Law:

Section:

Section 64 of the Income-tax Act, 1961 [Corresponding to section 16 of the Indian Income-tax Act, 1922] - Transfer of assets - For benefit of spouse, minor child etc - Assessment year 1958-59 - Assessee's were partners in firm - They retired from firm but remaining partners continued to carry on business - Thereupon retiring partners formed a new partnership firm - At end of year amount due to retiring partners was transferred in account of new concern - In new-firm minor sons of assessees' (retiring partners) were also admitted to benefits of firm - ITO held that factually retiring partners transferred their shares of profit to their minor sons, and therefore, income from firm attributable to shares of minors was clubbed with income of their respective fathers - Tribunal, however, set-aside order passed by ITO - Whether since there was no transfer of assets by retiring partners to their minor sons, provisions of section 16(3) of 1922 Act, were not applicable - Held, yes FACTS There were 12 partners in the firm. The firm was dissolved and by deed of dissolution, 8 of the 12 partners, including the three assessees, retired from the partnership and the remaining four partners continued to carry on the business. Accounts were to be made up to the date of dissolution and the continuing partners were to pay to the retiring partners amounts due to them. At the end of the year the amounts payable to the retiring partners were transferred to another-firm in which the retiring partners were partners. In the new-firm which was constituted on the next day of the dissolution, the minor sons of the assessee were admitted to the benefits of the partnership. The ITO held that factually the retiring partners transferred their shares of profit to their minor sons or wife, and therefore, income from the firm attributable to the shares of the two minor sons was clubbed with the income of their respective fathers. The AAC upheld the action of the ITO. The Tribunal held, on the facts of the case, that there was no transfer of assets by the retiring partners and, hence, the provisions of section 16(3)(a) of 1922 Act, could not be successfully invoked by the revenue. On reference:…

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