COMMISSIONER OF INCOME TAX Vs. KANAHYA LAL

JUDGEMENT

(1.) IN these two reference applications, the following questions have been referred by the INcome-tax Appellate Tribunal, Delhi Bench-E (in short 'Tribunal'), for opinion of this Court under s. 256(1) of the IT Act, 1961 (in short 'the Act'), at the instance of the assessee so far as the first two questions are concerned, and at the instance of Revenue so far as the third question is concerned :

(2.) FACTUAL position which is almost undisputed, is as follows : Assessee's minor son Deepak Kumar Agarwal was admitted to the benefits of partnership in the firm known as M/s Rakesh Deep. Said minor's share of profit included interest amounting to Rs. 14,975. Income-tax Officer ('ITO' in short) included this amount in the assessment of the assessee although assessee was not a partner of the aforesaid firm. It was noticed by the ITO that minor Deepak Aggarwal had invested Rs. 15,000 in the firm as his share of capital. When called upon to explain the source of the said amount, it was stated by the assessee that the minor got a gift of that amount from his uncle Krishan Lal and gift had been accepted by the assessee as the natural guardian. Since the minor had received a gift from his uncle, it was submitted that share of income from the firm could not be included in the income of the assessee, who was his father, particularly when he was not himself a partner of the firm. ITO did not accept the plea relying upon s. 64(1)(iii) of the Act as amended by Taxation Laws (Amendment) Act, 1975, w.e.f. 1st April, 1976. Matter was carried in appeal by the assessee before the Appellate Assistant Commissioner ('AAC' in short). It was stated that neither capital was advanced by the assessee nor was the assessee himself a partner in the firm in which the minor had been admitted to the benefit of partnership and, therefore, s. 64(1)(iii) did not have any application. AAC did not accept the plea. Matter was carried in further appeal before the Tribunal. The stand taken by the assessee before the AO and AAC was reiterated. Additionally it was pointed out that the amended provision brought in by Taxation Laws (Amendment) Act, 1975, could not have any application because the previous year of the firm ended before 1st April, 1976. In any case, interest on the accumulated profits of the minor which remained with the firm could not be included in assessee's total income. Tribunal held that after 1st April, 1976, it was immaterial whether any of the parents was a partner in the firm in which minor was admitted to the benefits of partnership. It was observed that the inclusion as provided in s. 64(1)(iii) was dependent merely on the admission of the minor to the benefits of partnership and it was not necessary to find out for that purpose as to whether investment was made by the minor in the firm out of a gift or from any other individual source. A miscellaneous application was filed by the assessee to consider the question whether interest received by the minor on the accumulated profits standing to his credit in the books of the firm could be included in the assessment of the father. Tribunal noticed that it had not considered the said aspect in the original order and held that minor's income from interest on the accumulated profits could not be included in the assessment of the assessee. Both Revenue and assessee moved for reference of several questions. As indicated above, Tribunal has referred in total three questions i.e., two questions at the instance of assessee and one at the instance of Revenue.