TaxTMI 
TaxTMI 
1983 (10) TMI 50
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....idual. He is a partner of a firm, M/s. Arvind Cold Storage by name, as karta of his HUF. His two minor sons, Sidhartha Prasad and Rahul Prasad were admitted to the benefits of partnership in this firm. The ITO treated the share of the profit of these minor sons of the firm as income of the assessee and included the same in his total income. A-grieved, the assessee filed an appeal before the AAC, which failed and then took up the matter in further appeal before the Tribunal. For the assessment years 1967-68 to 1969-70, in the case of the assessee and his brother, Madho Prasad, both of whom were partners of this firm as representing their respective HUFs, and minor sons of both of whom were admitted to the benefits of partnership in this firm, this court had, agreeing with the revenue authorities and the Tribunal, taken the view that the share of each of the minors in the profits of the firm was liable to be included in the income of their respective fathers in their individual status under s. 64(1)(ii). This decision is Madho Prasad v. CIT [1978] 112 ITR 492 (All); following that decision the Tribunal agreed with the revenue authorities and dismissed the appeal. As stated earlier, a....
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...., whether they are or are not liable to pay any tax, penalty or interest. Under s. 2(31) "person" includes, (i) an individual, (ii) a Hindu undivided family, (iii) a company. (iv) a firm, (v) an association of persons or a body of individuals, whether incorporated or not, (vi) a local authority, and (vii) every artificial juridical person, not falling within any of the preceding sub-clauses. Then we turn to s. 64 which occurs in Chap. V. This chapter makes provisions for inclusion of income of other persons in the assessee's total income. Section 64 provides for inclusion of the income of spouse, minor child, etc., in the income of an individual. We extract the relevant portion below : " Section 64(1). In computing the total income of any individual, there shall be included all such income as arises directly or indirectly: (i) to the spouse of such individual from the membership of the spouse in a firm carrying on a business in which such individual is partner ; (ii) to a minor child of such individual from the admission of the minor to the benefits of partnership in a firm in which such individual is a partner. Explanation.-For the purpose of clause (i), the indi....
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.... every firm and other association of persons or the partners of the firm or the members of the association individually. Whereas, the word ' individual ' is narrower in its connotation being one of the units for the purposes of taxation than the word 'assessee', the word 'individual' has not been defined in the Act and there is authority for the proposition that the word 'individual ' does not mean only a human being but is wide enough to include a group of persons forming a unit. It has been held that the word 'individual' includes a corporation created by a statute, e.g., a university or a bar council, or the trustees of a baronetcy trust incorporated by a Baronetcy Act. It would also include a minor or a person of unsound mind. If this is the connotation of the word ' individual ' it follows that when section 16(3) talks of an ' individual ' it is only in restricted sense that the word has been use,]. The section only talks of ' individual ' capable of having a wife or minor child or both. It, there fore, necessarily excludes from its purview a group of persons forming unit or a corporation created by a statute and is confined only to human beings who in the context would be com....
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.... of this provision. The Explanation to this sub-section also supports the same conclusion. In Madho Prasad's case [1978] 112 ITR 492 (All), the decision of the Supreme Court in Sodra Devi's case [1957] 32 ITR 615 (SC) and the Explanation to sub-s. (1) of s. 64 were not noticed. The decision in Madho Prasad's case [1978] 112 ITR 492 (All), has been dissented from by the other High Courts, viz., by the Andhra Pradesh High Court in CIT v. Sanka Sankaraiah [1978] 113 ITR 313, by the Gujarat High Court in Dinubhai Ishvarlal Patel v. K. D. Dixit [1979] 118 ITR 122, and the Punjab and Haryana High Court in CIT v. Anand Sarup[1980] 121 ITR 873. It was also brought to our notice that the Supreme Court dismissed the Special Leave Petition moved against the decision of the Andhra Pradesh High Court in the case of Sanka Sankariah [1978] 113 ITR 313, by an order made on May 2, 1979. A photostat copy of that order was produced before us. For the reasons discussed above, we think that the decision in Madho Prasad's case [1978] 112 ITR 492 (All), requires reconsideration. Hence we direct that the paper of this case may be laid before Hon'ble the Chief justice for constituting a larger Bench ....
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....d Storage, Lucknow, and their determined share of profit is Rs 5,142 each. Since Shri Govind Prasad father is also a partner in that firm the share of profit of the minor sons is assessed in the hands of the assessee. Thus, Rs. 10,284 will be added back. Total income from all sources thus comes to Rs. 60,759." The assessee (Govind Prasad) applied for a reference to the High Court. He invited the attention of the Income-tax Appellate Tribunal to the decision of the Andhra Pradesh High Court in CIT v. Sanka Sankaraiah [1978] 113 ITR 313. In that decision the Andhra Pradesh High Court differed from the view taken by the Allahabad High Court. Accordingly, the Tribunal felt that the question was an important one, and referred the following question of law for the opinion of this court : " Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the share income of Sidhartha Prasad and Rahul Prasad, the minor sons of the assessee, from the firm, M/s. Arvind Cold Storage, had been rightly included under section 64(ii) of the Income-tax Act, 1961, as the income of the assessee. " The reference came up for hearing before a Divisio....
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....n a firm of which such individual is a partner. " The term " individual " occurring in this provision came up for consideration before this court in Chanda Devi v. CIT (1950] 18 ITR 944. A Bench (Malik C.J. and V. Bhargava J.) held that the word " individual " in this provision included a male as well as a female human being. This decision of our High Court was followed in this court in Musta Quima Begum, In re [1953] 23 ITR 345. Chanda Devi's case [1950] 18 ITR 944 (All) was also followed by the High Court of Punjab in Damayanti Sahni [1953] 23 ITR 41. In Sahodradevi N. Daga v. CIT [1955] 27 ITR 9 (Nagpur), the Madhya Pradesh High Court took a different view. It held that the word " individual " as used in s. 16(3) of the Act was restricted to the male of the species and did not include a female. The decisions of the Punjab High Court in Damayanti Sahni's case [1953] 23 ITR 41 and of the Madhya Pradesh High Court in CIT v. Sahodra Devi's case [1955] 27 ITR 9, were taken up in appeal to the Supreme Court ([1957] 32 ITR 615). It held that in the context of s. 16(3) the word " individual " does not include a juristic person or a group or an association of persons. It is confine....
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....2) the spouse and/or minor child of an individual should be partner or admitted to the benefits of the partnership firm; (3) Such individual should also be a partner of that firm. If these factors co-exist, s. 64 operates. Under it, the share income of the spouse and/or the minors from such firm is included while computing the total income of the individual. The question is, what does the phrase " in which such individual is a partner " occurring at the end of the two clauses of s. 64 mean ? Does it cover a karta if he is a partner as such, or is it restricted to one who is a partner in his own right, i.e., purely in his personal capacity ? A human being can be a spouse or parent. He can at the same time be the guardian of the minor children or the karta of his HUF, etc. He can be all or any of these : and, in addition, be a partner in a firm in which his spouse or minor children are also partners. Take the case of a karta of an HU F. He may as such be a partner in firm. As karta be represents the members of the family. But, "it is well-settled that when the karta of a joint Hindu family enters into partnership with strangers, the members of the family do not ipso fa....
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....ion, the phrase " in which such individual is a partner occurring in s. 64 includes a human being who may be the karta of an HUF. This is what was held by this court in Madho Prasad's case [1978] 112 ITR 492. With respect we agree with that decision. The Andhra Pradesh High Court in Sanka Sankaraiah's case [1978] 113 ITR 313, differed from this court. It held (p. 318): " The expression 'individual' only takes in a person in his individual capacity and does not take in the karta of a Hindu joint family or a trustee or one who acts as a representative of others". S. Obul Reddy C.J. observed (p. 317): " Sankaraiah has been found to be a partner of the firm as 'karta' of the joint family and the income derived from the firm was included in computing the total income of the Hindu undivided family. How can that income from the firm once again be included in computing the total income of Sankaraiah as an individual, as if realised in his individual capacity from the membership of the firm of which his wife and minor child were also partners along with him. It is not the case of the Revenue that Sankaraiah was a partner of that firm in his individual capacity. " (Emphasis su....
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....erned, qua his partners he is an individual and qua them he functions in his personal capacity. However, when it comes to a person who represents an HUF in the affairs of a partnership firm qua the members of the HUF he is in his representative capacity. He represents them so far as outsiders are concerned, bat qua them, he is merely their representative. If he is a representative, he is not an individual person. " The learned Chief justice went on to observe: "It can be said that it is just by a chance that the karta was a person whose spouse is also a partner in the partnership firm in which he represents the HUF or the minor child of that karta who represents the HUF in the partnership happens to be admitted to the benefits of the partnership or the spouse happens to be a partner. In neither case, qua the wife or qua the minor child, is he any one else than a representative. " In our view the position is the opposite. A karta of an HUF has dual position. Qua the partnership he functions in his personal capacity ; qua the third parties in his representative capacity. But in either case he is an individual. We are unable to agree that if he is a representative, he is not ....