TMI Blog1955 (9) TMI 62X X X X Extracts X X X X X X X X Extracts X X X X ..... Samvat Year and the profits which were ascertained on 31-8-1950 as coming to the share of Arvind was ₹ 2,64,450, and the Income-tax Department calculated the proportionate profits coming to the share of Arvind On this basis as of 22-8-1950 when he attained majority at ₹ 2,49,459. and the contention of the Department was that this sum of ₹ 2,49,459 constituted the income of Arvind as a minor and under Section 16(3), Income-tax Act this sum must be included hi the assessment of Bhogilal the father and Bhogilal must pay tax 011 this amount. The Tribunal held in favour of the Department and Bhogilal has now come before us on this reference. 3. Under Section 16(1)(c) certain income is deemed to ho the income of an assessee. The income which the Department is seeking to tax in the hands of Bhogilal is not his own income; it is the income of his minor son; but by reason of Section 16(3) that income in the eye of the law is looked upon as income of the father and the father is liable to pay tax. But before the income can be looked upon as income of the father, it must be obviously in the first place the income of the minor. It is only if we are satisfied that the am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a light to receive the particular income in the year of account which is being included in the total income of his father. Therefore, when the Department includes ₹ 2,49,459 in the total income of the assesses, the question that must be asked and answered is, did Arvind have the right to receive this amount from the partnership at any time in the year of account, and there can he no doubt that in law the minor never had the right to receive this amount from the partnership. 5. Let us look at what the position in law is with regard to a minor who has been admitted to the benefits of a partnership and who attains majority. It is a common place that a minor can never become a partner but he can be admitted to the benefits of a partnership, and Section 30, Partnership Act regulates tile rights of a minor who has been admitted to the benefits of a partnership, and broadly speaking the rights of a minor are, when he attains majority, that he has the option either to re-lire from the partnership or to continue in the partnership and a locus paenitentiae, of six months is given to him to make up his mind. If he elects to continue as a partner then the partnership does not c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hip from the commercial point of view can only be ascertained on the Divali in each year, and it would be impossible to predicate of this partnership that it had made any profit or any loss on any day preceding or prior to the Divali of a particular year. Of course, a partnership may come to an end by operation of law; a partner may die or a partner may retire, in which case the law provides that accounts would have to be made up on that particular day irrespective of the provision in the partnership deed for making up the accounts in the ordinary course. In the case of the minor also the law provides that by operation of law accounts would have to be made up on a particular day if the minor elects not to be a partner. But the law does not provide that there is any break in the partnership or there is a discontinuance of the partnership if the minor attaining majority elects to continue as a partner. 7. The simple question, therefore, that we have to consider is whether in the circumstances of this case Arvind could ever have claimed from the partnership the sum of ₹ 2,49,459. As soon as the partnership deed of 28-8-1950' was executed and he elected to contin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o take any other view of this case than the one we are suggesting to be the correct one. In that case we had held that when a managing agency is assigned by the managing agents, then the income earned by the assignor for the period during which they acted as managing agents should be apportioned with the income earned by the assignee during the period that the assignees acted as managing agents. In other words, we refused the attempt of the Department to tax the whole of the managing agents' income in the hands of the assignees because the income had accrued at the end of the relevant year at which date the managing agents happened to be the assignees and not the assignors. This decision of ours was found by the Supreme Court not to be a correct decision and the Supreme Court held that the managing agency commission could not be apportioned between the assignor and the assignee, that the commission had accrued to the assignee, and the assignee must pay tax on the whole of the commission. There are some very important passages in the judgment of Bhagwati J. which have a direct bearing on the facts of this case. At p. 482 the learned Judge says: It is clean therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X
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