ETHIRAJULU G Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) AT the instance of the assessee the following question of law has been referred to this Court under S. 256(1) of the IT Act, 1961 (hereinafter referred to as "the Act") for our opinion :

(2.) THE material facts leading to this reference may be stated : For the asst. yr. 1962-63 the assessee, G. Ethirajulu, was assessed to tax in the status of individual, on a total income of Rs. 56,669. Subsequent to the completion of the assessment, the ITO came to know that the assessee's minor son, who received from the assessee assets worth Rs. 12,000 invested the same in M/s Ranganatha Silk House and was admitted to the benefits of the partnership. THE income that fell to the share of the minor in M/s Ranganatha Silk House for the said assessment year came to Rs. 11,663. As he was of the opinion that the said share income of the minor under S. 64(iv) of the Act was includible in the total income of the assessee for the purpose of assessment and, as it was not so included, the ITO reopened the assessment of the assessee under S. 147, after service of notice as required under S. 148 of the Act and revised the assessment by including the share income of the assessee's minor son of Rs. 11,663 in the total income of the assessee. THE inclusion of the share income of the minor son in the total income of the assessee was upheld in the first appeal by the AAC and, in a second appeal, by the Tribunal. In upholding the addition, the Tribunal found that, (1) the introduction of the assets gifted to the minor by his father, the assessee, was to the advantage of the partnership business, (2) it was the intention of the assessee to provide an income earning business to his minor son and for that purpose gifted those assets to his minor son, and (3) the admission of the minor to the benefits of the partnership was dependent upon the contribution of the capital by the minor in the shape of assets, which were gifted by the assessee to his minor son.

(3.) IN the case before it, the Tribunal found that the capital invested by the minors in the firm came from the gifts made by their fathers. IN considering whether the share income of the minors in those circumstances was includible in the total income of their father, under s.64(iv) of the Act, the learned judge, Hegde J., speaking for the Supreme Court, observed that :