COMMISSIONER OF INCOME TAX Vs. SANKA SANKARAIAH

JUDGEMENT

(1.) THE facts leading to this reference under Section 256(1) of the Income-tax Act, 1961, at the instance of the Commissioner of Income-tax are these : One Sanka Sankaraiah, his wife and two minor sons and daughter constituted a Hindu undivided family. This Hindu undivided family was carrying on business at Parvathipuram in pulses, grams, tamarind, etc. On April 9, 1967, there was a partial partition in the family by dividing the family business. With effect from April 15, 1967, a partnership firm was constituted for the purpose of carrying on the same business with Sanka Sankaraiah as the karta and his wife as a partner. His two minor children were admitted to the benefits of the partnership, and a partnership deed was executed for that purpose. Sankaraiah also made a claim for recognition of the partial partition, which was accepted by the Income-tax Officer on March 31, 1970. An application for registration of the firm was also tiled and it was granted registration. Sankaraiah, the karta, has his individual income and he has been assessed separately on that individual income. So far as the interest in the partnership is concerned, his share in the firm which has come into existence after the partial partition, Sankaraiah has been assessed as Hindu undivided family consisting of himself, his wife and his minor daughter inasmuch as the partial partition was effected between Sankaraiah and his two minor sons. It is also an admitted fact that Sankaraiah has transferred from out of his self-acquired properties a sum of Rs. 30,000 by way of gift in favour of his wife and with that amount, his wife became a partner in the firm constituted on April 15, 1967. THE Tribunal found on the basis of the undisputed facts that Sankaraiah, apart from being assessed as an individual, was assessed as karta of the family in respect of his share in the partnership firm. That was also the finding recorded by the Income-tax Officer, viz., that so far as the partial partnership was concerned, Sankaraiah was representing the Hindu undivided family consisting of himself, his wife and minor daughter. THE income arising from the partnership firm was, therefore, assessed as Hindu undivided family of which Sankaraiah is the karta. THE Tribunal also recorded a finding of fact that even after the partial partition of the family business, the smaller Hindu undivided family consisting of his wife and daughter continued and it was being assessed separately in respect of the share income from the partnership realised by Sankaraiah, being a partner of the firm.

(2.) FOR the assessment year 1968-69, the income realised by his wife and his two minor sons was included in the income of Sankaraiah in his individual capacity under Section 64(1)(ii) and (iii) of the Act. The same method was adopted for the subsequent assessment year 1969-70 also by the Income-tax Officer and also for the assessment year with which we are concerned, viz., 1970-71. The assessee objected to the inclusion of the income realised by his wife and minor sons in his income before the Appellate Assistant Commissioner. The Appellate Assistant Commissioner deleted the inclusion of the share income of the wife and minors in the individual assessment of Sankaraiah. That led to the revenue preferring an appeal before the Tribunal and the Tribunal confirmed the decision of the Appellate Assistant Commissioner. Hence, the following question was referred for our opinion by the Tribunal at the instance of the Commissioner of Income-tax :

(3.) THIS section applies only to the computation of total income of an individual. The expression "individual" does not comprehend in its meaning the "karta" of a joint family. If it were the intention of the legislature that the expression "individual" used in Section 64 should also take in a Hindu undivided family, then it would have used the expression "person" so as to include a. Hindu undivided family and not the words "spouse of such individual in Clause (i)" or the words "a minor child of such individual in Clause (iii)" or the words "either spouse or parent" in the Explanation, THIS section aims at putting an end to the attempts of an individual to avoid or reduce the incidence of tax by transferring the assets to a spouse or minor child. Under this section, the husband's share of the profits of a firm, where husband and wife are both partners could be assessed in the wife's hands or vice versa, depending upon the fact whose total income is greater. The income of the minor child admitted to the benefits of the partnership is similarly to be included in the income of that parent whose total income is greater.