(1) The question referred for the determination of this court is: 'Whether the facts and in the circumstances of the case, the inclusion of a sum of Rs. 16835 which constituted the share income of the minor son of the petitioner in the assessable income of the petitioner assessee by applying the provisions of S. 16(3)(a)(iv) of the Income-tax Act was proper and valid?'
The assessee is a dealer in plastic goods. He was a member of a partnership constituted under a deed dated 9-6-1951. This partnership was dissolved with effect from 27-10-1954. The assessee, who had to his credit a sum of Rupees 97,329-6-0 in the accounts of the partnership, was allowed to retain this sum in the business under the following circumstances. One of the partners, Kalidas Haribai Sayani, died sometime before the date of the document of dissolution. The assessee also purported to retire with effect from that date. The other members of the partnership had received their full share of the moneys lying with the firm. the document stated that in these circumstances Champaklal Kalidas Sayani, the elder brother of the assessee, was to carry on the business, taking in such other partners as he thought fit and further that on the retirement of the assessee the sum lying to his credit was to be transferred to the account of his minor son Ramniklal.
(2) Another deed dated 23-12-1954 came into existence and under this document a new firm was constituted with the same name with Champaklal and two others as partners. To the benefits of this firm, the minor son of the assessee, Ramniklal, and another son of a deceased partner of erstwhile firm, were admitted. The assessee's son, Ramniklal, was entitled to a share, of 3 annas in the profits of the firm. The amount transferred to the credit of Ramniklal was treated as the sum standing to his credit and not as part of the capital contributed by that minor to the firm.
(3) During the assessment year 1956-57, the share of profits of the minor son of the assessee was Rs. 16835, and the interest that he received don the amount lying to his credit was Rs. 5369. The total of these amounts was under the provisions of S. 16(3) of the Income-tax Act computed as part of the income of the assessee, the father of the minor. The assessee, while accepting his liability in respect of the interest portion of the amount, contended that the sum of Rs. 97,329 had been gifted and given away by him to his minor son and that he had no interest whatever in that amount. The contention was therefore that the share income of the minor was not liable to the included in the income of the assessee, the father. The Income-tax Officer rejected this contention on the ground that in the deed of a partnership dated 23-12-1954, the minor son of the assessee was admitted to the benefit of the partnership for the reason that the father had retired therefrom. This in the view of the Income-tax Officer really amounted to a transfer of the asserts of the assessee in the firm to the minor son, attracting S. 16(3)(a)(iv) of the Act. The Appellate Assistant Commissioner on appeal upheld the assessment. Though he did not purport to differ from the Income-tax Officer as to the applicability of the provision of law, he did not however express himself clearly in the matter. He observed:
'The records show that the appellant retired from the firm making room for his minor son, that he transferred his entire capital to him; that he allowed the entire sum to remain in the said business; that he did not withdraw the said amount till this day; and that interest is still charged in respect of the said amount. I am further given to understand that the new firm has been dissolved in May 1957; that no share in goodwill had been given to the said minor and that the entire goodwill belongs to the appellant's elder brother. In the circumstances, I feel that the Income-tax Officer was justified in holding that the admission of the minor son to the benefits of the partnership was on account of huge investment of the appellant in the said firm. The share in the name of the appellant's minor son has rightly been assessed in the appellant's hands.'
(4) A further appeal was carried to the Appellate Tribunal and the Tribunal specifically held that it was not only the sum of Rs. 97329 that was transferred to the minor son but a share in he business as a whole and that therefore the profit attributable to that share must be held to have arisen directly from the transfer of the assets to the minor son.
(5) The correctness of the conclusion reached by the Tribunal is questioned in this reference before us. Section 16(3)(a)(iv) reads:
'In computing the total income of any individual for the purpose 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 (iv) from assets transferred directly or indirectly to the minor child not being married daughter by such individual otherwise than for adequate consideration.'
(6) On the mere statement of the facts, it seems hardly possible to accept the contention of the assessee that this provision will not apply to the case. Undoubtedly, the assessee had certain assets in the shape of the amount lying to his credit as a partner in a firm. Though the was an apparent dissolution of the partnership and its reconstitution, the terms under which the assessee withdrew from the a partnership appear to have been that his minor son should be admitted to the benefits of the newly crated partnership and to have the sum of Rs. 97000 and odd referred to credited in the name of the minor son in the accounts of that partnership. In addition, the three annas share which the assessee had in the firm stood allotted to the minor son and the document specified that he was to be entitled to the benefits of the partnership. Undoubtedly, therefore, an asset in the shape of both the amount lying to the credit of the father as well as the share interest of the assessee in that firm were transferred by these means to the minor son. On the other hand, learned counsel for the assessee would contend that while no doubt the amount might have been transferred by way of a gift or otherwise, and the above provision of law would attach to any income arising from that amount by way of interest, in so far as the share of the profits of the firm which accrued to the minor by reason of his admission to the benefits of the partnership is concerned it cannot be related to the transfer of assets directly or indirectly to the minor. We are really unable to draw this distinction. It is not the outward form that matters but the real substance of the transaction in question. learned counsel for the assessee relies upon a decision of the Bombay High Court in Popatlal Bhikamchand v. Commissioner of Income-tax Bombay City 1, : 38ITR577(Bom) . That was a case where the assessee transferred 350 shares in a company to his minor son by way of gift. Later, the company allotted to the minor son 744 bonus shares. The question that arose was whether the dividend income from these 744 bonus shares could be brought within the scope of Section 16(3)(a)(iv) of the Act. The learned Judges took the view that although the bonus shares formed an accretion to the assets transferred by the assessee, they could not be regarded as assets transferred and that therefore the dividend income from those bonus shares could not be regarded as arising even indirectly from the assets transferred by the assessee. We doubt the applicability of this decision. without in any way differing from the conclusion reached by the learned Judges, we are not sure whether the expression 'directly or indirectly' which occurs more than once in the relevant provisions has not the effect of bringing even the income arising from such accretions to the original asset that was transferred within the scope of the provision. But that apart, if we hold that the asset, viz. the share of the assessee in the firm was an asset that was transferred to the minor, the conclusion must necessarily follow that the income arising from that share is liable to be included in the taxable income of the assessee. Nor do we feel that the decision in Bhogilal Laherchand v. Commissioner of Income-tax Bombay City 1. : AIR1956Bom411 gives any assistance to the assessee in the present case. In that case, a minor who had been admitted to the benefits of a partnership attained majority in the course of the account year relevant to the assessment year. The department proceeded to apply S. 16(3) of the Act and to add, the proportionate share of the coke of the minor son up to the date of his attaining majority to the income of the father who was also a partner. The decision was that since the right to receive the profits accrued only at the end of the year of account, it was impossible to predicate whether on any date during the accounting year, the firm had made profits or sustained losses and that therefore the son could not be said to have become entitled to receive any share in the profits on the date of his attaining majority. If, at the close of the year, the son had ceased to be a minor, then the provisions of the section would not apply. As we said we can find no principle which is relevant to the decision of the question before us.
(7) On the facts which we have set out and which are not disputed, we are unable to accept the contention advanced on behalf of the assessee that the share interest in that firm was not an asset which was transferred by the father to the minor son. As we have pointed out, that was clearly intention of the parties, though it was sought to be achieved by indirect means. The section has to our mind been broadly framed in order to catch within its net of operation transactions this kind.
(8) We are accordingly of the view that the assessment was properly made in this case and answer the question in the affirmative and against the assessee. The assessee will pay the costs of the department. Counsel's fee Rs. 250.
(9) Answer accordingly.