Case: Commr. Of Income Tax(Central) Ludhiana Vs. Om Parkash

The respondent was a partner in the partnership firm, M/s. Rockman Cycle Industries, Ludhiana in his capacity as Karta of the Hindu Undivided Family. Two minor children of the respondent, a daughter, Miss Neeru, and a son, Pankaj, were admitted to the benefits of the partnership. Similarly, they were also partners in another partnership firm, M/s. Munjal Gases, Ludhiana. The income arising in the hands of minor children was sought to be included in this total income. That was objected to by him on the ground that he was a partner in the firms in the capacity of Karta of the Hindu Undivided Family, so section 64 of the Income Tax Act did not apply. The Income Tax Officer rejected that contention, included the share income of the minors in his total income and assessed him accordingly. The Appellate Assistant Commissioner upheld the order of the assessing authority, in appeal. On further appeal, the Income Tax Appellate Tribunal, Amritsar set aside the order of the Appellate Authority taking a contrary view and thus allowed the appeal of the respondent.

Reasoning:
20. When a Karta of the Hindu Undivided Family is a partner in a partnership firm, he had dual capacity; qua the partnership, he functions in his personal capacity and qua third parties, in his representative capacity. Under the Income Tax act, when is assessed in respect of the income derived by him from the partnership firm as a partner, it is in his representative capacity as Karta of the Hindu Undivided Family and not as an individual as such. That is because his capacityspouse/minor children who are members of the Hindu Undivided Family is that of Karta and not as individual thoughother partners of the partnership firm he functions in his personal capacity. This being the position, the income of a Kartas spouse/minor child cannot be included in computation of his total income for that is the income of Hindu Undivided Family and not his individual income. Section 64 will be attracted only when on assessees own income is being assessed and not that of an Hindu Undivided Family. If a Karta is brought within the ambit of individual in Section 64(1), the share income of the spouse of the Karta and his minor children will, in effect, be included in the income of the Hindu Undivided Family which is not what is contemplated by Section 64(1)(i) and (ii) which, with respect we say, has rightly been held to be impermissible by this Court in L. Hirday Narain v.Officer, A Ward, Bareilly, 1970(78) ITR 26, Commissioner ofv. Harbhajan Lal, 1983(204) ITR 361 and Commissioner ofv. Jayantilal Prem Chand Shah, 1995(211) ITR 111.21. In a Hindu Undivided Family which consists of a Karta, his sons, their wives and minor grand children, if along with the Karta the spouse of a son and their minor children are admitted to the benefits of the partnership or are partners of the partnership firm, obviously, their share income from the firm could not be added in computing the total income of the Karta as in such a case Section 64(1) will not be attracted. But if the Kartas spouse and minor children are admitted to the benefits of the partnership or are joined as partners of the partnership firm, their share income from the firm will have to be added up in the income of the Karta. Obviously, the expression cannot be so interpreted to yield such inequitable and inconsistent result which could not have been contemplated by the Parliament.22. It will be pertinent to note here that under Section 4 of the 1961 Act, the charging section, the total income of the previous year or years of every person is charged for any assessment year at the rate or rates prescribed by the FinanceA plan reading of the definition, extracted above, shows that both an individual and a Hindu Undivided Family are inter alia constitution of the meaning of the term person. The expression any individual is narrower than the terms person and assessee defined in Section 2(7); an individual is a person but every person need not be an individual. So also an individual may be an assessee but every assessee need not be an individual. Had the Parliament intended to give wider meaning to the word individual in Section 64(1)(i) and (ii) so as to include the Karta of a Hindu Undivided Family it would have drafted the provision differently. It is thus clear that individual in Section 64(1) does not take in Karta of the Hindu Undivided Family within its import.24. Yet another aspect which militates against bringing in Karta within the meaning of the term individual in Section 64(1) is that it speaks of total income of any individual and total income of the Hindu Undivided Family need not be total income of Karta as an individual.25. The object of Section 64(1) of the 1961 Act, like the object of Section 16(3) of the 1922 Act, is to check the tax evasion resorted to by individuals forming partnership as a cloak to perpetrate fraud on taxation. But cases of genuine partnership where any individual takes the spouse and minor children as partners will also be within the clutches of Section 64(1), a fact adverted to by Balajis case (supra). It is true that if Karta is held not to fall within the meaning of the term individual in Section 64(1), the tax evasions sought to averted would continue in the case of the Hindu Undivided Family where a Karta takes the spouse or minor children to the benefits of the partnership or as members in the partnership firm. But it cannot be lost sight of that individual and Hindu Undivided Family are two different tax entities and Parliament had chosen to confine the application of Section 64(1) for purposes of tax evasion in regard to individuals without being Kartas of the Hindu Undivided Family in the fold of section either by defining individual or otherwise. On the ground that Karta of a Hindu Undivided Family will draw an unfair advantage of this interpretation, we cannot enlarge the meaning of the term individual by the process of interpretation so as to rope in Karta within the meaning of the term individual and by implication, the Hindu Undivided Family within the clutches of Section 64(1) of the 1961 Act.26. From the above discussion, it follows that income in the hands of Karta of the Hindu Undivided Family as partner of a partnership firm cannot be treated as income of individual and, if that be so, the income arising to the spouse or minor child of the Karta of the Hindu Undivided Family cannot be included in his income as such under Section 64(1)(i) and (ii) of the 1961 Act.27. For the above reasons, we are inclined to take the view that the expressions any individual and such individual in Section 64(1)(i) and (ii) are employed in restricted sense and do not include a Karta of a Hindu Undivided Family. Accordingly, we approve the judgments of the High Courts of Andhra Pradesh, Gujarat, Punjab & Haryana, Delhi, Kerala, Rajasthan and Karnataka and overrule the judgments of the High Courts of Allahabad, Madras, Madhya Pradesh and Orissa taking a contrary view.