C.I.T.(CENTRAL)LUD. vs. SMT.REHTI DEVI.

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ITR/138/1989HC Punjab & HaryanaPHHC01022511198911 January 2007Author: MR.JUSTICE J.S. KHEHAR,MR. JUSTICE S.D.ANAND3 pages

AI SummaryRemanded

What did the High Court hold?

The High Court noted that the amount of income in dispute was Rs. 4,940/- and the tax effect would be meager. Considering the smallness of the amount involved, the Court deemed it inappropriate to delve into the merits of the question of law referred. Consequently, the reference was returned unanswered. The ITAT's finding, which was the subject of the reference, was that the interest income accruing to the assessee's son was not includible in the assessee's (mother's) income under Section 64(1)(iii) because the son was not a party to the preamble of the partnership deed, and the interest did not arise directly or indirectly from his admission to the benefits of partnership. The ITAT had relied on precedents to hold that the department needed to establish a connection between the minor's partnership and the interest receipt, and that the money brought in was not capital.

What were the facts?

The Commissioner of Income-Tax (Central), Ludhiana (Revenue) filed a reference before the Punjab and Haryana High Court against an order of the Income Tax Appellate Tribunal (ITAT), Delhi Branch 'E', Delhi. The ITAT's order, dated January 27, 1988, pertained to the assessment year 1980-81. The dispute concerned the includibility of interest income accruing to the assessee's son in the assessee's (his mother) total income. The ITAT had ruled in favour of the assessee, holding that the interest income was not includible. The amount in dispute was Rs. 4,940/-.

What were the issues?

The High Court was asked to decide the following question of law: Whether on the facts and circumstances of the case, the Income-tax Appellate Tribunal was right in law in holding that the amount of interest accruing to the assessee's son is not includible in the income of the assessee (his mother) as per the provisions of Section 64(1)(iii) of the Income Tax Act, 1961? The Revenue's contention, implied by the reference, is that the ITAT erred in its finding. The assessee's contention, as reflected in the ITAT's order, is that the interest income earned by the son was not includible in the mother's income because the son was not a party to the preamble of the partnership deed, and the interest did not arise directly or indirectly from his admission to the benefits of partnership. The ITAT relied on the decision in Triveni Devi (supra) and S. Srinivasan (supra) to support its view that the department must establish a connection between the minor's partnership and the receipt of interest on money brought in by the minor, and that the money brought in was not in the nature of capital.

Which sections of the Income-tax Act were involved?

Section 64(1)(iii)

AI-generated summary — verify with the full judgment below

I.T.R.

N o. 138 of 1989

-1- *** IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH I.T.R.

N o. 138 of 1989

Date of decision: 11.1.2007 The Commissioner of Income-Tax(Central), Ludhiana ...Petitioner Versus Smt.Rehti Devi ...Respondent CORAM: HON'BLE MR.JUSTICE M.M.KUMAR HON'BLE MR.JUSTICE RAJESH BINDAL Present: Mr.S.K.Garg Narwana, Advocate for the Revenue. **** RAJESH BINDAL,J. Following question of law has been referred for opinion of this Court by the Income Tax Appellate Tribunal, Delhi Branch 'E', Delhi (for short “the Tribunal), arising out of its order dated 27.1.1988 passed in I.T.A.No.802(Chd.)/85 in respect of the assessment year 1980-81. “Whether on the facts and circumstances of the case, the Income-tax Appellate Tribunal was right in law in holding that the amount of interest accruing to the assessee's son is not includable in the income of the assessee (his mother) as per the provisions of Sec.64 (1) (iii)?” The Tribunal while accepting the appeal of the assessee recorded following finding:- “We find from a perusal of the partnership deed dated 4.4.1967 in this case that clause 6 thereof refers to the investment of capital by all the parties but it cannot be said that the minor was liable to invest capital as the preamble to the said partnership deed does not refer to I.T.R.

N o. 138 of 1989

-2- *** the minor as a party but only to the other major partners namely, S/Shri Som Parkash Gupta, Parshotam Dass and Raj Kumar as the first, second and third parties. The interest in this case was earned on deposit and on the accumulation of the profits of the minor. Therefore, in terms of section 64(1)(iii) it could not be said that the interest income arose directly and indirectly to the minor from his admission to the benefits of partnership in this firm in question. In the case of Triveni Devi (supra), the Hon'ble Allahabad High Court had duly considered the decision of the Supreme court in the case of S.Srinivasan (supra) and it was held that in order to bring a case u/s 64 (ii) (as it then was), it was for the department to establish a connection between the partnership of the minor and the receipt of the interest on the money brought in by the minor. There the amount of interest was held to be not taxable in the hands of the mother as the money brought in by the minor was not in the nature of capital. We are, therefore, of the view that the said amount of interest was not taxable in the hands of the assessee u/s 64 (1) (iii).” We find that the amount of income in dispute in the present case is merely Rs. 4,940/-. The tax effect will still be meager. Keeping in view the smallness of the amount involved, we do not consider it appropriate to go into the merits of the question of law referred. The reference is thus returned unanswered. (Rajesh Bindal) Judge January 11,2007 (M.M.Kumar) Pka Judge

I.T.R.

N o. 138 of 1989

-3- ***

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