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C.I.T. v. Sri Subhash Chand - INCOME TAX REFERENCE No. 217 of 1983  RD-AH 432 (3 August 2004)
I.T.R. No.217 of 1983
Commissioner of Income Tax v. Sri Subhashchand, Farrukhabad.
Hon'ble R.K.Agrawal, J.
Hon'ble K.N.Ojha, J.
The Income Tax Appellate Tribunal, Allahabad has referred the following three questions of law under Section 256 (1) of the Income Tax Act, 1961, hereinafter referred to as the Act for opinion to this Court:-
"1. Whether on the facts and in the circumstances of the case, the Appellate Tribunal was justified in law in holding that the investments made with the firm M/s Jahanganj Cold Storage by the minors Ajit Kumar and Suhjit Kumar were not on capital account but were mere deposits.?
2. Whether on the facts and in the circumstances of the case the Appellate Tribunal was justified in law in holding that the interest derived by the minors Ajit Kumar and Jahanganj cold Storage was not as a result of their admission to the benefits of partnership and that it could not be included in the assessee's income under section 64(1) (iii) of the I.T.Act, 1961?
3. Whether on the facts and in the circumstances of the case, the Appellate Tribunal was justified in law in not upholding that the income derived from the submission of the minors Ajit Kumar and Sujit Kumar to the benefits of the partnership in the firm M/s. Jahanganj Cold Storage included the share in the profits of the said firm as well as the interest credited to the account of the aforesaid minors on their investments with the said firm.?"
The present reference relates to the Assessment Years 1977-78 and 1978-79. The respondent-assessee is an individual. He is a partner in M/s. Ratan Cold Storage and M/s. Jahanganj Cold Storage. He has three minor sons, namely, Ajit Kumar, Sujit Kumar and Vaibhav Kumar, who are admitted to the benefit of the partnership in M/s. Jahanganj Cold Storage. Vaibhav Kumar has been admitted to the benefit of partnership in the firm M/s. Ratan Cold Storage. In both the firms the assessee represents his HUF in the capacity of ''Karta'. Since the assessee had no income in the capacity of an individual, he had been regularly filing his returns and was being assessed as an H.U.F. The minors were being assessed separately. For the assessment years in question the assessee filed his returns in the status of individual also. For the assessment year 1977-78 the income returned by him was the income earned by the minors Ajit Kumar and Sujit Kumar from M/s Jahanganj Cold Storage and to Vaibhav Kumar from M/s Ratan Cold Storage. Agricultural income was also returned. In part III of the return the assessee claimed that the income returned did not arise from the admission of the minors to the benefits of partnership and as such it was not liable to be included under Section 64 of the Act. For the assessment year 1978-79, the return was filed showing ''Nil' income. A note was given in the return to the effect that the assessee's minor sons were admitted to the benefits of partnership in two firms, which had been shown in the statement accompanying the return, which should be considered in case Section 64 was held to be applicable. The Income Tax Officer completed the assessment for both the years by including the profits and interest paid to the minors.
Thereupon the assessee came up in appeal before the Appellate Assistant Commissioner. The Assistant Appellate Commissioner held that the interest received by the minors, attributable to the initial investment made in the firm, was not inlcudible in the assessee's total income under Section 64(1)(iii) of the Act.
Thereupon the Revenue came up in appeal before the Appellate Tribunal. On the date of hearing of the appeal the authorized representatives on both the sides submitted that this very issue cropped up in the appeal for the assessment year, 1976-77(I.T.A.No.90(Alld) of 1979) and that the facts relevant to the point at issue as well as the arguments of both the sides were the same before the Appellate Tribunal as in the appeal for the assessment year, 1976-77. For that year also, the Appellate Assistant Commissioner had excluded the interest to the accounts of the minors from the assessee's total income, interest on initial deposits of the minors.
The appeal field by the Revenue has been dismissed by the Tribunal.
We have heard Sri A.N.Mahajan, learned counsel for the Revenue. Nobody has appeared on behalf of the respondent-assessee.
Sri Mahajan, learned counsel for the Revenue, submitted that it is not in dispute that minors namely, Ajit Kumar and Sujit Kumar, had been admitted to the benefit of partnership in firm Jahanganj Cold Storage and, therefore, all such income as arises directly or indirectly to these minors out of the firm is liable to be included in the total income of the respondent-assessee. He submitted that in view of the Section 64(1)(iii) of the Act, which has been substituted by the Taxation Laws (Amendment) Act, 1975 w.e.f. 1st April, 1976, any income which arises directly or indirectly to a minor who is admitted to the benefit of partnership firm, is liable to be included.
Having heard Sri Mahajan, we are of the considered opinion that under Section 64(1)(iii) any such income which arises directly or indirectly to a minor child from the admission to the benefit in a partnership firm is liable to be included in the individual. Section 64(1) (iii) of the Act is reproduced below:-
"64. Income of individual to include income of spouse, minor child, etc.
(ii) In computing the total income of any individual, there shall be included all such income as arises directly or indirectly---
(i) ... ... ..
(ii) ... ... ...
(iii) to a minor child of such individual from the admission of the minor to the benefits of partnership in a firm;"
The income earned on the deposits made by a minor in the firm would also be covered under the phrase ''such income as arises directly or indirectly'. This Court in the case of Puspa Devi v. Commissioner of Income Tax, (1993)203 ITR 42, has held that the income arising to minor sons of the assessee as a result of admission to the benefits of a partnership firm is liable to be included in the total income of the assessee under Section 64(1) (iii) of the Act. Similar view has been taken by this Court in the cases of Commissioner of Income Tax v. Sri Ram Ratan, (1996) 217 ITR 692 and Commissioner of Income Tax v. Smt. Savitri Devi, (1997) 227 ITR 639.
We are in respectful agreement with the view taken by this Court in the aforementioned cases and therefore hold that the Tribunal has committed illegality in holding that the income earned on the deposits made by the two minors in the firm Jahanganj Cold Storage was not includible under Section 64(1) (iii) of the Act.
In view of the forgoing discussion, we answer all the questions of law referred to us in the negative i.e. in favour of the Revenue and against the assessee. However, there shall be no order as to costs.
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