DIVAN, J. -
(1.)IN this reference made at the instance of the assessee the following question has been referred to us :
'Whether, on the facts and in the circumstances of the case, the sum of Rs. 13,600, being the aggregate of the share of the wife and minor allocated to them up to July 1, 1963, was liable to be including in the assessee's total income for Samvat Year 2019 and liable to be assessed in the hands of the assessee in the assessment year 1964 -65 ?'
(2.)THE assessee in this case, Ratilal Ranchhoddas, died on July 1, 1963, and in the income -tax proceedings the assessee's estate has been represented by the hair and legal representative of the deceased, Ratilal Ranchhoddas. The relevant assessment year is 1964 -65. The deceased assessee was a partner in a two firms : (1) Messrs. Ranchhoddas Bhaichand and Co. and (2) Messers. Ranchhoddas Bhaichand (Grain Dept.) and both these firms were being assessed at Bombay. The previous year for the two firms relevant for the assessment year 1964 -65 was the Samvat Years 2019 (October 29, 1962, to October 17, 1963). In both these firms the assessee's wife, Lilavati, was also partner in two minor sons of the assessee, Kirankumar and Sanjaykumar, were admitted to the benefits of the partnership. The assessee died on July 1, 1963, that is, more than three months before the end of the relevant previous year which ended on October, 17, 1963. Both these partnership firm were constituted under instruments of the partnership both dated November 26, 1959. The partner included the assessee and his wife, where has the three minor sons of assessee, namely, Vinodkumar, Kirankumar and Sanjaykumar, were admitted the benefit the benefit of the partnership. The business of the partnerships was to be closed at the end of every Hindu year, that is, also Vad 30, and the profits of the allocated on Also Vad 30 as per the profits sharing ratio maintained therein. It appears that Vinodkumar, the eldest sons of the deceased, become a major in 1962, and January 22, 1962 two supplemental deed of partnership were executed to recognize the fact that Vinodkumar has ceased to be a minor and had opted for being taken up as a partner and the shares of the partners were adjusted by the supplemental deeds of the partnership of January 22, 1962. The deceased -assessee expired on July 1, 1963, and after his death on September 28, 1963, new partnership deeds were executed bring in to existence two partnership firm with effect from July, 2, 1963. The partnerships which were constituted after the death of the deceased were to continue their business under the same name as before the date of death of the deceased and it was also recorded in the new deeds of the partnership that Lilavati, the widow of the deceased, had expressed a desire to retire from the partnership.
On the death of the deceased, the account books of the two firms were not closed and the profits or loss till the death had not been worked out but at the end of Samvat Year 2019, the entire profits as ascertained at the end of Samvat Year 2019 was allocated to the two periods, namely, (1) October 29, 1962, to July 1, 1963, and (2) July 2, 1963, to October 17, 1963. The profits for the year were allocated in the two periods in the time basis and, thereafter, they were allocated amongst the various partners and the minors admitted to the benefits of the partnership in their profit -sharing ratio. In making the assessment on the total income of the assessee for the accounting year Samvat Year 2019, that is, assessment year 1964 -65, the Income -tax Officer included the share of profit of the assessee's wife and the share of profits allocated to the minor children for the period ending July 1, 1963, and he did so purporting to act under the provisions of sections 64 of the income -tax Act, 1961. The matter was than carried in appeal before the Appellate Assistant Commissioner and the contention of the assessee was turn down and it was held that the profit coming to the wife's share for the period ending July 1, 1963, and the share of the profit coming to the minor children for the period up to July 1, 1963, was includible in the income of the deceased -assessee. The matter was them taken in further appeal to the Tribunal but the Tribunal also turned down the contention of the assessee. The Tribunal held that, as the income of the deceased was to be determined till July 1, 1963, that is, the date of death of the deceased, the share of the profit which accrued to the wife and the minor children till this date were to be included own the income of the assessee. The Tribunal held that the profits till July 1, 1963, were to be included in the assessment of the deceased under section 64 of the Income -tax Act, 1961. Thereafter, at the instance of the assessee, the question hereinabove set out j] has been referred to us for our opinion.
(3.)IN order to appreciate the contention urged at the Bar and also in order to understand the several authorities which have been relied upon on the course of the Indian Income -tax Act, 1922. Prior to 1937, there was no provisions similar to section 64 of the Income -tax Act, 1961. By the Indian Income -tax (Amendment) Act, 1937 (Act 4 of 1937) section 16 (3) was inserted in the Act of 1922 and under that section in computing the total income of any individual for the purpose of assessment, there shall be included, -
(a) so much of the income of a wife or minor child of such individual as arises directly of indirectly, - (i) from the membership of the wife in a firm of which her husband is partner; (ii) from the admission of the minor to the benefits of partnership in a firm of which such individual is a partner; (iii) from assets transferred directly or indirectly to the wife by the husband otherwise than for adequate consideration or in connection with an agreement to live apart.