COMMISSIONER OF INCOME-TAX VS S.J.S. SELVALAKSHMI AMMAL
2001 P T D 3183
[240 1 T R 934]
[Madras High Court (India)]
Before N. V. Balasubramanian and P. Thangavel, JJ
COMMISSIONER OF INCOME‑TAX
Versus
Smt. S.J.S. SELVALAKSHMI AMMAL
T. C. Nos. 1466 to 1469 of 1985, decided on 05/12/1997.
Income‑tax‑‑‑
‑‑‑‑Total income‑‑‑Inclusions‑‑‑Income of minor includible in total income of assessee (mother) ‑‑‑Assessee's husband, as Karta of HUF, partner in a firm in which assessee also was partner‑ ‑‑Father, before his death, bequeathing his share in firm including entire HUF property to his minor son and appointing a guardian till the minor son attained majority‑‑‑Clause in partnership deed evidencing that entire property was devised in favour of minor son by deceased father‑‑‑Document to be construed as will under which entire property developed on minor as individual property‑‑‑Income accrued to minor by virtue of his admission to benefits of partnership firm and by virtue of contract between partners even if source of investment was HUF property‑‑‑Share income of minor from firm is to be assessed in the hands of assessee (mother)‑‑‑Indian Income Tax Act, 1961, S.64(1)(iii).
The assessee's husband, who was a partner in a firm representing his Hindu undivided family as Karta, in which the assessee was also a partner, passed away on July 21, 1973, leaving his wife (the assessee), his minor son and six daughters. The Revenue contended that the deceased husband bequeathed his share in the firm including his entire property in . favour of his minor son appointing the deceased's brother‑in‑law as guardian of the minor. The Income‑tax officer found that the minor child of the assessee derived share income from the firm and the same was includible in the hands of the assessee under clause (iii) of subsection (1) of section 64 of tile Income Tax Act, 1961, and hence re‑opened the assessments under section 147(b) of the Act for the assessment .years 1976‑77 and 1977‑78 and included the share income of the minor from the firm in the income of the assessee. For the assessment years 1978‑79 and 1979‑80, the income of the minor was assessed in the hands of the assessee even in the original assessment, On appeal, the Appellate Assistant Commissioner, held that the share income received by the minor was earned only with the aid and assistance of the joint family funds, that the share income received by the minor was nothing but a return made to the Hindu undivided family because of the investment of the Hindu undivided family funds in the business and that the share income was not the individual income of the minor but was the income of the Hindu undivided family and had to be assessed in the hands of the Hindu undivided family. The Appellate Assistant Commissioner, therefore, held that since no income directly of indirectly arose to the minor, but arose to the Hindu undivided family, the provisions of section 64(1)(iii) were not attracted and the share income of the minor from the firm could not be included in the income of the assessee for all the four years. On further appeal by the Department, the Tribunal held that the document of partition left by the deceased, though styled as a will could not be regarded as a will, but only & document by which the deceased's brother‑in‑law was directed to manage the of fairs of the family till the minor attained majority. The Tribunal also noticed the relevant clause in the partition deed and then came to the conclusion that the share income accrued to the joint family, as there was no question of any service rendered by the minor and the share income must be regarded as a return to the family because of the investment of the family funds in the business. The Tribunal, therefore, confirmed the order of the Appellate Assistant Commissioner and held that the minor was admitted to the benefits of the partnership firm only as a nominee of the Hindu undivided family in which he was a member alongwith his mother and minor sisters and since he was representing the joint family and he was not admitted to the benefits of the partnership firm in his individual capacity, the income could not be included in the hands of the assessee under section 64(1)(iii) of the Act. On a reference:
Held, reversing the decision of the Tribunal, that the fact that there was a devise in favour of the minor son clearly showed that the document should be regarded only as a will and under the will the property should go to the minor son. A reading of the relevant clause of the document left by the deceased clearly showed that the entire property, viz., capital as well as the amounts standing in the current accounts of the deceased father would go to the minor son and the minor son should have been assessed only in the capacity of an individual, as he had no male issue on the date of devolution of the property in his favour. Under the provisions of section 64(1)(iii), the income accrued to the minor child in the partnership firm from being admitted to the benefits of the partnership firm and once the income accrued, due to the fact of admission of the minor to the benefits of the partnership firm, it was not necessary to probe further into the question, what was the source of investment of the minor in the partnership firm. Even if the source of the investment was the joint family property, the income accrued to the minor son by virtue of his admission to the benefits of the partnership firm. Therefore, the Tribunal was not right in holding that the share income of the minor son from the firm could not be assessed in the hands of the assessee (mother) under section 64(l)(iii) of the Act.
Chandrakala Bai Naila v. CIT (1989) 178 ITR 341 (MP); CIT v. Nirmala Devi (Smt.) (1987) 166 ITR 253 (MP) and CIT v. Sobhagwantibai (1988) 169 ITR 588 (MP) fol.
Aga'walla (Y.L.) v. CIT (1978) 114 ITR 471 (SC) distinguished. CIT v. Lakshmanir (K.M.S.) (1941) 9 ITR 668 (Mad.) ref.
C.V. Rajan for the Commissioner.
R. Janakiraman for the Assessee.
JUDGMENT
N.V. BALASUBRAMANIAN, J.‑‑The assessee is the widow of one Jayarama Pillai of Thuraiyur, Trichy. The said Jayarama Pillai passed away on July 21, 1973, leaving behind him his wife, Selvalakshmi Animal, the assessee herein, his minor son, Muthukumar, and six daughters of which four were unmarried, as legal heirs. The said Jayarama Pillai,.at the time of his death, was a partner in the firm called, A.S.R.M. Subbiah Pillai, Trichy Company. According to the Revenue, the said Jayarama Pillai bequeathed his share including an income to his minor son, Muthukumar, by appointing his brother7in‑law, i.e. the maternal uncle of the minor as guardian, and the minor son at the time of the death of his father, Jayarama Pillai had
properties of current accounts as well as a share in the partnership firm. There are 11 partners in the firm, A.S.R.M. Subbiah Pillai, Trichy Company, and the assessee is one of the partners. The assessments under the provisions of the Income‑tax Act in the case of the assessee for the assessment years 1976‑77 and 1977‑78 were completed on the basis of the returns submitted by the assessee. The assessee also derived share income from some other concerns, interest income and income from other sources. Subsequent to the completion of the assessments for the years 1976‑77 and 1977‑78, the Income‑tax Officer found that the minor child of the assessee, viz., J. Muthukumar, had derived certain share income from A.S.R.M.
Subbaih Pillai Company and the same was includible in the hands of the assessee as per the provisions of clause (iii) of subsection (1) of section 64 of the Income Tax Act, 1961 (hereinafter to be referred to as "the Act"). The assessments were re‑opened under section 147(b) of the Act for both the assessment years 1976‑77 and 1977‑78 and in the re‑assessments made, the minor's share income from the firm was included in the total income of the assessee. In so far as the assessment years 1978‑79 and 1979‑80 are concerned, the income of the minor was included in the hands of the assessee even in the original assessments. The assessee preferred appeals against the orders of reassessment as well as the assessments made for the assessment year's 1978‑79 and 1979‑80.
The Appellate Assistant Commissioner, in the abovesaid appeals by the assessee, held that the share income received by the minor son, Muthukumar, was earned only with the aid and assistance of the family found, and following a decision of the Supreme Court in the case of Y.L. Agarwalla v. CIT (1978) 114 ITR 471, he held that the share income received by the minor son was nothing but a return made to the family because of the investment of the family funds in the business and the share income was not the individual income of the minor son but was the income of the Hindu undivided family and had to be assessed to tax in the hands of the family. The Appellate Assistant Commissioner, therefore, held that to attract the provisions of section 64(1)(iii) of the Act, the income should have arisen directly or indirectly to the minor child and since the income has riot arisen to the child but arose to the Hindu undivided family, there is no question of invoking the provisions of section 64(1)(iii) of the Act. When the income earned was not the income of the minor, according to the Appellate Assistant Commissioner, the Income‑tax Officer was not justified in including the income of the minor on account his admission to the benefits of partnership in the firm, viz., A.S.R.M. Subbiah Pillai, in the hands of the assessee. In this view of the matter, he deleted. the addition and allowed the appeals.
The Revenue carried the matter by 'way of appeals before the Income‑tax Appellate Tribunal and the Appellate Tribunal held that the question to whom the income accrues is a relevant question and just because the minor was admitted to the benefits of the partnership firm, the income did not automatically accrue to the minor. Therefore, the Tribunal held that in each case, the question that has to be considered is to whom the income accrues. The Tribunal held that the document left by the assessee's husband though styled as a will cannot be regarded as a will, but only a document by which his brother‑in‑law was directed to manage the affairs till his son, Muthukumar, attains majority. The Tribunal also noticed the relevant clause in the partition deed and then came to the conclusion that the share income accrued to the joint family as there was no question of any service rendered by the minor and the share income must be regarded as a return to the family because of the investment of the family funds in the business. In this view of the totter, the Tribunal confirmed the order of the Appellate Assistant Commissioner and held that minor was admitted to the benefits of the partnership firm only as a nominee of the Hindu undivided family in which he was a member alongwith his mother and minor sisters and since he was representing the joint family and he was not admitted to the benefits of the partnership firm in his individual capacity, the income cannot be included in the hands of the assessee under section 64(1)(iii) of the Act. Accordingly, the Tribunal dismissed the appeals preferred by the Revenue.
The Revenue having failed to get a reference approached this Court and on the basis of the directions of this Court in T.C.P. Nos.473 to 476 of 1983, dated January 23, 1984, the Tribunal has stated a case and referred the following questions of law for our consideration:
"(1)????? Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the share income arising to minor, Muthukumar, from his admission to the benefits of partnership in A.S.R.M. Subbiah Pillai, should not be included in the hands of his mother, who is also a partner in the same partnership, in terms of section 64(1)(iii) of the Income Tax Act, 1961?
(2)??????? Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that the share income accruing to the minor from the firm of A.S.R.M. Subbaih Pillai, actually belonged to the Hindu undivided family and, therefore, the provision of section 64(1)(iii) cannot be pressed into service in this case?"
Mr. C.V. Rajan, learned counsel for the Revenue, submitted that the minor was admitted to the benefits of the partnership firm and the share income of the minor is includible in the hands of the assessee. He further submitted that the source of investment is irrelevant in considering the question whether the provisions of section 64(1)(iii) of the Act are attracted or not. He placed reliance on the decisions of the Madhya Pradesh High Court in (i) CIT v. Smt. Nirmala Devi (1987) 166 ITR 255, (ii) CIT v. Sint. Sobhagwantibai (1988) 169 ITR 588; and (iii) Chandrakala Bai Naila v. CIT (1989) 178 ITR 341 and submitted that the provisions of section 64(1)(iii) of the Act are applicable and the income arising to a minor child admitted to the benefits of a partnership firm is referable to the fact of admission of the child to the benefits of the said partnership firm and such income is includible in the total income of the parent under the provisions of section 64(1)(iii) of the Act. He, further submitted that the question of source of investment in the firm by the minor is not relevant. He also placed reliance on 'an earlier decision of this Court in the case of CIT v. K.M.S. Lakshmanier (1941) 9 ITR 668, wherein this Court was considering the provisions of section 16(3)(a)(ii) of the Indian Income‑tax Act, 1922, and held that even though the minors had contributed to the partnership assets their shares of the joint family property, the minors' share income from the partnership firm should be included in father's income. He further submitted that the decision in Y.L. Agarwalla's case (1978) 114 ITR 471 (SC), relied upon by the Tribunal considered only the question with reference to the income aspect, but the apex Court has not considered the provisions of section 64(1)(iii) of the Act.
Mr. Janakiraman, learned counsel for the assessee, on the other hand, contended that the minor was admitted to the benefits of the partnership firm and the funds of the joint family were employed in the firm and, therefore, the share income received is really the income of the Hindu undivided family and as the character of the property is the joint family property, the income also should belong to the joint family. He, therefore, submitted that since it is not the income of the minor, the provisions of section 64(1)(iii) of the Act are not applicable to the facts of the case.
We have carefully considered the submissions of learned counsel for the respective parties. We have already set out the facts. There was a dispute as regards certain factual aspects of the matter. But, there is no dispute and it was not disputed before the Tribunal that Jayarama Pillai was the Karta of the joint family and his share income was assessed in his hands in the status of individual, but in the estate duty proceedings, it was taken as.joint family property. The Tribunal, in our view, rightly proceeded on the basis that Jaryarama Pillai as karta was representing the joint family in the firm. After his death, the family consisted of his wife, the assessee herein, the minor son, Muthukumar, and some daughters. The said Jayarama Pillai left a document which, according to the Tribunal, cannot be regarded as a will at all. Though the entire document is not before us, a narration of the document clearly shows that all the properties earned by Jayarama Pillai should go to his minor son and his maternal uncle was appointed as guardian who was to hand over all the properties with accounts to the minor son when he attains majority. The Tribunal construed the document not as a will, but as a document empowering the maternal uncle of the minor son to look after the affairs till the minor son attains majority. The Tribunal, in our view, overlooked the fact that Jayarama Pillai devised his entire property to his minor son and the brother‑in‑law of the deceased was directed to manage the property till the minor son attains majority and then hand over the property to him after deducting the expenses with accounts. The fact that there was a devise in favour of the minor son clearly shows that the document should be regarded only as a will and under the will, the property should go to the minor son. It is also relevant to notice the partnership deed, dated August 23, 1973, the relevant clause of which reads as under:
?S. Jayarama Pillai died on July 21, 1973. The abovesaid Jayarama Pillai has drawn up a will in respect of his share in the firm and other properties. According to this will. A Selvaraj, Party No.7 and brother of Selvalakshmi, Jayarama Pillai's wife, has been appointed executor of the will and guardian of his minor son, Muthukuirrar, aged 7. Since as per the will, Muthukumar, minor aged 7 is the legatee of Jayarama Pillai as per clause 12 of the deed of April 1, 1964, minor Muthukumar, shall be admitted to the benefits above of the partnership without share in the losses in the place of Jayarama Pillai as per section 30 of the Indian Partnership Act, 1932, by and through his guardian and maternal uncle with effect from July 22, 1973, by the consent of persons to 10 and the business of A.S.R.M. Subbiah Pillai shall be continued to be carried on as before. These terms were carried upon by us orally carried and we hereby confirm the same by writing. 'Therefore, the; amounts standing to the name of S. Jayarama Pillai in this firm on July 22, 1973, to his credit in his capital and current accounts have been closed and transferred in the name of minor Muthukumar, in the account of A. Selvaraj, guardian and maternal uncle.?
Under the above clause, the amounts standing to the credit of Jayarama Pillai both in capital accounts and the current accounts were closed and transferred to the name of the minor son in the accounts of A. Selvaraj who was representing the minor in the firm. A reading of the relevant clause of the document left by the said Jayarama Pillai clearly shows that the entire property, viz., capital as well as the amounts standing in the current accounts of Jayarama Pillai would go to the minor son and the minor son should have been assessed only in the capacity of an individual as he has no male issue on the date of devolution of the property in his favour. Therefore, the Tribunal proceeded, in our view, on the wrong basis that the property devolving on the minor son should be taken as joint family property and the Tribunal was wrong in characterising the document left by Jayarama Pillai as a document to look after and manage the affairs of the minor in the firm. Mr. Janakiraman, learned counsel for the assessee, contended that it is not permissible for this Court to question the finding of the Appellate Tribunal on this aspect of the matter. However, we are unable to accept the contention of Mr. Jankiraman, because the second question raised at the instance of the Revenue challenges the finding of the Appellate Tribunal that the share income actually belonged to the Hindu undivided family and the observation of the Appellate Tribunal that it was not a will and the property belonged to the family was made on the basis of the said document and, therefore, we are of the view, that this Court has jurisdiction to go into the aspect of the matter. Therefore, on the facts of the case as disclosed in the order, it is clear that the property was really the capital account as well as current accounts and the property is the individual property of the minor son and the Income Tax Officer was justified in invoking the provisions of section 64(1)(iii) o1 the Act to include the share income in the hands of the assessee. Even assuming that the property is that of joint family, we are of the view that the provisions of section 64(1)(iii) of the Act are attracted on the facts of the case.
The decision of the Madhya Pradesh High Court in the case of CIT v. Sint. Nirmala Devi (1987) 166 ITR 253, makes it clear that the provisions of section 64(1)(iii) of the Act make it obligatory on the part of the Income?tax Officer to include the income of the minor child, if the income arises to the minor child in the partnership firm and the income was referable to the fact of admission of the child to the benefits of the said partnership firm. The Court held that the question of source of investment in the firm by the minor was not relevant or decisive for making the income of the minor includible to the total income of the assessee. The decision of the Madhya Pradesh High Court in Chandrakala Bai Naila v. C‑IT (1989) 178 ITR 341, is also a case where a minor son of the assessee was admitted to the benefits of the partnership firm and the investment was the joint family fund and the Madhya Pradesh High Court held that the income of the minor from admission to the benefits of the partnership was includible in the total income of his mother assessee, on the ground that the source of investment of the minor is not relevant or decisive for making the income of the minor includible in the total income of the assessee. The same view has also been reiterated by the same Court in CIT v. Sobhagwantibai (1988) 169 ITR 588.
This Court in an earlier decision in the case of CIT v. K.M.S. Lakshrnanier (1941) 9 ITR 668, has taken a view that the minor's share income could be included in his father's income, even though the minors had contributed to the partnership assets their shares of the joint family property. The reasoning of this Court runs as under (page 672):
"On behalf of the assessee it has also been contended that as the minors were not admitted gratis into the firm, but owe their membership to the fact that they contributed to the asset their shares in the joint family property, section 16(3)(a)(ii) can have no application. The suggestion is that unless the minors are admitted to the benefits of the partnership without any contribution to the assets section 16(3)(a)(ii) has no application. This is really putting the first contention in another way. There is nothing in the section which justifies the Court in drawing a distinction between a case where a minor's property is with a firm and the case where the minor is allocated a share without any contribution to the assets. The section can only be construed in accordance with the words used in it and there is no foundation for this argument in view of what the section says."
The decision of the Supreme Court strongly relied upon by learned counsel for the assessee in Y.L. Agarwalla v. CIT (1978) 114 ITR 471, in our view has no application to the facts of the case. The decision of the Supreme Court was not dealing with the aspect of section 64(1)(iii) of the Act and the question that was raised before the Supreme Court was whether the income should be treated as the income of the individual. or that of the joint family and in that context, the Supreme Court held as under (page 479):
"There can be no doubt that the share income that was received by the three‑‑ minor sons during the relevant period was earned with the aid and assistance of the Hindu undivided family funds and was directly related to the utilisation of such funds by the firm and further that the Hindu undivided family had suffered detriment in the process of realisation of such income inasmuch as the capital amount lying to the credit of the deceased, Yudhisthir Lal, was utilised by the firm free of interest. Further, in this case, there was no question of any services being rendered by the three minors and, therefore, the share income received by them must, in substance, be regarded as a return made to the family because of the investment of family funds in the business "
The above passage clearly indicates that the Supreme Court was dealing with only the case in whose hands the income should be assessed and for the purpose of determining the question whether the provisions of section 64(1)(iii) of the Act, can be invoked or not the decision of the.] Supreme Court in Y.L. Agarwalla's case (1978) 114 ITR 471, is not of much help to the facts of the case.
Further, there is one more important' and distinguishable feature on the facts of that case. In that case, the money continued in the name of the deceased and there was no transfer of money in favour of the minor and there was no provision for return of the capital and utilisation of the capital account and there was no interest payable by the firm to the joint family. Therefore, the decided of the Supreme Court in Y. L. Agarwalla's case (1978) 114 ITR 471, has no application in considering the question whether the share income of the minor is includible in the hands of the assessee, invoking the provisions of section 64 of the Act, we have already held that under the provisions of section 64(1)(iii) of the Act, the income accrues to the minor child in the partnership firm for being admitted to the benefits of the partnership firm and once the income accrues, due to the fact of admission of the minor to the benefits of the partnership firm, it is not necessary to probe further into the question, what is the source of the investment of the minor in the partnership firm.
In Kanga and Palkhivala's The Law and Practice of Income‑tax (eighth edition, volume I), with regard to section 64 of the Act, the learned author observed as under:
"This section applies irrespective of whether the assessee's spouse or minor children are allowed a share in the firm without any contribution on their part to the capital or assets of the firm, or whether they bring their own capital or become members of the firm in their own right. Thus, this section applies to a case where the members of a Hindu .family, upon severance of the joint family status, continue to run the family business in partnership and a minor son's share in the family property remains in the firm as his contribution to the assets of the partnership."
It is clear that the income arose to the minor because of the admission of the minor to the benefits of the partnership firm and by virtue of the admission, the share income was paid to the minor. Though the source of investment was the joint family property, the income accrued to the minor son by virtue of his admission to the benefits of the partnership firm and by virtue of the contract between the partners. Therefore, we are of the view that the provisions of section 64(1)(iii) of the Act are attracted to the facts of the case as the income arose directly to the minor child because of the admission of the minor to the benefits of the partnership firm. In this view of the matter, we hold that the Appellate Tribunal was not correct in holding that the income is not includible in the hands of the mother who is also a partner in the same firm in terms of section 64(1)(iii) of the Act.
In fine, we answer both the questions of law referred to us in the negative and in favour of the Revenue. However, in the circumstances of the case, there will be no order as to costs.
M.B.A./401/FC?????????????????????????????????????????????????????????????????????????????????? Reference answered.