Law:

Section:

Section 64 of the Income-tax Act, 1961 - Transfer of assets - For benefit of spouse or minor child - Assessment years 1971-72 and 1972-73 - Whether words 'such individual is a partner' occurring in section 64(1) cannot include an individual in his representative capacity - Held, yes - Whether wife and children envisaged under section 64(1) are those that are dependent upon individual and not those who have a right to be maintained out of family funds by being members of HUF - Held, yes - Whether, therefore, share income accrued to karta of HUF in his representative capacity in partnership firm can be brought to tax only in assessment of HUF and not in his individual status - Held, yes Words and Phrases : Words 'any individual' and 'such individual' as occurring in section 64 of the Income-tax Act 1961 FACTS The assessee was a partner in two firms representing his HUF. His wife was also a partner in one of those firms and his minor children had been admitted to the benefits of the partnership. The assessee filed his returns of income as an individual made up of property income and refund of annuity deposit and ITO also completed the assessment without the share income accruing to the wife and children in the said firms in the assessee's hands. The Commissioner in exercise of his powers under section 263, revised the assessments and directed that the share income of the wife and minor sons of the assessee should be clubbed with the individual income of the assessee. On appeal, the Tribunal held that section 64(1)(ii) had no application to the case, since the assessee was a partner in the firm representing his HUF. HELD The karta of a HUF unlike other individuals has a two-fold capacity. Qua the partnership, he functions in his personal capacity, because the rights of partnership are governed by the Partnership Act, 1932. The relation of partners arises from contract and not from status. The HUF may be a person or unit of assessment under the Act, but it cannot become a partner in a firm. Qua, the third parties, the karta who becomes a partner retains his representative capacity. He is liable to account for the assets of the family or income received by him for…

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