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TMI Blog1989 (9) TMI 30X X X X Extracts X X X X X X X X Extracts X X X X ..... ship firm named Mannalal Jhabarmal. In the said firm, while the assessee, Jhabarmal Agarwalla, was a partner in a representative capacity as karta of his Hindu undivided family, his wife, Smt. Gita Devi, was also partner in her individual capacity. While assessing the income of the assessee for the assessment years 1971-72 to 1974-75, the Income-tax Officer, acting under section 64(1) of the Income-tax Act, 1961, hereinafter "the Act", included in his income the income of his wife from the said firm. The assessee challenged the action of the Income-tax Officer on the ground that he being a partner in the firm in his representative capacity as karta of the Hindu undivided family, section 64(1) did not apply to his case. The objection of the assessee was accepted by the Appellate Assistant Commissioner and it was held that section 64(1)(i) did not apply. The Revenue filed an appeal before the Tribunal. The Tribunal upheld the order of the Appellate Assistant Commissioner. The Commissioner of Income-tax thereafter filed an application under section 256(1) of the Act for reference of a question of law to this court which was allowed by the Tribunal and the question stated above was ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se than for adequate consideration ; and (v) to any person or association of persons from assets transferred otherwise than for adequate consideration to the person or association of persons by such individual, to the extent to which the income from such assets is for the immediate or deferred benefit of his or her spouse or minor child (not being a married daughter) or both. Explanation. -For the purpose of clause (i), the individual in computing whose total income the income referred to in that clause is to be included shall be the husband or wife whose total income (excluding the income referred to in that clause) is greater ; and, for the purpose of clause (ii), where both the parents are members of the firm in which the minor child is a partner, the income of the minor child from the partnership shall be included in the income of that parent whose total income (excluding the income referred to in that clause) is greater, and where any such income is once included in the total income of either spouse or parent, any such income arising in any succeeding year shall not be included in the total income of the other spouse or parent unless the Income-tax Officer is satisfied, afte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cision of the Supreme Court in Bagyalakshmi and Co. [1965] 55 ITR 660 is most relevant for deciding the point at issue in the present case. We, however, fail to understand as to how the aforesaid decision supports the case of the Revenue as, in our opinion, it clearly goes counter to its submissions. This decision is an authority for the proposition that a contract of partnership only regulates the rights and liabilities of the partners and, as such, has no concern with the obligation of the partners to others in respect of their shares of profit in the partnership. The dual position of a partner "qua the partnership" and "qua the third parties" has been clearly recognised by the Supreme Court. The legal position that emerges is clear. An individual, who is a partner in a representative capacity as karta of a Hindu undivided family occupies a dual position qua the partnership, he functions in his personal capacity ; qua the third parties, he functions in his representative capacity. The question that arises for consideration is, while determining the capacity of a partner for the purpose of application of section 64 of the Act, which of the two capacities will be relevant. The det ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the firm". There is no dispute that the income in such cases will be assessed in the hands of the Hindu undivided family and not the karta, who is a partner. It is, therefore, clear that Parliament while enacting the Income-tax Act was fully conscious of the dual position of partner and for the purpose of levy, assessment and collection of tax recognised the representative capacity in which he is a partner. He is not subject to tax in such a case in his personal capacity. We may, therefore, analyse section 64 of the Act in the light of the aforesaid legal position. Section 64 presupposes that the individual or the spouse or minor children of such individual ate having "income arising to them" from their membership in the firm. The income, in fact, should belong to the individual, his or her spouse, or minor children and it is in this context that the Explanation to the said section provides that in computing the total income referred to for the purposes of clause (i), the individual in computing whose total income the income referred to in clause (i) shall be included, shall be the husband or wife, whose total income, excluding the income referred to in the said provision is grea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 64(1) of the Act, tax shall be levied on either of them in respect of the income from the firm falling to the share of both of them as representatives of some other taxable entities. That is not possible under the scheme of the Act. If, disregarding their representative capacities, the income is clubbed and assessed in the hands of either the husband or the wife, it will mean taxation of the same income twice, once in the hands of the actual taxable entity to which the income belongs and again in the hands of the individual who has nothing to do with the income except receiving it as a representative of the real assessee. The aforesaid two illustrations make it abundantly clear that if a literal interpretation is given to the word "Individual" used in section 64 of the Act in complete disregard to the scheme and object of the Act, it will render the Act itself unworkable. Such an interpretation is not permissible by the well-accepted principles of interpretation of statutes. We, accordingly, hold that the expression "individual" used in section 64(1) of the Act has to be read in the context of income arising to such individual from the membership of the partnership, etc. If ..... 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