PARMESHWARI DEVI Vs. INCOME TAX OFFICER
INCOME TAX APPELLATE TRIBUNAL
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S.K. Chander, Accountant Member -
(1.) THIS appeal by the assessee is directed against the order of the ACC dated 16-8-1980, relating to the assessment year 1979-80. The issue in this appeal is whether the AAC erred in holding that Section 64(1)(vi) of the Income-tax Act, 1961 ('the Act') is applicable and as such the income accruing and arising to the minor Rakesh Kumar as share of profit from the firm of Karam Chand Rakesh Kumar is includible in the total income of the assessee.
(2.) The facts on the basis of which we have to determine this issue, lie in a narrow compass as under : On 13-5-1978, Shri Karam Chand son of Lala Walati Ram, Jiwan Kumar son of Karam Chand and Smt. Parmashri widow of late Walati Ram, entered into a partnership, as evidenced by an instrument, on the said date and admitted Rakesh Kumar, minor son of Karam Chand, to the benefits of partnership. Clauses 7 and 8 of this deed have been alluded to in the arguments of the parties before us and we, therefore, incorporate the same in this order as under :
That at the close of the year a profit & loss account shall be drawn up and after defraying business/customary expenses the net profit or loss shall be divided in-between the parties as under :
7. Karam Chand admitted into partnership for the benefits of the partnership.
8. That the parties shall contribute the finances towards the firm and they may or may not charge any interest on the finances so contributed.
Smt. Parmeshri Devi being the grandmother of minor Rakesh Kumar, out of love and affection, gifted an amount of Rs. 20,000 on 15-3-1979 to him.
When the assessment for the assessment year 1979-80 was made on the firm of Karam Chand Rakesh Kumar on 8-2-1980, the ITO in the body of the assessment order of the firm held that he had found that Shri Rakesh Kumar (minor), admitted to the benefits of partnership, made the entire investment of his share capital by receiving gifts from his grandmother, namely, Parmeshri Devi who was a partner in the firm and, therefore, the share of profit of Shri Rakesh Kumar minor was to be included in the hands of Parmeshri Devi within the meaning of Section 64(1 )(w). In the assessee's personal assessment made on 10-3-1980, the ITO added 25 per cent share of the profit earned by Shri Rakesh Kumar as determined in the case of the firm amounting to Rs. 10,312 into the total income of the assessee. This was challenged in appeal but the AAC confirmed the assessment,
(3.) WE have heard the parties and we do not find any justification for the action taken by the authorities below. A careful perusal of the instrument of partnership dated 13-5-1978 shows that Rakesh Kumar (minor) was admitted to the benefits of partnership. In this regard, a perusal of clause 7 makes it abundantly clear wherein, the partners who were majors, have been recorded as the parties of the first, second and third part in the order described above by us and the minor has only been shown as some one admitted to the benefits of partnership. Therefore, when the revenue argued that clause 8, which provides that the parties shall contribute the finances towards the firm and they may or may not charge interest on the finances so contributed, be read so as to include the minor Rakesh Kumar, it does not cut much ice because the minor was not sui juris on the date of the instrument and he was not a party to the contract. He was merely admitted to the benefits of partnership without any contribution of capital as no capital contribution is necessary for admission to the benefits of partnership.;
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