1991 (8) TMI 49 - HC - Income Tax

Spouse's & minor child's income in firm not part of individual's assessment under Income-tax Act

The court held that under Section 64 of the Income-tax Act, the income of the spouse and/or minor child of an individual in a firm where the individual is ... HUF, Literal Interpretation, Total Income Issues Involved:1. Interpretation of Section 4 of the Indian Partnership Act, 1932.2. Interpretation of Section 2(23) and Section 64(1) of the Income-tax Act, 1961.3. Inclusion of income of wife/minor children in the individual assessment of the assessee when the assessee is a partner representing a Hindu Undivided Family (HUF).Issue-wise Detailed Analysis:1. Interpretation of Section 4 of the Indian Partnership Act, 1932:The judgment addresses whether the share of profits from a firm arising to the wife/minor children of an assessee, who is a partner in the firm representing his Hindu Undivided Family (HUF), should be included in the individual assessment of the assessee under Section 64(1) of the Income-tax Act, 1961. The court concluded that the income from the partnership firm where the individual was a partner in his representative capacity as karta of the family should be included in the income of the HUF and not in the hands of the individual assessee.2. Interpretation of Section 2(23) and Section 64(1) of the Income-tax Act, 1961:The court examined whether the income of the wife/minor child from a partnership firm can be included in assessing the income of a person who was a partner of the firm in his capacity as the karta of a HUF. The court referred to previous judgments, including CIT v. Basanta Kumar Agarwalla [1983] and CIT v. Jhabarmal Agarwalla [1990], and concluded that Section 64 of the Act applies when a person is a partner of the firm in his individual capacity and not in his representative capacity like karta of the HUF.3. Inclusion of income of wife/minor children in the individual assessment of the assessee:The court discussed whether the income of the wife/minor children of an individual who is a partner in a firm representing a HUF should be included in the individual's assessment. The court disagreed with the Full Bench of the Allahabad High Court in Sahu Govind Prasad v. CIT [1983] and held that the income from the partnership firm should be assessed in the hands of the HUF and not the individual. The court emphasized that Section 64 of the Act shall apply when a person is a partner of the firm in his individual capacity and not in his representative capacity like karta of the HUF.Conclusion:The court held that, by applying Section 64 of the Act, the income of the spouse and/or minor child of any individual in a firm carrying on business in which the individual is a partner in his representative capacity, such as karta of the HUF, cannot be included while computing the income of such individual. All the questions were answered against the Revenue and in favor of the assessee. The reference was answered accordingly with no order as to costs.