JUDGMENT

TULZAPURKAR, J. :— This appeal by special leave raises an important question as to whether the sum of Rupees 3,08,187, being the share income of three minor sons from the firm of M/s. Grand Smithy Works for the period from 16-12-1967 to 31-8-1968 is liable to be assessed as the income of the Hindu undivided family - M/s. Y. L. Agarwalla and Company - for the assessment year 1969-70 ?

2. The facts giving rise to the question may briefly be stated as follows: One Yudhisthir Lal Agarwalla, since deceased, was the Karta of a Hindu undivided family known as M/s. Y. L. Agarwalla and Co. (The assessee herein). During his lifetime in his capacity as the Karta of the said Hindu undivided family he carried on business in partnership with three others (Shiv Charan Laul, Ram Gopal Garodia and Tula Ram Budhia) in the name and style of M/s. Grand Smithy Works. His share in that firm was 36%. Under Cl. 13 of the Partnership Deed dated September 20, 1961, pursuant to which the said firm used to carry on its business, it was provided that "the death or retirement of any of the partners shall not have the effect of dissolving this co-partnership; in such an eventuality the co-partnership business may be carried on between the surviving partners and the heirs/legal representatives of the deceased and or retiring partner or if mutually agreed upon between the surviving partners and heirs etc. of the deceased or retiring partner with outsiders also." Yudhisthir Lal died on December 18, 1967 leaving behind him his widow Smt. Bhagwati Devi, six daughters (three married and three unmarried out of whom two were minors) and three minor sons. By two letters both dated January 11, 1968, one addressed by the widow on behalf of herself and the Hindu undivided family and the other by the four major daughters, Smt. Bhagwati Devi and the four major daughters declined to exercise the option reserved to them under Cl. (13) of the deed and refused to join the partnership business; however, the three minor sons were admitted to the benefits of the partnership. Since Yudhisthir Lal died on December 18, 1967 i.e. before the expiry of the year of account of the firm which was from 1-9-1967 to 31-8-1968, the firm closed its accounts on December 18, 1967 and the surviving partners after admitting the three minor sons to the benefits thereof continued to carry on the business of the partnership with effect from December 19,1967 and a new deed of partnership was executed by the surviving partners on January 11, 1968 the terms and conditions whereof were made effective from December 19, 1967. Under this new deed each one of the three minor sons of Yudhisthir Lal was given 14% share in the profits of the firm, as also a right to become a full-fledged partner on his attaining majority. Clause 6 of the deed ensured to the firm the continued use of the capital of Hindu undivided family standing in the account of late Yudhisthir Lal free of interest.

3. For the assessment year 1969-70, (the relevant accounting period being 1-9-1967 to 31-8-1968) Smt. Bhagwati Devi Agarwalla filed the return on be half of Hindu undivided family disclosing the share income from the firm of Grand Smithy Works for the period from September 1, 1967 to December 18, 1967 only i.e. up to the date when her husband was alive and was a partner in that firm. It was claimed that with effect from December 19, 1967 the Hindu undivided family of which her husband was the Karta and after whose death she was managing the affairs had no interest in the said firm and that her three minor sons were admitted to the benefits of partnership in their individual and personal capacity as agreed to between the three surviving partners of that firm and, therefore, the share income of the firm received by her three minor sons for the period December 19, 1967 to August 31, 1968, amounting to Rs. 3,08,187, could not be included in the income of the Hindu undivided family and assessed as such. The Income-tax Officer n