TaxTMI 
TaxTMI 
1995 (11) TMI 4
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....use (i), the individual in computing whose total income the income referred to in that clause is to be included shall be the husband or wife whose total income (excluding the income referred to in that clause) is greater ; and, for the purpose of clause (ii), where both the parents are members of the firm in which the minor child is a partner, 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 Income-tax Officer is satisfied, after giving that spouse or parent an opportunity of being heard, that it is necessary so to do." We may make it clear, at the outset, that whatever we say hereinafter is relevant only to the aforesaid provisions contained in clauses (i) and (ii) of section 64(1), i.e., to clauses (i) and (ii) as they obtained prior to April 1, 1976. The sub-section opens with the words " in computing the total income of any " ....
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....amily, i.e., as the representative of the Hindu undivided, family, clauses (i) and (ii) of sub-section (1) are not at all attracted in such a case the income of the wife or the minor child, as the case may be, cannot be included in the individual income of the husband/father under the said clauses ; (b) clauses (i) and (ii) of sub-section (1) operate and, apply even where the " individual " happens to be the karta of the Hindu undivided family. In such a case, all that the clauses mean is that the income of the wife or the minor. child, as the case may be, has to be included in the income of the Hindu undivided family ; (c) even though the husband/father is a partner in a firm as the karta of the Hindu undivided family, he does not cease to be an individual, which means that the income arising to the wife from the membership of such partnership firm or the income arising to his minor child from being admitted to the benefits of such partnership firm---has to be included in the individual assessment of such husband/father. In other words, though the income of the wife/minor children cannot be included in the total income of the Hindu undivided family, it has to be included in the in....
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....igh Court under article 226 which matter was ultimately carried to this court, Shah J., speaking for the Bench (comprising himself and Hegde J.) held that inasmuch as a son was born to Hirday Narain after the partition on November 19, 1949, and before the end of the accounting year, he could not have been assessed as an individual for the period November 19, 1949, to September 30, 1950, and that he ought to have been assessed in the status of a Hindu undivided family. Once this is so, the learned judge held : " Section 16(3)(a)(ii) plainly did not apply and the income of the minor children of Hirday Narain could not be included in the income of Hirday Narain assessed as a Hindu undivided family." It may be mentioned that section 16(3)(a)(ii) considered in the said judgment is in pari materia with clause (ii) of section 64(1) (before it was amended with effect from April 1, 1976). In Harbhajan Lal's case [1993] 204 ITR 361 (SC), the question again was whether the income arising to the minor children from their being admitted to the benefits of a partnership-firm could be included in the income of their father who was a partner in that partnership-firm as the karta of the Hindu un....
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....assessed in the wife's hands or vice versa, depending upon the fact whose total income is greater. The income of the minor child admitted to the benefits of the partnership is similarly to be included in the income of that parent whose total income is greater." It is not necessary to state all the facts of the case except the following : the assessee, Sanka Sankariah, effected a partition between himself and his two minor sons by way of a partial partition. The Tribunal accepted his plea that even after the said partial partition effected on April 9, 1967, the assessee constituted a smaller Hindu undivided family, comprising himself, his wife and his minor daughter. The assessee and his wife constituted a partnership, to the benefits of which the two minor sons were admitted. The income received by the wife and the income received by the minor sons from the partnership firm was sought to be included in the individual income of the assessee which was objected to by him, whereupon the following question was referred for the opinion of the High Court : " Whether, on the facts and in the circumstances of the case, the share incomes derived by the assessee's wife and minor childre....
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....ta qua others, i.e., other than partners. But with his partners he functions in his personal capacity. The relationship between the partner-karta and the other partners is personal. He does not act with the other partners in his representative capacity. This position does not, and cannot change when the other partner is related to him as his wife or minor children. To repeat, section 64 requires an individual and his wife and/or minor children to be partners of each other. That is enough. Their other relationships inter se are not relevant. The fact that he is also the karta, guardian or trustee or benamidar, etc., is immaterial. A Hindu undivided family is itself an assessable entity or unit. The income earned by the karta is taxed in the hands of the Hindu undivided family. No part of such income is computed in his individual assessment. When section 64 speaks of ' computation of the total income of any individual ', it ex hypothesi excludes from such computations, income which is assessable in the hands of the Hindu undivided family. Section 64 does not deal with the share income of the karta from the firm. It is confined to the clubbing together of the share income of the sp....
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....at the said provision was made pursuant to the recommendations made by the Income-tax Inquiry Commission, 1936, as a measure of plugging the loopholes in the Act. Inasmuch as the validity of the provision was questioned on the ground of violation of article 14, the learned judge examined the principles underlying the said article and held that the provision which included the income derived by wife and/or minor children alone in the income of the husband/father while not including the income of others does not suffer from discrimination. The learned judge observed that the argument based upon violation of article 14 ignores the object of the legislation, viz., to prevent evasion of tax. The learned judge observed : "A similar device would not ordinarily be resorted to by individuals by entering into partnership with persons other than those mentioned in the sub-section, as it would involve a risk of the third party turning round and asserting his own rights. The Legislature, therefore, selected for the purpose of classification only that group of persons who in fact are used as a cloak to perpetrate fraud on taxation." The learned judge then dealt with the argument that there might....
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....e the ingredients of the section ? The opening words are " In computing the total income of any individual ". Then it proceeds to say that in the total income of such individual shall be included the income of his spouse arising from the membership of such spouse in the partner ship firm in which such individual is the partner. It proceeds further and says that the income arising to the minor children of such individual who are admitted to the benefits of partnership wherein such individual is a partner shall also be included in the total income of such individual. Now, an individual can be a partner in a partnership firm in his individual capacity or in the capacity of the karta of a Hindu undivided family or, for that matter, in any other capacity, e.g., as a trustee. There may be a firm comprising an individual and his wife, to which their minor children are admitted. There can also be a firm comprising two or more individuals wherein the wife/wives of one or more of the partners are also partners. The minor children of one or more of the partners may also have been admitted to the benefits of the partnership firm. In fact, there can be any number of situations where the wife is....
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....by making such a separate assessment. This argument ignores the fact that the husband/father is a partner in the partnership firm not in his individual capacity but as the karta. It also ignores the clear language employed in clauses (i) and (ii). In each of these two clauses, the expression " such individual " occurs twice. Firstly, the " individual " must be a partner in a firm and the wife and/or minor children of such individual must also be deriving income from such partnership firm (either on account of her membership or on account of being admitted to the benefits of partnership, as the case may be). For the purposes of clauses (i) and (ii), it is not his capacity vis-a-vis other partners of the firm that is relevant but his capacity vis-a-vis his wife and/or minor children. If this basic fact is ignored, anomalous results may follow as indicated by the Andhra Pradesh High Court in Sanka Sankaraiah's case [1978] 113 ITR 313. Learned counsel for the Revenue says that if the above view is taken by this court, the very objective underlying the said clauses-and emphasised in eloquent terms in Balaji's case [1961] 43 ITR 393 (SC)would be defeated. The result would be, learned ....