COMMISSIONER OF INCOME TAX Vs. K M S LAKSHMANIER
HIGH COURT OF MADRAS
COMMISSIONER OF INCOME TAX, MADRAS
K M S LAKSHMANIER.
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LEACH, C.J. -
(1.) THE assessee is a partner in two firms trading under the styles of K. M. S. Lakshmanier & Sons and Lakshmanier Sons and Company respectively. In the former firm he possesses a one-fifth share, the remaining four-fifths being owned by his sons, three of whom are minors. In the firm of Lakshmanier Sons and Company he possesses a one-twentieth share, the remaining nineteen-twentieths being owned by his sons and his daughters, how are also minors. THE family became divided several years ago, since when the assessee has been assessed as an individual on his total income, including his share of the profits in these two firms. In respect of the year of account 1939-40 the Income-tax Officer held that to the assessees income should be added the partnership profits which were allocated in that year to his children. In adopting this course the Income-tax Officer relied on the provisions of Section 16(3)(a)(ii), this section having been inserted in the Act by the amending Act of 1937 which came into force on April 1, 1937. THE assessee contended that this course was contrary to the section and appealed to the Assistant Commissioner. THE Assistant Commissioner having concurred in the order of the Income-tax Officer, the Commissioner of Income-tax in response to a request by the assessee has referred to this Court under Section 66(2) of the Act the following question :
(2.) WHETHER on the facts of this case the Income-tax authorities are right in adding the minors share of income to the petitioners income under Section 16(3)(a) and whether the section has been properly applied to this case.
We agree with the Commissioner of Income-tax that the statutory provision relied upon by the Income-tax Officer is conclusive against the assessee. Section 16(3)(a)(ii) states that in computing the total income of an individual for the purpose of assessment shall be include so much of the income of a minor child of his as arises directly or indirectly from the admission of the minor to the benefits of partnership in a firm of which the individual is a partner. It is difficult to imagine words which would express the intention more clearly than the words used in this section. The assessee is a partner in two firms. He has minor sons who have been admitted to the benefits of those partnerships. Being minors they are not actual partners but the Partnership Act allows them to be admitted partnership benefits. Profits have been earned and on these profits the assessee is liable to be taxed, not only in respect of what he has received, but what has been paid in respect of the shares of the minors.
Before the Commissioner the assessee contended that as the minors had antecedent rights and as no new right was created or conferred by the father when the family business became a partnership business it could not be said that the minors had been admitted to the benefits of partnership. On this basis it was said that Section 16(3)(a)(ii) does not apply. The Commissioner has given the right answer in his statement of the case. The partition of the family put an end to the joint status and the family properties ceased to exist as family assets. The assets devolved on the partnership and under Section 30 of the Partnership Act the minors were admitted to the benefits of the partnerships and it is such benefits which fall within the statutory provision referred to.
On behalf of the assessee it has also been contended that as the minors were not admitted gratis into the firm, but owe their membership to the fact that they contributed to the assets their shares in the joint family property, Section 16(3)(a)(ii) can have no application. The suggestion is that unless the minors are admitted to the benefits of the partnership without any contribution to the assets Section 16(3)(a)(ii) has no application. This is really putting the first contention in another way. There is nothing in the section which justifies the Court in drawing a distinction between a case where a minors property is with a firm and the case where the minor is allocated a share without any contribution to the assets. The section can only be construed in accordance with the words used in it and there is no foundation for this argument in view of what the section says. We agree with the Commissioner that Section 16(3)(a)(ii) has been rightly applied in this case and we answer the reference accordingly.
The respondent will pay the Commissioners costs Rs. 250.
Reference answered accordingly.
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