The higher rates of income-tax specified by the Finance Act are applicable to an HUF if at least one member has total income exceeding the specified limit, regardless of individual income.

G. BIKSHAPATHY, J.

( 1 ) AT the instance of the assessee, the following question of law has been referred by the Tribunal, Bench-A, Hyderabad, under s. 256 (1) of the IT Act, 1961 :"whether, on the facts and in the circumstances of the case, the Tribunal is correct in law in holding that the higher rates of income-tax specified by sub-paragraph II of paragraph I of the First Schedule to the Finance Act are applicable to an HUF where none of the members has any independent taxable income ?"

( 2 ) THE reference arises out of the order of the Tribunal in ITA No. 821/ (Hyd) of 1984, dt. 22/07/1985, in respect of the asst. yr. 1981-82.

( 3 ) THE assessee is an HUF consisting of the Karta, Sri Krishna Rao, his wife and minor daughter. The Karta has two other children who are also minors. There was a partial partition between the Karta and the two minor sons. The minor sons are partners in a firm, Ganji Venkanna and Sons, in which the wife of the Karta is also a partner. In the assessment of the Karta s wife, the income of the minor sons was clubbed with the income of their mother who is a member of the assessee-HUF. The ITO after taking into consideration sub-paragraph II of the First Schedule to the Finance Act, 1981, found the total income of the HUF exceeded the minimum taxable limits and hence subjected the assessee-HUF to a high rate of income-tax.

( 4 ) ON appeal the assessee was unsuccessful. The assessee filed further appeal to the Tribunal, but could not succeed. On a reference application having been accepted the Tribunal referred the aforesaid question of law for the opinion of this Court.

( 5 ) IT is contended that the Tribunal ought to have held that the Karta s wife was not having independent income exceeding the non-taxable limits and, therefore, sub-paragraph II of the First Schedule to the Finance Act, 1981, cannot be made applicable. To support the contention, our attention was also drawn to the Budget Speech of the Hon ble Finance Minister for 1973-74, while introducing the higher rate of tax to specified HUF. We have considered the issue. To test the contention it is necessary to refer to certain admitted facts. It is not in dispute that the wife of the Karta is a partner in the firm where the two minor children are also admitted to the benefits of the partnership in the firm. The income of the wife was only Rs. 5,730 and the share income of the minors was Rs. 1,03,315. Under s. 64 (1) (iii) of the Act the income of the minor children of an individual, who are admitted to the benefit of the partnership in a firm, shall be included in the total income of the individual as contained in s. 2 (45) of the Act.

( 6 ) SECTION 64 (1) (iii) of the Act is extracted below :"64. Income of individual to include income of spouse, minor child, etc. .- (1) In computing the total income of any individual, there shall be included all such income as arises directly or indirectly -. . . . . (iii) to a minor child of such individual from the admission of the minor to the benefits of partnership in a firm. "it is also relevant to extract sub-paragraph II of the First Schedule to the Finance Act, 1981, which reads as follows :"in the case of every HUF which at any time during the previous year has at least one member whose total income of the previous year relevant to the assessment year commencing on the first day of April, 1981, exceeds. . . . "

( 7 ) FOR application of the higher rate of tax, what is to be seen is that at least one member of the HUF should have total income exceeding Rs. 12,000. If the word "total income" is construed as individual income it would be reading something alien to the provision. It is a well-settled principle of interpretation that a provision of law should be interpreted in its ordinary grammatical meaning. We do not see any ambiguity in the provision. The word "individual income" has not been defined in the Act anywhere. What is referred is total income and it should be only referable to s. 2 (45) as co

Click Here to Read the rest of this document