TaxTMI 
TaxTMI 
2003 (4) TMI 66
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.... justified in holding that the share income derived by the minor, Shri T. Surya Baparao by reason of his admission to the benefits of partnership was not his individual income and hence the provisions of section 64(1)(iii) did not apply? (iii) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that the minor, Shri T. Surya Baparao who under the Partnership Act could not at all become a partner but only be admitted to the benefits of partnership could represent his Hindu undivided family in a firm?" The facts leading to the above reference, in brief, are as follows: The assessee is an individual, who is the wife of the late Theegala Paparao. The assessment was made against her under section 147, read with section 143(3) of the Act for the assessment year in question computing the share income received by her son from the firms. The minor son of the assessee was admitted to the benefits of the firms. The late Paparao, husband of the assessee, was a partner in two firms, viz., T. Baparao and Sons and Lakshminarasimha Tile Works, representing his Hindu undivided family (hereinafter referred to as "the HUF") as karta, consistin....
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....nal has committed an error in holding that the income derived from the firms by the minor, who was admitted to the benefits of the firm, should be assessed in the hands of the Hindu undivided family. According to learned standing counsel, when once a minor is admitted to the benefits of the partnership firm, the income derived thereunder belongs to the minor as an individual, irrespective of the consideration for such income and, therefore, it is includible in the income of the parents of the minor individual. Therefore, the Assessing Officer was justified in including the income derived by the minor in the income of the mother. In support of his contention, learned standing counsel relied upon the judgment of the Madras High Court in CIT v. Smt. S.J.S. Selvalakshmi Ammal [1999] 240 ITR 934 and also the judgment of this court in CIT v. B. Pandaiah and Co. [1983] 143 ITR 464. Learned standing counsel also contended that the judgment of the Supreme Court referred to and relied upon by the Tribunal has no application to the facts of the present case, as the apex court was not considering the provisions of section 64 of the Act. Hence, he sought for answering the questions referred by....
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....ness be carried on by the surviving partners and the heirs or legal representatives of the deceased and/or retiring partner or if mutually agreed upon, between the surviving partners and heirs, etc., of the deceased or retiring partner with outsiders also. The karta of the Hindu undivided family died on December 18, 1967, leaving behind him his widow, six daughters and three minor sons. After the death of the karta, the widow, for herself and representing four major daughters, wrote to the firm declining to exercise the option reserved under the clause referred to above and refused to join the partnership business and by a fresh deed dated January 11, 1968, the surviving partners admitted three minors to the benefit of the partnership firm, each having 14 per cent. share and continued to carry on the business with effect from December 19, 1967. Clause 6 of the fresh deed ensured to the firm the continued use of the capital of the Hindu undivided family standing in the account of the karta, who was representing the Hindu undivided family as a partner. Then the issue before the court was whether the share of profits allocated to the three minor sons belonged to the family or was to b....
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....ere made available to the firm for its business. When once the income derived in that process does not belong to the individual, but belongs to the Hindu undivided family, such income cannot be includible in the income of the assessee-mother in terms of section 64 of the Act, but assessable as the income of the family. Learned standing counsel also relied upon a decision of this court in B. Pandaiah and Co.'s case [1983] 143 ITR 464. That was a case where in a partnership of two brothers, the third brother, who was deaf and dumb, was admitted to the benefits of the firm giving a 1/3rd share in the profits. When the firm presented an application for registration, the Income-tax Officer rejected to register the same on the ground that an adult cannot be admitted to the benefits of the partnership firm. This view was confirmed by the first appellate authority as well as by the Tribunal. But, however, the Tribunal, on a new ground that the benefit of 1/3rd to the deaf and dumb brother could be considered as charitable, directed the Income-tax Officer to grant registration. On a reference, a Division Bench of this court, negatived the contention of the assessee and answered the questio....
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....the minor in terms of section 64(1)(iii) of the Act. The Division Bench also distinguished the judgment of the apex court in the case of Y.L. Agarwalia [1978] 114 ITR 471 on the premise that the apex court was not considering the issue with reference to the provisions of section 64(1)(iii) of the Act. It was also further observed that when once the minor is admitted to the benefits of the partnership firm and income accrues due to the fact of such 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 investment of the minor in the partnership firm. We are unable to agree with the above observations of the Madras High Court. It would be pertinent to refer to the observations of the learned author in Kanga and Palkhivala's The Law and Practice of Income-tax, eighth edition, Volume 1, which was also referred in that decision, and it reads as follows: "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....