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Fourth Income-tax Officer Vs. P. S. M. Swamy. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtChennai High Court
Decided On
Case NumberI. T. APPEAL NO. 1149 (M. D.) OF 1983, [ASSESSMENT YEAR 1980-81]
Reported in[1986]17ITD317(Mad)
AppellantFourth Income-tax Officer
RespondentP. S. M. Swamy.
Cases ReferredDinubhai Ishwarlal Patel v. K. D. Dixit
Excerpt:
- .....capable of having a wife or minor children or both, and, therefore, excludes from its purview assessee such as a group of persons forming a unit or a corporation created by statute. it has been held that under section 64(1) (i) and (ii), the income of the spouse or a minor child of an individual has to be clubbed with the income of the individual only if he is a partner as an individual in a firm and if such an individual only if he is a partner as an individual in a firm and if such an individual represents the huf as its karta and the income of the individual under section 64(1) (i) and (ii). in that case their lordships have considered the decision of the supreme court in the case of cit v. bagyalakshmi & co. : [1965]55itr660(sc) which has been relied upon by the learned.....
Judgment:
ORDER

Per Shri T. V. K. Nataraja Chandran, Accountant Member -This is an appeal by the revenue which is directed against the order of the AAC dated 17-3-1983 wherein he deleted the inclusion of share income of Smt. Jothi Ammal made by the ITO under section 64(1) (i) of the Income-tax Act, 1961 (the Act). The revenue has taken grounds urging that the AAC erred in his order and the decisions of the High Court relied on by him have not become final and, therefore, his order should be set aside and that of the ITO be restored.

2. The assessee is an individual and the assessment year involved is 1980-81 for which the accounting year ended on 31-3-1980. The assessee is a partner in Senthil Traders representing his HUF and his wife Smt. Jothi Ammal is also a partner in the same firm in her individual capacity. The assessee was paid salary of Rs. 9,000 by the firm for his services for managing the business of the firm. While the share of profits derived by the assessee was assessed in the hands of HUF, the ITO was of the view that the salary paid by the firm was assessable in the hands of the assessee in individual capacity and the share of profits derived by the assessees wife Smt. Jothi Ammal was to be clubbed in his hands under section 64(1) (i) of the Act. For this view, he relied on the decision of the Allahabad High Court in the case of Madho Prasad Pilibhit v. CIT : [1978]112ITR492(All) . Accordingly, he included a sum of Rs. 25,142. with the salary received from the firm Senthil Traders. On appeal, the assessee contended that the assessee represented the HUF in the firm and, therefore, provisions of section 64(1) were not attracted. The AAC noted the conflict of decisions of the various High Courts regarding interpretation of the work individual in section 64(1) (i). While the Allahabad High Court took the view that the word individual covers both participation in the firm in the individual capacity or representative capacity, the Andhra Pradesh, Gujarat, Punjab & Haryana and the Gauhati High Courts have held otherwise in favour of the assessee, viz., that the expression individual only takes in a person in his individual capacity and does not take in a karta or an HUF or a trustee or one who acts as a representative of others. In view of the majority decisions of the High Courts, the AAC held that the share income derived by Smt. Jothi Ammal could not be clubbed with the remuneration received from the firm by the assessee. Accordingly, he deleted the inclusion of Rs. 25,142 made by the ITO. The learned departmental representative has been heard and he has reiterated the grounds taken by the revenue. On the other hand, the learned counsel for the assessee supported the order of the AAC.

3. We have duly considered the rival contentions. The issue involved in this appeal is whether the clubbing under section 64(1) (i) is warranted or not. This decision depends upon the interpretation of the word individual appearing in section 64(1) (i). The AAC has pointed out the various conflicting decisions of several High Courts on this point. The majority of the High Courts have decided the issue in favour of the assessee, viz., that the expression individual only takes in a person in his individual capacity and not in the capacity of the karta of a Hindu joint family. The decicion of the Punjab and Haryana High Court in the case of CIT v. Anand Sarup [1980] 121 ITR 873 is squarely applicable to assessees case. In particular, it has been observed by their Lordships of the Punjab & Haryana High Court that section 64(1) (i) talks only of income of any individual capable of having a wife or minor children or both, and, therefore, excludes from its purview assessee such as a group of persons forming a unit or a corporation created by statute. It has been held that under section 64(1) (i) and (ii), the income of the spouse or a minor child of an individual has to be clubbed with the income of the individual only if he is a partner as an individual in a firm and if such an individual only if he is a partner as an individual in a firm and if such an individual represents the HUF as its karta and the income of the individual under section 64(1) (i) and (ii). In that case their Lordships have considered the decision of the Supreme Court in the case of CIT v. Bagyalakshmi & Co. : [1965]55ITR660(SC) which has been relied upon by the learned departmental representative in support of the ground taken in this appeal. Even the decision of the Allahabad High Court in the case of Madho Prasad Pilibhit (supra) was dissented from. On the other hand, the decision of the Gujarat High Court in the case of Dinubhai Ishwarlal Patel v. K. D. Dixit, ITO v. Sanka Sankaraiah : [1978]113ITR313(AP) were followed. The revenue has filed the appeal on the ground that the decisions of the Gujarat High Court and the Andhra Pradesh High Court have not become final. In view of the conflict of decisions regarding the interpretation of expression individual, we prefer to follow that interpretation which is in favour of the assessee in view of the ratio of the Supreme Court in the case of CIT v. Vegetable Products Ltd. : [1973]88ITR192(SC) .

4. The Tribunal, Allahabad Bench, has held in the case of Surya Prakash v. WTO [IT Appeal Nos. 2178 (All.) of 1979 and 1953 (All.) of 1980 dated 17-2-1982] that the income of an HUF of which the assessee was a karta could not be treated as the income of the assessee-individual for the purpose of deciding whether the income of the assessee individual or the income of the wife was greater. It was also pointed out that the HUF is a distinct and separate entity from the individual and the legal position that a person representing HUF in a firm is a partner in his individual capacity is for the limited purpose of determining who is the partner and the logic cannot be extended to determine who between the spouses has the larger income for the purposes of ascertaining in whose hands income is to be clubbed. In view of the authorities cited, we uphold the order of the AAC as it is justified in law.

5. In the result, the appeal is dismissed.


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