Madhya Pradesh High Court
Commissioner Of Income-Tax vs Smt. Sobhagwantibai on 25 June, 1987
Equivalent citations: [1988]169ITR588(MP)
JUDGMENT G.G. Sohani, J.
1. By this reference under Section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), the Income-tax Appellate Tribunal, Indore Bench, has referred the following question of law to this court for its opinion :
"Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the interest earned by a minor on his capital invested in the firm to the benefits of which he has been admitted could not be clubbed along with the share income and taxed in the hands of the parent under Section 64(1)(iii) of the Income-tax Act ?"
2. The material facts giving rise to this reference, briefly, are as follows :
The minor sons of the assessee were, during the relevant assessment year 1976-77, admitted to the benefits of the partnership firms carrying on business under the name and style as M/s. Gandhi Rajkumar Santoshkumar, M/s. Gandhi Nirmalkumar Vinodkumar and M/s. Dhannaji Dhulji & Sons. Certain funds were invested in these firms on behalf of the minors as their capital and interest was accordingly paid to the minors by the firms on the capital so invested. The contention of the assessee before the Income-tax Officer was that so far as the amount of interest on the capital invested in the aforesaid firms by the minor sons was concerned, that could not be taxed in the hands of the assessee under the provisions of Section 64(1)(iii) of the Act. This contention was not upheld by the Income-tax Officer and, on appeal, the Appellate Assistant Commissioner upheld the finding of the Income-tax Officer in this behalf, On further appeal before the Tribunal, the Tribunal held that if there was independent investment of capital by the minors, which had not come to them from the assessee directly or indirectly, Section 64(1)(iii) of the Act would not render it liable to be taxed in the hands of the assessee. The Tribunal, therefore, remanded the matter to the Income-tax Officer for ascertaining if there were independent investments by the minors, which had not come to them from the assessee directly or indirectly. The Tribunal further directed that if it was found that the amount of capital invested -by the minors had not been provided by the assessee, the interest paid thereon by the firms should not be clubbed with the income of the assessee. Aggrieved by that order, the Revenue sought a reference and it is at the instance of the Revenue that the aforesaid question of law has been referred to this court for its opinion.
3. Learned counsel for the Revenue contended that a similar question had come up for consideration before this court in CIT v. Smt. Nirmala Devi [1987] 166 ITR 253. As observed by this court in that case, the question referred by the Tribunal was refrained to bring out the real issue between the parties. Following that decision, we, therefore, reframe the question as follows :
"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that if there were independent investments of capital by the minors which had not come to them from the assessee directly or indirectly, interest on such capital would not be liable to be taxed in the hands of the assessee by virtue of the provisions of Section 64(1)(iii) of the Act and whether the Tribunal was justified in remanding the case to the Income-tax Officer for ascertaining the source of capital invested by the minors in the partnership firms ?"
4. In CIT v. Smt. Nirmala Devi [1987] 166 ITR 253, a Division Bench of this court held that the language used in Section 64(1)(iii) of the Act was clear and whatever might have been the object of introducing that clause, the said clause did not leave any room for doubt that it had been made obligatory that if the income arising to the minor child from a partnership firm was referable to the fact of admission of that child to the benefits of the said partnership firm, then such income was includible in the total income of the assessee and the question of source of investment in the firm by the minor was not relevant or decisive for making the income of the minor includible in the total income of the assessee. In view of that decision, with which we see no reason to differ, the Tribunal, in our opinion, was not justified in remanding the case to the Income-tax Officer for ascertaining the source of investment.
5. For all these reasons, our answer to the question refrained by us is in the negative and against the assessee. In the circumstances of the case, parties shall bear their own costs of this reference.