RUKMANI AGRAWAL Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS is a reference under Section 256(1) of the Income-tax Act, 1961, at the instance of the assessee by the Income-tax Appellate Tribunal to answer the following question :

(2.) THE assessee is a partner in the firm, M/s. Ramdhan Agrawal. She was being assessed in the status of an individual. Her husband, Shri Ramdhan Agrawal, was also a partner in the firm, M/s. Ramdhan Agrawal, as a karta of the Hindu undivided family and, therefore, Shri Ramdhan had been representing it in his capacity as karta of the Hindu undivided family. THErefore, the assessee contended that her income cannot be clubbed with that of the income of her husband as a partner in the firm, M/s. Ramdhan Agrawal, since he was a partner in his capacity as karta of the Hindu undivided family. THE Income-tax Officer was of the view that the Hindu undivided family could not enter into a partnership as has been held by various High Courts and that in a partnership firm, it is always the individual who is a partner. According to the Income-tax Officer, it did not matter whether the income derived by the husband was ultimately assessable in the hands of the Hindu undivided family of which Ramdhan was the karta. THE Income-tax Officer, on consideration of Section 64(1)(i) of the Act, found that the income arising to the spouse from the membership in the firm was includible in the income of the assessee. THErefore, he clubbed the income of the husband with the income of the assessee for the purposes of assessment. An appeal was preferred before the Appellate Assistant Commissioner which was dismissed. In further appeal, the Income-tax Appellate Tribunal held that though the assessee is an individual in the instant case and the income earned by Shri Ramdhan Agrawal as karta of the Hindu undivided family might be includible in the assessment of the Hindu undivided family, none the less, when Ramdhan entered into a contract with his wife for entering the firm, M/s. Ramdhan Agrawal, he was binding himself to the terms of the contract. It is entirely another matter that by virtue of his membership of the Hindu undivided family and by virtue of his having exploited the nucleus of the Hindu undivided family funds, the income earned by him from the firm was assessable in the hands of the Hindu undivided family of which he was the karta. THErefore, while assessing the assessee, the income of her husband was rightly clubbed with that of her income as a partner of the firm. THE cases relied on by the assessee, i.e., Madho Prasad v. CIT [1978] 112 ITR 492 (All), CIT v. Sunka Sankaraiah [1978] 113 ITR 313 (AP) and Dinubhai Ishwarlal Patel v. ITO [1979] 118 ITR 122 (Guj) were clearly distinguishable because those cases were concerned with the assessment of the Hindu undivided families and not of individuals under Section 64. THEreafter, the assessee made an application for reference of the aforesaid question.