1. Dispute regarding the clubbing of income earned by minor sons admitted to partnership benefits with the income of a Hindu Undivided Family. (Para 1 , 3 )
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1994 Supreme(SC) 973
SUPREME COURT OF INDIA
K.S.Paripoornan : S.C.Sen : S.P.Bharucha
Commissioner Of Income Tax, Gujarat
Versus
Jayantilal Prem Chand Shah
Case No. : 716 of 1975, 828 , 1975 , 1255 , 1256 of 1976
Date of Decision : 9/29/94
Important Points
Income earned by minors admitted to the benefits of a partnership firm cannot be clubbed with the income of the Hindu Undivided Family (HUF) if it is established that the minors are not benamidars of the HUF and represent themselves.
Subject
Tax Law - Income Tax
Act Referred
Headnote
Constitution of India,1950 - Capable of entering into a contract – Shares – Jurisdiction - Income Tax Officer included shares of the two minor sons of in income of Hindu Undivided Family upon basis that the beneficial ownership thereof remained with the Hindu Undivided Family - He found that there had been no partition partial or total, of the Hindu Undivided Family so that it could not have foregone a part of its share in the said firm in of minors - Decision of ITO was upheld by the Appellate Assistant Commissioner - Carried matter in appeal to the Income Tax Appellate tribunal - Tribunal found that the minors were admitted to the benefits of the said firm in the shares stipulated in the partnership deed and, as a result - Hindu Undivided Family had agreed to a smaller share in the said firm - It was not necessary that there should be a partial partition or gift because same could be inferred from the proven facts – Held, High court considered the question to which we have adverted on a reference made instance of the Revenue. It observed that only a person who was capable of entering into a contract, in the sense of being sui generis and adult, who could enter into a partnership - Only an adult coparcener, whether as Karta or not, could enter into a partnership - If he did so on behalf of the Hindu Undivided Family, he represented the Hindu Undivided Family and the legal consequences would follow - Minor could not enter into a contract and therefore he could not represent Hindu Undivided Family in partnership. He could only represent himself, having been admitted to the benefits of the firm - Tribunal had found as a fact minors were not of the Hindu Undivided Family and the only ground on which the Revenue could have succeeded was that the minors represented Hindu Undivided Family in the firm - Question that was referred to the High court was, thus, answered in the affirmative and in of assesses - What is most relevant to note is that the tribunal found as a fact that the minors were not of their Hindu Undivided Family - Once position is established, it is clear that they represented only themselves and that, in that capacity, were entitled to their respective shares in the said firm as their own income. Necessarily, this is not income that can be added to the income of the Hindu Undivided Family and be assessed in the hands of the Hindu Undivided Family - Reference was made by counsel for the Revenue to the judgment of the Gujarat High court in and - This was a case of a partnership between the Karta of a Hindu Undivided Family and adult coparceners of same Hindu Undivided Family in their individual capacities - It was held that this was not a valid partnership - Facts of this case have no relation to the question before us – Appeal dismissed
Legal Category Hierarchy
Table of Contents
2. Revenue argued beneficial ownership remained with the Hindu Undivided Family; assessees contended minors were admitted to benefits in their own capacity and were not benamidars. (Para 4 )
3. Minors cannot contractually represent a Hindu Undivided Family but can be admitted to partnership benefits individually; partnerships between Karta and adult coparceners in individual capacities are invalid. (Para 5 , 6 , 7 )
4. Income of minors admitted to partnership benefits is their own and cannot be clubbed with a Hindu Undivided Family if they are not benamidars. (Para 6 )
5. Appeals dismissed. (Para 8 )
6. Can income earned by minors admitted to partnership benefits be clubbed with the income of a Hindu Undivided Family?
No, if the minors are not benamidars of the Hindu Undivided Family. In such instances, they represent themselves and are entitled to their respective shares as their own income. (Para 5 , 6 )
7. Can a minor represent a Hindu Undivided Family in a partnership contract?
No. Only an adult who is sui generis and capable of entering into a contract can enter into a partnership or represent a Hindu Undivided Family in one. (Para 5 )
8. Is a formal partition of a Hindu Undivided Family required for minors to be admitted to partnership benefits?
No. A partial or total partition or gift is not necessary; the admission of minors to benefits can be inferred from the proven facts of the case. (Para 4 )
(1) THE first two appeals arise out of a common judgment. The second two appeals arise out of orders that follow the common judgment. The respondents in the two sets of appeals are brothers, the Kartas of their joint Hindu families and assessees as such. The question to be considered may be quoted in respect of the First appeal, whose facts we shall state :
"WHETHER on the facts and in the circumstances of the case the tribunal. was right in holding that the income earned by Suresh Kumar Jayantilal and Ashok Kumar Jayantilal from the partnership of Messrs. A.J. and Co. cannot be included in the income of the assessee?"
(2) THE assessment years with which we are concerned in the First set of appeals is Assessment Year 1964-65 and in the second set Assessment Year 1965-66.
(3) THE assessee (in the first appeal) is a Hindu Undivided Family of which Jayantilal Premchand Shah was the Karta. He represented the Hindu Undivided Family as a partner in the Firm of A.J. and Company. The firm had been originally constituted under a partnership deed dated 12/11/1959. Jayantilal had a share of 5 annas in a rupee in the said firm. By an agreement dated 29-10- 1962, the said firm was reconstituted and Suresh Kumar and Ashok Kumar, the two minor sons of Jayantilal, were given benefits in the said firm. Thus, the share of Jayantilal in the said firm was reduced to 2 annas in a rupee and Suresh Kumar and Ashok Kumar were given the benefit of a share of 1-1/2 annas each.
(4) THE Income Tax Officer included the shares of the two minor sons of Jayantilal in the income of the Hindu Undivided Family upon the basis that the beneficial ownership thereof remained with the Hindu Undivided Family. He found that there had been no partition, partial or total, of the Hindu Undivided Family so that it could not have foregone a part of its share in the said firm in favour of the minors. The decision of the ITO was upheld by the Appellate Assistant Commissioner. The assessee carried the matter in appeal to the Income Tax Appellate tribunal. The tribunal found that the minors were admitted to the benefits of the said firm in the shares stipulated in the partnership deed and, as a result, the Hindu Undivided Family had agreed to a smaller share in the said firm. It was not necessary that there should be a partial partition or gift because the same could be inferred from the proven facts. There was no evidence to show that the minors were the benamidars of the Hindu Undivided Family or that the beneficial owner of the shares of the minors was the Hindu Undivided Family. In these circumstances, there was no justification for clubbing the income earned by the minors with the income of the Hindu Undivided Family.
(5) THE High court considered the question to which we have adverted on a reference made at the instance of the Revenue. It observed that only a person who was capable of entering into a contract, in the sense of being sui generis and adult, who could enter into a partnership. Only an adult coparcener, whether as Karta or not, could enter into a partnership. If he did so on behalf of the Hindu Undivided Family, he represented the Hindu Undivided Family and the legal consequences would follow. A minor could not enter into a contract and, therefore, he could not represent the Hindu Undivided Family in the partnership. He could only represent himself, having been admitted to the benefits of the firm. The tribunal had found as a fact that the minors were not benamidars of the Hindu Undivided Family and the only ground on which the Revenue could have succeeded was that the minors represented the Hindu Undivided Family in the firm. The question that was referred to the High court was, thus, answered in the affirmative and in favour of the assessees.
(6) WHAT is most relevant to note is that the tribunal found as a fact that the minors were not benamidars of their Hindu Undivided Family. Once that position is establish
