Important Point
1. The expressions ‘any individual’ and ‘such individual’ in Section 64(1)(i) and (ii) are employed in restricted sense and do not include a Karta of a Hindu Undivided Family.
2. Income in the hands of Karta of the Hindu Undivided Family as partner of a partnership firm cannot be treated as income of individual and, if that be so, the income arising to the spouse or minor child of the Karta of the Hindu Undivided Family cannot be included in his income as such under Section 64(1)(i) and (ii) of the 1961 Act.

Headnote:Income Tax Act, 1961-Section 64(1)(i) and (ii)-‘Individual’-Connotation of-Karta of HUF, whether an individual?-Expressions ‘any individual’ and ‘such individual’ in Section 64(1)(i) and (ii) are employed in restricted sense and do not include a Karta of HUF-Income arising to spouse or minor child of Karta of HUF as partner of a partnership firm cannot be included in his income u/s 64(1)(i) and (ii).
       Held : The expressions ‘any individual’ and ‘such individual’ in Section 64(1)(i) and (ii) are employed in restricted sense and do not include a Karta of a Hindu Undivided Family. (Para 25)
       When a Karta of the Hindu Undivided Family is a partner in a partnership firm, he has dual capacity; qua the partnership, he functions in his personal capacity and qua third parties, in his representative capacity. Under the Income Tax Act, when he is assessed in respect of the income derived by him from the partnership firm as a partner, it is in his representative capacity as Karta of the Hindu Undivided Family and not as an individual as such. That is because his capacity vis-a-vis spouse/minor children who are members of the Hindu Undivided Family is that of Karta and not as individual though vis-a-vis other partners of the partnership firm he functions in his personal capacity. This being the position, the income of a Karta’s spouse/minor child cannot be included in computation of his total income for that is the income of Hindu Undivided Family and not his individual income. Section 64 will be attracted only when an assessees own income is being assessed and not that of an Hindu Undivided Family. If a Karta is brought within the ambit of ‘individual’ in Section 64(1), the share income of the spouse of the Karta and his minor children will, in effect, be included in the income of the Hindu Undivided Family which is not what is contemplated by Section 64(1)(i) and (ii). (Para 18)
       In a Hindu Undivided Family which consists of a Karta, his sons, their wives and minor grand children, if along with the Karta the spouse of a son and their minor children are admitted to the benefits of the partnership or are partners of the partnership firm, obviously, their share income from the firm could not be added in computing the total income of the Karta as in such a case Section 64(1) will not be attracted. But if the Karta’s spouse and minor children are admitted to the benefits of the partnership or are joined as partners of the partnership firm, their share income from the firm will have to be added up in the income of the Karta. Obviously, the expression cannot be so interpreted to yield such inequitable and inconsistent result which could not have been contemplated by the Parliament. (Para 19)
       A plain reading of the definition in Section 2(31) shows that both ‘an individual’ and ‘a Hindu Undivided Family’ are inter alia constituents of the meaning of the term ‘person’. The expression ‘any individual’ is narrower than the terms ‘person’ and ‘assessee’ defined in Section 2(7); an individual is a person but every person need not be an individual. So also an individual may be an assessee but every assessee need not be an ‘individual’. Had the Parliament intended to give wider meaning to the word ‘individual’ in Section 64(1)(i) and (ii) so as to include the Karta of a Hindu Undivided Family it would have drafted the provision differently. It is thus clear that ‘individual’ in Section 64(1) does not take in Karta of the Hindu Undivided Family within its import. (Para 21)
       Yet another aspect which militates against bringing in Karta within the meaning of the term ‘individual’ in Section 64(1) is that it speaks of total income of any individual and total income of the Hindu Undivided Family need not be total income of Karta as an individual. (Para 22)
       The object of Section 64(1) of the 1961 Act, like the object of Section 16(3) of the 1922 Act, is to check the tax evasion resorted to by individuals forming partnership as a cloak to perpetrate fraud on taxation. But cases of genuine partnership where any individual takes the spouse and minor children as partners will also be within the clutches of Section 64(1), a fact adverted to by Balaji’s case (supra). It is true that if Karta is held not to fall within the meaning of the term ‘individual’ in Section 64(1), the tax evasions sought to averted would continue in the case of the Hindu Undivided Family where a Karta takes the spouse or minor children to the benefits of the partnership or as members in the partnership firm. But it cannot be lost sight of that ‘individual’ and Hindu Undivided Family are two different tax entities and Parliament has chosen to confine the application of Section 64(1) for purposes of tax evasion in regard to individuals without being Kartas of the Hindu Undivided Family in the fold of section either by defining individual or otherwise. On the ground that Karta of a Hindu Undivided Family will draw an unfair advantage of this interpretation, we cannot enlarge the meaning of the term ‘individual’ by the process of interpretation so as to rope in Karta within the meaning of the term ‘individual’ and by implication, the Hindu Undivided Family within the clutches of Section 64(1) of the 1961 Act. (Para 23)
       From the above discussion. It follows that income in the hands of Karta of the Hindu Undivided Family as partner of a partnership firm cannot be treated as income of individual and, if that be so, the income arising to the spouse or minor child of the Karta of the Hindu Undivided Family cannot be included in his income as such under Section 64(1)(i) and (ii) of the 1961 Act. (Para 24)

Judgment

S.S.M. Quadri, J.-Leave is granted in S.L.P. (C) No. 1608/80.

2. The common question posed in these cases relates to interpretation of the term “individual” in Section 64(1)(i)(ii) of the Income Tax Act, 1961 (as it stood prior to April 1, 1976). The conflict of judicial opinion of various High Courts with regard to connotation of that term gave rise to these cases, which needs to be resolved by this Court.

3. For appreciating the question involved in these cases, it will suffice to refer to the facts in Civil Appeal No. 4234 of 1983 which pertains to the assessment year 1973-74. The respondent was a partner in the partnership firm, M/s. Rockman Cycle Industries, Ludhiana in his capacity as Karta of the Hindu Undivided Family. Two minor children of the respondent, a daughter, Miss Neeru, and a son, Pankaj, were admitted to the benefits of the partnership. Similarly, they were also partners in another partnership firm, M/s. Manjal Gases, Ludhiana. The income arising in the hands of minor children was sought to be incluted in this total income. That was objected to by him on the ground that he was a partner in the firms in the capacity of Karta of the Hindu Undivided Family, so Section 64 of the Income Tax Act did not apply. The Income Tax Officer rejected that contention, included the share income of the minors in his total income and assessed him accordingly. The Appellate Assistant Commissioner unhelp the order of the assessing authority, in appeal. On further appeal, the Income Tax Appellate Tribunal, Amritsar set aside the order of the Appellate Authority taking a contrary view and thus allowed the appeal of the respondent. Out of that order, at the instance of the Revenue, the following question was referred to the High Court under Section 256(1) of the Income Tax Act, 1961 :

“Whether on the facts and in the circumstances of the case the Appellate Tribunal was right in law in holding that the income of the minor children of the assessee from the two firms was not includible in his individual assessment under Section 64(1)(i)(ii) of the Income Tax Act, 1961.”

4. A Division Bench of the High Court of Punjab & Haryana answered the question in the affirmative, in favour of the respondent-assessee and against the Revenue in Income Tax Reference No. 153 of 1979 by its order dated October 29, 1979. Against the said order and judgment of the High Court, the Revenue is in appeal before this Court.

5. Initially, a two-judge Bench of this Court in Commissioner of Income-Tax & Ors. v. Shri Om Prakash & Ors.1 confirmed the judgment of the High Court and dismissed the appeal. But, on review, that judgment was set aside. However, in the meanwhile, a three-Judge Bench of this Court approved it in Commissioner of Income-Tax, Maduri v. Shri S.S. Krishnamorrthy, Dingigul2. Thereafter, this case came up for hearing before a bench of three learned judges who referred it and other connected cases to a larger Bench and thus all the cases have come up before us.

6. On the question whether a Karta of the Hindu Undivided Family falls in the term “individual” in Section 64(1)(i)(ii) of the Income-Tax Act, 1961 (hereinafter referred to as `the 1961 Act’), there is divergence of opinion in various High Courts. The High Courts of Andhra Pradesh, Gujarat, Punjab & Haryana, Delhi, Karnataka, Kerala, and Rajasthan took the view that the Karta of the Hindu Undivided Family did not fall within the meaning of the expression “individual” in Section 64(1)(i)(ii) of the 1961 Act. The High Courts of Allahabad, Madras, Madhya Pradesh and Orissa took the contrary view.

7. We have heard learned counsel appearing for the Revenue and assessees.

8. Here, it is useful to refer to Section 64(1) of the 1961 Act, as it stood prior to 1.4.1976. It read thus :

“(1) In computing the total income of any individual, there shall be included all such income as arises directly or indirecty :

(i) to the spouse of such individual from the membership of the sp

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1999 Supreme(SC) 760

Cases Referred (9)