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1992 Supreme(Pat) 6
PATNA HIGH COURT
G.C.Bharuka and S.K.Chattopadhyaya JJ.
Commissioner Of Income Tax
Versus
Rameshwarlal Jawanpuria
Tax Case No. 51 of 1980 ;
Decided On : JANUARY 09, 1992
The legal fiction created by the Legislature under Sec. 64(1)(iii) of the Income-tax Act, 1961 makes it immaterial whether the individual has any income of his own when assessing the income of a minor child derived from the admission to the benefits of a partnership firm.
Headnote:
Sec. 64(1)(iii) - Assessment of Minor's Share Income - The court held that the income of a minor child derived from the admission to the benefits of a partnership firm will be deemed to be the income of the individual, irrespective of whether the individual has any income of his own. The legal fiction created by the Legislature under Sec. 64(1)(iii) makes it immaterial whether such an individual has any income of his own or not.
Fact of the Case:
The assessee's minor sons were admitted to the benefits of a partnership firm, and their income was assessed in the hands of the assessee under Sec. 64(1)(iii) of the Income-tax Act, 1961. The assessee challenged the assessment, claiming that since he had no income of his own, the provisions of Sec. 64(1)(iii) should not apply in his case.
Finding of the Court:
The Tribunal set aside the assessment, stating that the income of the minors could not have been assessed in the hands of the assessee as the income-tax authorities did not hold that the minors were benamidars of the assessee. However, the court held that the legal fiction created by the Legislature under Sec. 64(1)(iii) makes it immaterial whether the assessee had any income of his own.
Issues: Assessment of minor's share income in the hands of the assessee under Sec. 64(1)(iii) of the Income-tax Act, 1961.
Ratio Decidendi: The income of a minor child derived from the admission to the benefits of a partnership firm will be deemed to be the income of the individual, irrespective of whether the individual has any income of his own, as per the legal fiction created by the Legislature under Sec. 64(1)(iii).
Final Decision: The court answered the question in the negative, in favor of the Department, and there was no order as to costs.
G.C.Bharuka, J.
1. This is a reference made by the Tribunal under Sec. 256(1) of the Income-tax Act, 1961, seeking the opinion of this court on the following question of law :
"Whether, on the facts and in the circumstances of the case, the share income of minors can be assessed under Sec. 64(1)(iii) of the Act in the hands of the assessee, the legal representative of the minors, when the legal representative did not have his income."
2. In the present case, two minor sons of the assessee, namely, R.K. Jawanpuria and P. K. Jawanpuria, were admitted to the benefits of a registered partnership firm, M/s. National Printers. Though, during the assessment year in question, i.e., 1976-77, the petitioner had no income of his own, still the Income-tax Officer assessed the income of the said two minors derived from the aforesaid firm in the hands of the assessee by applying the provisions contained in Sec. 64(1)(iii) of the Act. Against this order of assessment, the assessee preferred an appeal to the Appellate Assistant Commissioner and challenged the assessment made against him on the ground that since he had no income of his own, the provisions of Sec. 64(1)(iii) will not apply in his case. But, he could not succeed at that stage. Therefore, he preferred a second appeal to the Tribunal. The Tribunal set aside the assessment order by taking the view that since the income-tax authorities have not held anywhere that the minors were benamidars of the assessee, the income of the minors could not have been assessed in his hands.
3. Mr. Rastogi, learned counsel appearing on behalf of the Department, has submitted that the Tribunal has committed a gross error of law in setting aside the orders of assessment made against the assessee because the assessments were not made on the ground of any benami income, rather the same were made pursuant to the statutory fiction created by the Legislature under Sec. 64(1)(iii) of the Act.
4. For the proper appreciation of the question involved, it will be useful to quote the relevant provisions which read as under :
"64. Income of individual to include income of spouse, minor child, etc,-- (i) 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 . . . Explanation 1.--... for the purposes of Clause (iii), the income of the minor child from the partnership shall be included in the income of that parent whose total income (excluding the income referred to in that clause) is greater and where any such income is once included in the total income of either spouse or parent, any such income arising in any succeeding year shall not be included in the total income of the other spouse or parent unless the Assessing Officer is satisfied, after giving that spouse or parent an opportunity of being heard, that it is necessary so to do."
5. This provision was brought on the statute book by the Taxation Laws (Amendment) Act, 1975, with effect from April 1, 1976.
6. Coming to the question involved, a bare reading of the provisions quoted above clearly shows that the income of the minor child of an individual which is derived from the admission of the minor to the benefits of partnership firm will be deemed to be the income of such an individual. It forms part of the "total income" of the individual concerned for the purposes of the Act, as is apparent from Sec. 2(45) read with Sec. 5 thereof. In view of the legal fiction created by the Legislature, it is wholly immaterial whether such an individual has any income of his own or not. Similar views have been taken in the cases of CIT V/s. Shri Manakram [1990] 183 ITR 382 (MP) and CIT V/s. Sanyasi Mohapatra [1991] 188 ITR 602 (Orissa).
7. In view of the above discussions, the question referred to us is answered in the negative, i.e., in favour of the Department. Anyhow, there wi
