GHULAM MUHAMMAD VS STATE, 1993 PTD-LAHORE-HIGH-COURT-LAHORE 1104 (1993)

(a) Income Tax Act (XI of 1922)--

----S.16(3)---Income of a minor could only be assessed in the hands of his parent if it was shown that said income was derived directly or indirectly from the voluntary admission of the minor to the benefits of a partnership firm of which his parent was also a partner---Where share in partnership devolved upon the minor through inheritance, the minor could not be said to have been admitted to the partnership within the meaning of S.16(3)(a)(ii) of the Act.

A bare reading of section 16(3), Income Tax Act, 1922 would show that income of a minor can only be assessed in the hands of his parents if it is shown that the said income was derived directly or indirectly from the admission of the minor to the benefits of a partnership firm of which his parent is also a partner. Clause (a)(ii) of section 16(3) of the Income Tax Act, 1922 clearly postulates a voluntary act on the part of the minor or his parent admitting him to the benefits of partnership of a firm of which the parent is a partner. It does not appear to have any application to situation where share in partnership devolves upon the minor through inheritance as in that case the minor cannot be said to have been admitted to partnership within the meaning of the aforesaid provision.

Commissioner of Income Tax, Madras v. K.M.S. Lakshmanier 9 ITR 668 and H.C. Mehra v. Commissioner of Income Tax, Bihar and Orissa Tax (1966) 59 ITR (Sh.N.) 16 distinguished.

Commissioner of Income Tax, Madras v. K.M.S. Lakshmanier 9 ITR 668 ref.

(b) Income Tax Act (XI of 1922)--

----S.16(3)---Object of S.16(3).

Commissioner of Income Tax, Madras v. K.M.S. Lakshmanier 9 ITR 668 fol.

Ch. Muhammad Ishaq for Petitioner.

Nemo for Respondent.

Date of hearing: 26th April, 1993.

JUDGMENT

M. MEHBOOB AHMAD, CJ .----The learned Income Tax Appellate Tribunal has referred to this Court the following question of law under section 136(1) of the Income Tax Ordinance, 1979 for its opinion:----

"Whether on the facts and in the circumstances of the case, the Tribunal was justified in holding that the income of the minor children could not be clubbed in the income of the assessee under section 16 of the (now repealed) Income Tax Act, 1922"?

2. The necessary facts are that Muhammad Zaki deceased husband of Mst. Ghulam Fatima was partner holding 40% share in a partnership firm, which was carrying on business under the name and style of M/s. Muhammad Shafi Shamshad Ahmad. Muhammad Zaki died on 17th October, 1970. His assets including the share in the partnership devolved upon his legal. representatives (his 3 minor daughters and his widow Mst. Ghulam Fatima respondent herein). The Income Tax Officer clubbed the income of the 3 minor daughters in the hand of their mother in view of section 16 of the Income Tax Act, 1922, vide his order, dated 18th May, 1978.

3. Aggrieved by that order, the respondent went in appeal and succeeded before the Assistant Appellate Commissioner of Income Tax, who in his order, dated 17th April, 1979, took the view that as the share in the partnership had devolved upon the legal representatives of the deceased under the Shariat Law of inheritance, section 16 of the Income Tax Ordinance, 1976, had no applicability. This order was maintained in appeal by the Income Tax Appellate Tribunal, on 29th September, 1974. The Commissioner of Income Tax, Faisalabad, thereupon made an application under section 136(1) of Income Tax Ordinance, 1979, requesting the learned Income Tax Appellate Tribunal to refer the question mentioned above to this Court for its opinion.

4. We have heard the learned counsel for the petitioner. No one has appeared on behalf of the respondent.

5. Learned counsel for the petitioner had contended that as the minors had been admitted to the benefit of the partnership, the Income Tax Officer was correct in clubbing their income in the hand of their mother Mst. Ghulam Fatima. In this connection, learned counsel relied upon two judgments from the Indian jurisdiction, namely, Commissioner of Income Tax, Madras v. K.M.S. Lakshamanier (IX ITR 668) and H.C. Mehra v. Commissioner of Income Tax, Bihar and Orissa (Tax (1966) 59 ITR (Sh.N.) 16).

6. There is no dispute as regards the facts of the case, which are that originally Muhammad Zaki, the husband of Mst. Ghulam Fatima, respondent, and father of 3 minors held 40% share in the firm which devolved upon his legal heirs under the Islamic law of inheritance.

7. Section 16(3) of the Income Tax Act which is relevant for the present purposes reads as under:---

"In computing the total income of any individual for the purposes of assessment, there shall be included:

(a)so much of the income of the spouse or minor child of such individual as arises directly or indirectly---

(i)from the membership of the spouse in a firm of which he or she is a partner;

(ii)from the admission of the minor to the benefits of partnership in a firm of which such individual is a partner. .

(iii)from assets transferred directly or indirectly to the spouse otherwise than for adequate consideration or in connection with an agreement to give support; or

(iv)from assets transferred directly or indirectly to the minor child, not being a married daughter, by such individual otherwise than for adequate consideration; and."

8. A bare reading of this provision would show that income of minors can only be assessed in the hands of his parents if it is shown that the said income was derived directly or indirectly from the admission of the minors to the benefits of a partnership firm of which his parent is also a partner. Clause (a)(ii) of section 16(3) of the Income Tax Ordinance 1922, clearly postulates a voluntary act on the part of the minor or his parent admitting him to the benefits of partnership of a firm of which the parent is a partner. It does not appear to have any application to situation where share in partnership devolves upon the minor through inheritance as in that case the minor cannot be said to have been admitted to partnership within the meaning of the aforesaid provision. This aspect of the matter need not be dilated upon any further in view of the pronouncement of the Supreme Court of Pakistan in The Commissioner of Income Tax, Karachi v. Mst. Khatija Begum, Partner, Shakil Impex, Karachi PLD 1965 SC 472. In the above case the object of enacting section 16(3) of the Income Tax Act, 1922 has been discussed in detail.

9. As regards the reliance of the learned counsel on the two cases of Indian jurisdiction, suffice it to say that these cases are clearly distinguishable and would have no application where the inheritance devolves upon a Muslim under the Islamic law of inheritance.

For the reasons aforesaid, the answer to the question referred to us is in the affirmative and against the department.

No orders as to costs.

M.BA./C-21/LReference answered.