Decided on April 13,1954

Sahodradevi N Daga Smt Appellant


- (1.)THIS is a reference under s. 66(1) of the Indian IT Act, by which the following question is referred to this Court for decision : -
" Whether on a true construction of the provisions of s. 16(3) (a) (ii) of the Indian IT Act, 1922, the income of the 3 minor sons of the assessee is liable to be included in her total income."

(2.)PRIOR to 18th Oct., 1944, Rai Bahadur Seth Narsingdas Daga (now deceased), his 3 major and 3 minor sons formed an HUF. On 18th Oct., 1944, there was a partition between the father and sons and at that partition the assessee obtained a share. By this partition inter alia the business of the spinning and weaving mills and the agency shop at Hinganghat fell to the share of the assessee and her three major and three minor sons. A partnership of the assessee and her 3 major sons was thereupon formed for the purpose of carrying on the business and the three minor sons who were sharers in the assets and good will of the business were admitted to the benefits of the partnership. The genuineness of this firm is not in dispute. The ITO added the share income of the three minor sons to the total income of the assessee under s. 16(3) (a) (ii) of the Act and this order was confirmed by the Tribunal.
(3.)UNDER the Indian IT Act, tax is payable on the total income of every individual, HUF, company and local authority, and of every firm and other AOP or the partners of the firm or the members of an association individually. The word "individual" is not defined in the Act or in the General Clauses Act ; but it does not mean only a human being but is wide enough to include a group of persons forming a unit and includes a corporation created by a statute. The total income includes all income, profits and gains from whatever source derived which are received, accrue or arise or deemed to be received, accrue, or arise. Sec. 4 of the Act elaborately provides for the application of the Act to the various classes of income. The taxable income of an assessee is to be computed in the manner laid down in the Act. Exemptions are provided in ss. 14, 15, 15 -A, 15 -B and 15 -C. Sec. 16 provides exemptions and exclusions in determining "total income" of an assessee. Incomes exempted from payment of tax are included in "total income" for the purpose of determining the rate payable on the taxable incomes. Sub -s. (1) provides for such computation and inclusion of incomes which under the ordinary law may not be regarded as the income of the assessee. Sub -s. (2) provides for grossing up of dividends. These two sub -sections were considerably amended in 1939. Sub -s. (3) was added by Act IV of 1937. It was modified in 1939. It provides for the inclusion, in specified circumstances, of incomes which have legally accrued to a wife or minor children of an assessee.
Government had appointed an Enquiry Committee to make an investigation of the income -tax system of this country in all its aspects and to report upon both the incidence of the tax and the efficiency of its administration. That report was submitted to the Government by the end of 1936. The recommendations of the Committee which led to the passing of Act IV of 1937 within about 3 months thereafter were : -

(a) The income of a wife should be deemed to be, for income -tax purposes, the income of her husband; and if her income is derived from personal exertions and is unconnected with any business of her husband, her income from her personal exertions up to the limit of say Rs. 500 should not be included in the husband's income.

(b) The income of the minor should be deemed to be the income of the father, (i) if it arises from the benefits of a partnership in a business in which the father is a partner ; or (ii) if being the income of a minor other than a married daughter it is derived from assets transferred, directly or indirectly, to the minor by his or her father or mother ; or (iii) if it is derived from assets apportioned to a minor in the partition of an HUF. (c) The Committee was of the view that giving of a share in partnership profits to a wife or minor child was legal avoidance of the tax.

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