Ram Krishna Tekeriwal vs Commissioner of Income Tax

The Tribunal by a common statement of case, at the instance of two assessees Ram Krishna Tekeriwal and Indra Kumar Tekeriwal, has referred the following common question of law in respect of the assessment year 1977-78 for the opinion of this Court, u/s 256(1) of the income tax Act, 1961 (''the Act''): Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that even if the assessee presented his HUF as partner of the firm Vijay Picture Palace, the income from share of the wife from the same firm could be included in the total income of the assessee individual ?

The reference arises out of individual assessments of both the assessees. In the previous year relevant to the assessment year 1977-78 both of them were partners in their representative capacity as the karta of their respective HUFs in a firm called ''Vijay Picture Palace'' in which their wives were also partners. It was claimed before the ITO that since the assessees were not partners in the said firm in their individual capacity but in a representative capacity as the karta of their HUFs, the income arising to the share of their respective wives from the partnership business was not liable to be clubbed in their respective hands u/s 64(1) of the Act. The stand taken by the assessees did not find favour not only with the ITO but was rejected throughout including by the Tribunal. Feeling still aggrieved, both the assessees applied for reference u/s 256(1) to this Court and the Tribunal, as stated earlier, has referred a common question of law for the opinion of this Court.

We have heard the learned counsels for the parties.

The question for consideration is that where an individual is partner in a firm in a representative capacity as the karta of an HUF and his wife is also a partner in that firm, whether the income earned by the spouse of such individual from the membership of the firm is liable to be clubbed in the income of such individual because of the provisions contained in section 64(1)(i).

Now clause (i) of sub-section (1) of section 64 as it stood at the material time provided that in computing the total income of any individual, there shall be included all such income as arises directly or indirectly to the spouse of such individual from the membership of the spouse in a firm carrying on a business in which such individual is a partner. The controversy posed in the question is no longer open to debate and has been set at rest by the Supreme Court to which we shall refer shortly hereinafter.

In Commissioner of Income Tax Vs. Anand Sarup, , a similar question had arisen for consideration before the Punjab and Haryana High Court along with another issue, where the view taken was that u/s 64(1)(i), the income of the spouse of an individual is to be clubbed with the income of the individual only if he is a partner as an individual in a firm. If such an individual represents the HUF as its karta and the income in his hands goes to the HUF, then it cannot be treated as the income of the individual u/s 64(1)(i). It was pointed out that the word ''assessee'' as defined in section 2(7), means a person by whom any tax or any other sum of money is payable under the Act and includes every person who is deemed to be an assessee under any provision of the Act. The word ''assessee'' is wide enough not only to cover an individual but also a HUF, a company or a local authority and every firm and other association of persons or the partners of the firm or the members of the association individually. Section 64(1)(i) talks only of income of any individual capable of having a wife or minor children or both. It, therefore, excludes from its purview assessees such as a group of persons forming a unit or a corporation created by a statute.

The aforesaid decision of the Punjab & Haryana High Court was the subject-matter of special appeal before the Supreme Court in Commissioner of Income Tax (Central), Ludhiana and Others Vs. Harbhajan Lal and Others, In that case, the Supreme Court was dealing with a number of special leave petition, including the case of Anand Sarup (supra). The question that fell for considerations was whether the share income of the wife of the respondent-assessee in that SLP in which he himself was a partner in the capacity as a karta of HUF could be included in his total income. In dismissing the Special Appeal, the Apex Court held that this could not be done.

In Commissioner of Income Tax, Ludhiana, etc.etc. Vs. Shri Om Prakash, etc.etc., the Supreme Court reiterated the view taken in Harbhajan Lal''s case (supra) and held that where a person is a partner in a partnership firm not in his individual capacity but as the karta of the HUF, neither the income accruing to his wife on account of her being a partner in the same partnership firm cannot be included in the total income of such person in his individual assessment, or in the assessment of an HUF.

It may be pointed out that both the counsels for contesting parties stated that there was no change in the statutory provisions with which we are concerned in this reference and the statutory provisions as they existed in the assessment years which were the subject-matter of consideration before the Supreme Court so far as the controversy in issue was concerned. In view of the law declared by the Supreme Court in the decision referred earlier, the decision of the Tribunal is manifestly erroneous and cannot be sustained. The question referred to this Court is answered in the negative in favour of the assessee and against the revenue.