COMMISSIONER OF INCOME TAX Vs. GOPAL RAO G

JUDGEMENT

(1.) THE Income-tax Appellate Tribunal referred under s. 256(1) of the I.T. Act 1961 ("the Act" for short), a batch of cases involving a common point for the opinion of this court. THE question involved in each of these cases relates to the interpretation of the provisions of s. 64(1)(iii) of the Act. THE question canvassed for our consideration in all these references is the correctness of the ITO's view that the income arising to a minor child of an individual from the admission of such minor to the benefits of partnership in a firm could be include in computing the total income of the individual, even if such individual did not individually derive income from any source which is liable to be taxed under the Act. Referring to the facts in the present case, it would appear that the assessee, whose status is that of an individual for the purpose of assessment, did not derive income from any source liable to be taxed under the Act for the income-tax assessment year 1976-77. Two of the assessee's minor children, Venkata Ravindranath Tagore and Srikrishna Mohan, were admitted to the benefits of partnership in the firms known as (1) M/s. Goli Brothers, and (2) M/s. Goli Venkateswararao & Co. of Vijayawada. THE share income arising to the above-mentioned minors from their admission to the benefits of partnership in the two firm referred to above amounted to Rs. 13,795. THE ITO included this in the assessment made on the assessee for the assessment year 1976-77 and taxed him on that income. As already stated, the assessee did not derive income from any source. On these facts, the assessee contended before the ITO that the provisions of s. 64(1)(iii) of the Act are not applicable. According to the assessee, the above provisions are inapplicable in a case where the assessee himself has no income in the status of an individual. In order that income arising to minor children of an individual from their admission to the benefits of partnership in a firm is included in the individual's total income, the individual concerned must have total income assessable under the Act, that is to say, the individual must have derived income from some source. If an individual did not derive income from any source liable to be assessed under the Act, the question of computing the total income of such an individual under the Act does not arise and, accordingly, the provisions of s. 64 of the Act do not come into operation at all. It is, therefore, claimed that the assessee in the present case not having derived income from any source whatsoever which is liable for assessment under the Act, the question of including in his total income, the share income arising to the minor children from their admission to the benefits of partnership in a firm did not arise. THE ITO declined to accept this contention and, as already observed above, made an assessment on the assessee on the total income representing the aggregate of the share incomes arising to his two minor children from their admission to the benefits of the two partnership firms. On appeal, the AAC accepted the assessee's contention and cancelled the assessment. THE ITO filed an appeal before the Income-tax Appellate Tribunal. THE Tribunal affirmed the AAC's view and dismissed the appeal filed by the Department. THE Commissioner thereupon required the Tribunal to refer the present case under s. 256(1) of the Act.

(2.) WE have heard Sri M. Suryanarayana Murthy, learned counsel for the Revenue, and Sri Ch. Srirama Rao, Sri M. J. Swamy, Sri S. Parvatha Rao and Sri D. Srinivas representing different assessees whose references came up for consideration. Learned counsel for the Revenue urged that the Tribunal was in error in coming to the conclusion that the provisions of s. 64(1)(iii) of the Act are not applicable. It is urged that it makes no difference whether the individual, in whose assessment the share income arising to the minor children has to be included, has any total income liable for assessment under the Act. Learned counsel submitted that under s. 139 of the Act, every person whose total income exceeds the minimum liable to tax is under an obligation to file an income-tax return and on the plain language of s. 64(1)(iii) of the Act, the share income arising to a minor child on his admission to the benefits of a partnership in a firm is part of the total income which has to be declared in the return to be filed by the assessee. That being so, urged the learned counsel for the Revenue, the individual is liable to be taxed on the share incomes arising to the minor children on their admission to the benefits of a partnership in a firm. Learned counsel relied on the decision of this court in Sivalal Sovaji, In re [1983] 140 ITR 39.

(3.) WHILE adopting the above arguments, Sri Parvatha Rao, learned counsel, further contended that absurd results would follow if the provisions of s. 64 are interpreted as conferring sanction on the ITO to include the share income arising to minors in the hands of an individual, even if such individual has no income. He referred to Explanation 1 to s. 64(1) of the Act and pointed out that in a case where both the parents have no income whatsoever from any source, the question of including the share income arising to minors in the income of that parent whose total income, other than the income referred to in s. 64(1)(iii), is greater, does not arise. According to the learned counsel, s. 64 presupposes the existence of "total income" in the hands of the parents and with reference to such total income, the ITO has to find out whose total income is greater and then include the income arising to the minors under s. 64(1)(iii) of the Act.