COMMISSIONER OF INCOME TAX Vs. LAKSHMI NARAYANAN SMT

JUDGEMENT

(1.) AT the instance of the Commissioner of Income-tax, the following question has been referred to this court under Section 256(1) of the I.T. Act, 1961 :

(2.) THE assessee is the widow of one Shri S. Narayan who died on November 16, 1968. He was a partner of the firm, M/s. Southern Mercantile Corporation, with a share worth Rs. 40,000 therein. With effect from November 17, 1968, i.e., the day after he died, the partnership was reconstituted taking the assessee as a partner in his place. THE Tribunal has stated: "It appears that the capital originally contributed by Shri Narayan was transferred to the credit of the assessee and she continued to have the same share in the firm." THE Tribunal has not referred to, nor has it annexed, any account or entries on the basis of which this statement has been made. THE said Shri Narayan left behind him his widow and six children, one of whom was a minor at the relevant time. THE share income from the firm was assessed in the hands of the assessee. THE objection of the assessee was that she was assessable only on 1/7th of the income as she had only an 1/7th share in the estate left by her husband. THE ITO rejected this contention. THE assessee appealed to the AAC and contended that she could not be the absolute owner of the entire income in view of the fact that her husband had left behind him six other heirs. THE AAC also rejected this contention and, therefore, the assessee took the matter on appeal to the Tribunal. THE Tribunal held that the fact that the widow alone was a partner of the firm could not make a difference to the enjoyment of the income by her and her children. In the view of the Tribunal, she was only representing all the heirs of her husband and their right to succeed to the estate could not be defeated by the fact that she alone was shown as the partner in the reconstituted firm. THE Tribunal was of the opinion that she could be assessed only with reference to her 1/7th share in the firm. It is this order of the Tribunal that has been brought up on a reference.

(3.) LEARNED counsel for the assessee drew our attention to a decision of this court in CIT v. Smt. Shajathi Alias Jainabi, 1977 110 ITR 738 . That was the case of a Muslim who died leaving behind eight heirs including two minor sons and two minor daughters. As one married daughter did not want to become a partner in the partnership formed to carry on the business run by the deceased, the three other major heirs entered into a partnership, under which the shares, to which the two minor sons, the two minor daughters and the major daughter, who did not want to become a partner, would be entitled under the Muslim law, were set apart from the profits and gains of the partnership, and the balance of profit was agreed to be shared by the three persons in the same ratio to which they would be entitled under the Muslim law. The losses of the firm were also agreed to be divided among the three persons in the same ratio. The firm was granted registration. In making the assessment of the widow, the ITO included in Her total income the amounts paid to the two minor sons and two minor daughters, by applying Section 64 of the I.T. Act, 1961. The Tribunal held that the minors were to be paid their shares due to them in view of the overriding title. The income arising to the minors was held as not being due to their admission to the benefits of the partnership, with reference to which alone Section 64 could apply. On a reference to this court, it was held that the way in which the deed was drafted would clearly show that the minor sons and daughters were not admitted to the benefits of the partnership and that the Tribunal's view that their shares could not be included in the assessment of the widow had to be upheld. As the minors were entitled under the Muslim law to a share in the assets of the deceased and as it was the income from the assets referable to the minors, which was first set apart and, thereafter, alone the balance was subject to division among the partners, it was held that there was to that extent an overriding title in respect of the shares of the minors. The overriding title had arisen by virtue of the manner in which the partnership came into existence. That is not the position here.