Case: Commissioner of Income Tax, Gujarat, Ahmedabad Vs. Jayantilal Prem Chand Shah

Civil Appeals Nos. 716 and 828 of 1975 and 1255 and 1256 of 19761. The first two appeals arise out of a common judgment. The second two appeals arise out of orders that follow the common judgment. The respondents in the two sets of appeals are brothers, the Kartas of their joint Hindu families and assessees as such. The question to be considered may be quoted in respect of the first appeal, whose facts we shall state"Whether on the facts and in the circumstances of the case the Tribunal was right in holding that the income earned by Suresh Kumar Jayantilal and Ashok Kumar Jayantilal from the partnership of Messrs. A. J. and Co. cannot be included in the income of the assessee ?" * 2. The assessment years with which we are concerned in the first set of appeals in Assessment Year 1964-65 and in the second set Assessment Year 1965-66 3. The assessee (in the first appeal) is a Hindu Undivided Family of which Jayantilal Premchand Shah was the Karta. He represented the Hindu Undivided Family as a partner in the firm of A. J. and Company. The firm had been originally constituted under a partnership deed dated 12-11-1959. Jayantilal had a share of 5 annas in a rupee in the said firm. By an agreement dated 29-10-1962, the said firm was reconstituted and Suresh Kumar and Ashok Kumar, the two minor sons of Jayantilal, were given benefits in the said firm. Thus, the share of Jayantilal in the firm was reduced to 2 annas in a rupee and Suresh Kumar and Ashok Kumar given the benefit of a share of 1-1/2 annas each4. The Income Tax Officer included the shares of the two minor sons of Jayantilal in the income of the Hindu Undivided Family upon the basis that the beneficial ownership thereof remained with the Hindu Undivided Family. He found that there had been no partition, partial or total, of the Hindu Undivided Family so that it could not have foregone a part of its share in the said firm in favour of the minors. The decision of the ITO was upheld by the Appellate Assistant Commissioner. The assessee carried the matter in appeal to the INcome Tax Appellate Tribunal. The Tribunal found that the minors were admitted to the benefits of the said firm in the shares stipulated in the partnership deed and, as a result, the Hindu Undivided Family had agreed to a smaller share inthe said firm. It was not necessary that there should be a partial partition or gift because the same could be inferred from the proven facts. There was no evidence to show that the minors were the benamidars of the Hindu Undivided Family or that the beneficial owner of the shares of the minors was the Hindu Undivided Family. In these circumstances, there was no justification for clubbing the income earned by the minors with income of the Hindu Undivided Family5. The High Court considered the question to which we have adverted on a reference made at the instance of the Revenue. It observed that only a person who was capable of entering into a contract, in the sense of being sui generis as Karta or not, could enter into a partnership. If he did so on behalf of the Hindu Undivided Family, he represented the Hindu Undivided Family and the legal consequences would follow. A minor could not enter into a contract and, therefore, he could not represent the Hindu Undivided Family in the partnership. He could only represent himself, having been admitted to the benefits of the firm. The Tribunal had found as a fact that the minors were not benamidars of the Hindu Undivided Family and the only ground on which the Revenue could have succeeded was that was referred to the High Court was, thus, answered in the affirmative and in favour of the assessees 6. What is most relevant to note is that the tribunal found as a fact that the minors were not benamidars of their Hindu Undivided Family. Once that position is established, it is clear that they represented only themselves and that, in that capacity, were entitled to their respective shares in the said firm as their own income. Necessarily, this is not income that can be added to the income of the Hindu Undivided Family and be assessed in the hands of the Hindu Undivided Family7. Reference was made by counsel for the revenue to the judgment of the Gujarat High Court in Pitamberdas Bhikhabhai and Co. v. CIT. This was a case of a partnership between the karta of a Hindu Undivided Family and the adult coparceners of the same Hindu Undivided Family in their individual capacities. It was held that this was not a valid partnership. The facts of this case have no relation to the question before us

Decision reasoning: 0[ds]5. The High Court considered the question to which we have adverted on a reference made at the instance of the Revenue. It observed that only a person who was capable of entering into a contract, in the sense of being sui generis as Karta or not, could enter into a partnership. If he did so on behalf of the Hindu Undivided Family, he represented the Hindu Undivided Family and the legal consequences would follow. A minor could not enter into a contract and, therefore, he could not represent the Hindu Undivided Family in the partnership. He could only represent himself, having been admitted to the benefits of the firm. The Tribunal had found as a fact that the minors were not benamidars of the Hindu Undivided Family and the only ground on which the Revenue could have succeeded was that was referred to the High Court was, thus, answered in the affirmative and in favour of theWhat is most relevant to note is that the tribunal found as a fact that the minors were not benamidars of their Hindu Undivided Family. Once that position is established, it is clear that they represented only themselves and that, in that capacity, were entitled to their respective shares in the said firm as their own income. Necessarily, this is not income that can be added to the income of the Hindu Undivided Family and be assessed in the hands of the Hindu Undivided Family7. Reference was made by counsel for the revenue to the judgment of the Gujarat High Court in Pitamberdas Bhikhabhai and Co. v. CIT. This was a case of a partnership between the karta of a Hindu Undivided Family and the adult coparceners of the same Hindu Undivided Family in their individual capacities. It was held that this was not a valid partnership.