel v. K. D. Dixit, ITO : [1979]118ITR122(Guj) , the Gujarat High Court has taken the same view. And, finally, in CIT v. Anand Sarup [1980] 121 ITR 873, the Punjab and Haryana High Court has taken the same view. Both these judgments have given some additional reasons for holding that a partner of a firm who was a partner in a representative capacity was to be treated differently for the purposes of s. 64(1)(ii) of the I.T. Act, 1961. We are in complete agreement with the views expressed in these three judgments and need not express ourselves further in the matter.

8. We would accordingly answer the questions referred to us in favor of the assessed and against the Department.

9. In the case of Shri Prayag Dass Rajgarhia, I.T.R. No. 73 of 1971, we would answer the question in the negative and say that the share income is not to be included in the total income of the assessed. In the case of Shri Kanhaya Lal Rajgarhia, ITR Nos. 219 to 221 of 1976, also we would answer the question in the negative and say that the share of profits of the minor children from the various firms in which the assessed was a partner representing his HUF could not be included in the personal assessment of the assessed. However, as there was considerable controversy about the questions, we would direct the parties to bear their own costs.


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