# THE COMMISSIONER OF INCOME-TAX, MADRAS v. S. A. S. !IIARUIUTHU NADAR

- **Citation:** [1962] 3 S.C.R. 102
- **Court:** Supreme Court of India
- **Decided:** 1962
- **Case number:** Civil Appeals Nos. 427 and 428 of 1960
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/the-commissioner-of-income-tax-madras-v-s-a-s-iiaruiuthu-nadar-2312
- **Pages:** 7

## Headnote

Jgf]
-'"9'1" 10,
102
SUPREME COURT REPORTS
(1962)
THE COMMISSIONER OF INCOME-TAX,
MADRAS
v.
S. A. S. !IIARUIUTHU NADAR
(P. B.
GAJENDRAOADKAR,
K.
SuBBA RAo and
M. HIDAYATULLAII, J.J.)
Inwme Tax-Earned income relief-If r,an be granttd on
minor son'• •hare of profits included in father's itWJme-Inrome·
tax Act, 1922 (11of1922), SR. 2(6AA), 16(3) (a)(ii).
The respondent formed a partnership firm with his two
major sons, and his two minor sons were admitted to the
benefits of the partnership to the extent of their shares. In
the relevant assessment years 1 he income of the minors was
'(
added to the Iota] income of the respondent under s. 16(3)(a)
(ii) of the Inoome-tax Act and he was granted "earned income
relief" only to the extent of his own individual share of the
profits.
He claimed earned income 1elief under s. 2(6AA) of
the Income-tax Act on the share of the profits of the minor
sons which was included in his total income.
llelrl, that the general in1ention of s. 2 (6AA) of the
1 ncomc-tax Act is to give relief in cases where the income of a
minor is included in the to1al income of the father who has to
\.
pay income tax on the consolidated amount of profits and the
section means that in the case of a firm the father being the
partner who is actively wgaged in the conduct of the businesa
of the firm while the minor is not, earned income relief should
be gh·en to the father to the extent of lho minors' share of the
profits also,
CJ.vn,
APPEJ.I.ATE
JumsorCTION :
Civil
Appeals Nos. 427 and 428 of 1960.
~
Appeals from the judgment and order dated
AuguHt 28, 1956, of the Madras High Court in case
Referred No. 28 of 1953. ··
ll. N. Sanyal Additional Solicitol' General of
India, K. N. Rajagopal Sastri, T. 111. Sen and
P. D. Menon, for the appellants.
L.
Narayanasu:ami and R. Gopalakrishru:m, for
the respondents,
-
3~S.C.R.
SUPREME COURT REPORTS
103
1961. August 10. The Judgment of the Court
was. delivered by
HIDAYATULLAH, J.-These are two appeals
agail'lst the judgment of the 'Madras High Court
dated August 28, 1956, by which a composite
question embracing two assessment years, referred
by the Income-tax Appellate Tribunal (Madras
Bench, 'B' ) was answered against the Department.
The question, which was referred to the High
Court, was as follows :
"Whether the assessee is entitled to
earned income relief on the share income of
the two minor sons for 1949-50 assessment
year and on the share income of one minor
son for 1950-51 assessment year included in
the computation of the tot'J.l income of
assesseo under the provisions of section
16(3)(a)(ii) of the Inoome-ta.x Act?"
The respondent, S.A.S. Marimuthu Nadar, was
the manager of a Hindu undivided family.
The
family consisted of Marimuthu Nadar, his two major
)
sons and two minor sons. On August 16, 1946, the
family divided, and a firm came into existence.
Marimuthu Nadar and his two major sons took
4/l6th share each and the two minor sons were
admitted to the benefits of partnership to the
extent of 2/16th share each. For the :issessment
year, 1949-50 (the previous year ended on, August
"
16, 1948 ) the share of profits of Marimuthu Nadar
from the partnership was Rs. 9,812, whilt> the share
of profits of his two minor sons was Rs. 8,124 and
Rs. 8,381. The income of the minors was added to
the total income of Marimuthu Nadar under
s.l6(3)(a)(ii) of the Income-tax Act. Marimuthu
Nadar w!ts granted earned income relief only to
the extent of his own individual share of the profits
J. from the partnership. In the assessment year,
1950-51, the elder of the two minor sons had
l;?ec9~e major, and i~ was only the spare of tH\I
1961
The Oommi1aiontr
of Inrome-ta>,
Madras
v.
S.A.S.
Marimuthu Nadar
Hidayatullah J.
1961
TM Comm~ioner
of 11loome-tax.
!ladras
v.
S.A.S.
Marimuthu Nadur
HidaJ<1l11llah J.
104
SUPI!.EME OOURT REPORTS
[1962l
remaining minor son which was included in the
total income of llforimuthu Nadar. In tha.t year
also, he was given earned income relief only on
his share of the pro

## Text

Jgf]
-'"9'1" 10,
102
SUPREME COURT REPORTS
(1962)
THE COMMISSIONER OF INCOME-TAX,
MADRAS
v.
S. A. S. !IIARUIUTHU NADAR
(P. B.
GAJENDRAOADKAR,
K.
SuBBA RAo and
M. HIDAYATULLAII, J.J.)
Inwme Tax-Earned income relief-If r,an be granttd on
minor son'• •hare of profits included in father's itWJme-Inrome·
tax Act, 1922 (11of1922), SR. 2(6AA), 16(3) (a)(ii).
The respondent formed a partnership firm with his two
major sons, and his two minor sons were admitted to the
benefits of the partnership to the extent of their shares. In
the relevant assessment years 1 he income of the minors was
'(
added to the Iota] income of the respondent under s. 16(3)(a)
(ii) of the Inoome-tax Act and he was granted "earned income
relief" only to the extent of his own individual share of the
profits.
He claimed earned income 1elief under s. 2(6AA) of
the Income-tax Act on the share of the profits of the minor
sons which was included in his total income.
llelrl, that the general in1ention of s. 2 (6AA) of the
1 ncomc-tax Act is to give relief in cases where the income of a
minor is included in the to1al income of the father who has to
\.
pay income tax on the consolidated amount of profits and the
section means that in the case of a firm the father being the
partner who is actively wgaged in the conduct of the businesa
of the firm while the minor is not, earned income relief should
be gh·en to the father to the extent of lho minors' share of the
profits also,
CJ.vn,
APPEJ.I.ATE
JumsorCTION :
Civil
Appeals Nos. 427 and 428 of 1960.
~
Appeals from the judgment and order dated
AuguHt 28, 1956, of the Madras High Court in case
Referred No. 28 of 1953. ··
ll. N. Sanyal Additional Solicitol' General of
India, K. N. Rajagopal Sastri, T. 111. Sen and
P. D. Menon, for the appellants.
L.
Narayanasu:ami and R. Gopalakrishru:m, for
the respondents,
-
3~S.C.R.
SUPREME COURT REPORTS
103
1961. August 10. The Judgment of the Court
was. delivered by
HIDAYATULLAH, J.-These are two appeals
agail'lst the judgment of the 'Madras High Court
dated August 28, 1956, by which a composite
question embracing two assessment years, referred
by the Income-tax Appellate Tribunal (Madras
Bench, 'B' ) was answered against the Department.
The question, which was referred to the High
Court, was as follows :
"Whether the assessee is entitled to
earned income relief on the share income of
the two minor sons for 1949-50 assessment
year and on the share income of one minor
son for 1950-51 assessment year included in
the computation of the tot'J.l income of
assesseo under the provisions of section
16(3)(a)(ii) of the Inoome-ta.x Act?"
The respondent, S.A.S. Marimuthu Nadar, was
the manager of a Hindu undivided family.
The
family consisted of Marimuthu Nadar, his two major
)
sons and two minor sons. On August 16, 1946, the
family divided, and a firm came into existence.
Marimuthu Nadar and his two major sons took
4/l6th share each and the two minor sons were
admitted to the benefits of partnership to the
extent of 2/16th share each. For the :issessment
year, 1949-50 (the previous year ended on, August
"
16, 1948 ) the share of profits of Marimuthu Nadar
from the partnership was Rs. 9,812, whilt> the share
of profits of his two minor sons was Rs. 8,124 and
Rs. 8,381. The income of the minors was added to
the total income of Marimuthu Nadar under
s.l6(3)(a)(ii) of the Income-tax Act. Marimuthu
Nadar w!ts granted earned income relief only to
the extent of his own individual share of the profits
J. from the partnership. In the assessment year,
1950-51, the elder of the two minor sons had
l;?ec9~e major, and i~ was only the spare of tH\I
1961
The Oommi1aiontr
of Inrome-ta>,
Madras
v.
S.A.S.
Marimuthu Nadar
Hidayatullah J.
1961
TM Comm~ioner
of 11loome-tax.
!ladras
v.
S.A.S.
Marimuthu Nadur
HidaJ<1l11llah J.
104
SUPI!.EME OOURT REPORTS
[1962l
remaining minor son which was included in the
total income of llforimuthu Nadar. In tha.t year
also, he was given earned income relief only on
his share of the profits but not on the share of tho
profits of the minor son, which was included in his
total income. Marimuthu Nadar's share of profits
was Rs. 12,:H4 and that of his
minor son,
Rs. 10,143.
Marimuthn Nadar appealed to the Appellate
Assistant Commissioner and also to the Appellate
Tribunal ; but his appeals were unsuccessful. At
the instance of :\farimuthu Na<lar, the Tribunal
referred the above question to the High Court for
its decision. The High Court answered the question
in the affirmative and in favour of the asscssee.
The Commissioner of Incom•,·tax, l\ladras, has
therefore,
appealed
with a certificate under
s.66(a)(2) of the Imlian Income-tax Act.
There is no dispute about the amountll
im·olved, nor about the inclusion of the share of
the profits of the minorn from the partnership, in
tho total income of the father. Tho contention,
however, is that earned income relief can only ho
granted to the father in respect of his own imlividual
share of profits ancl not in respect of the share of
tho minor or minors, as held by the High Court.
The Income-tax Officer, the Appellate Assistant
Commissioner and Tribunal held that in view of the
definition of "earned income" in s. 2(6AA), only
that portion of income was entitled to this relief
which satisfied the condition that it was !'arned by
the person to whom it belonged before its inclusion
in the total income of anothe~, mu! that in the Ca.l\tl
of au unregistered firm, the minor or the wife, .·~
the case may be, must, as a partner, have been
actively engaged in the conduct of the business
before earned income relief would be admissible.
The High Court held that inasmuch as tho profite
were earned by l\Iarimuthu Nada.r working $8 a 4
partner actively engaged in the conduct .of the
business and the share of the minors was inqlud!l4
-
-
j
ORTS
105
3 s.c.R.
. SUPREME COURT REP
in his total income, the definition justified the
inclusion of the minors'. share in the amount, on
which earned income relief could be claimed.
Section 2( 6AA), omitting portions not relevant, reads as follows :
"earned income" means any income of an
assessee who is an individual, ... unregistered
firm ....
x
x
x
x
x
x
(b) Which is chargeable under the head
'Profits and gains of business, profession or
vocation' where the business, profession or
vocation is carried on by the assessee or, in
the case of a firm, where the assessee is a
partner actively engaged in the conduct of the
business, profession or vocation ;
x
x
x
x
x
x
and includes any such income which,
though it is the income of another person, is
included in the assessee's income under the
provisions of this Act, but does not include
any such income which is exempt from tax
under sub-section ( 2) of section 14 or under
a notification issued under section 60."
The general intention behind the section, in spite
of its obscurity, is fairly clear. It is to give to an
assessee, earned income relief in respect of the income of another person, included in his total income
under the provisions of this Act. The only difficulty
is about the conditions under which such relief is to
be granted. The words of the last paragraph of the
section are "and includes any such income'', and
.the question is what income is indicated by the
word ·''such".. Three readings of the section were
considered at the hearing ; but one of them must
be rejected as clearly not admissible. That reading is to take "such" back to the wordd "any
income of .an assessee" in the opening part of the
definition. It is not necessary to give detailed
r~.l),so:ns why th.ii Jeadin~ is not permissible. It w
~161
--· -
The Com·mts1ioner
of Ifwo'rM~tax,
·:¥~dra8
v.
S.A.S.
M arimuthu N ~dar
Hiclayatullah J.
J9n
_.......,__
Thi -co{llrni11i0ftlf'
of l1W#m14ax,
Madra•
v.
S.A.S.
·Morimulhu Nadar
llido!/atullah J.
106
SUPREME COURT REPORTS
[1962]
enough t-0 say that if the latter part of the section
is read in this extended form, it makes no sense ..
The other two readings were pressed upon ns
for our acc.,ptance
re~pectively by
the rival
parties. It is admith:d by both sides that tho
qua.lit~· of the income which iR entitled to earned
income relief by virtue of the latter pa.rt of
s.2( 6AA) must be that of "earned income" as dofin ·
cd in the first pa.rt of the sub-section. The question
is, who must earn that income, or, in other words,
in an unregistered fim1, is it a condition precedent
that the minor or the wife must be actively engaged
in the conduct of the business, or is it sufficient if
the father or the husbaml is so engaged ?
The words "such income" refer, as wo have
said, not. to the words "any income of an assessce"
in the earlier part but to the• whole definition of
""arned income" given by the Act, before it says
what is to be included in it.
In other words by
' .
"B'llch income" is meant, earned income 1lctermined
in the same manner in which that income is to he
determined under the e1irlier part of th11 1lcflnition.
The' definition requires that "e11rned income" should
be (a) income of an asscssee who is, intn· alia, an
individual or an unregistered firm ; (b) if chargeable
under the head "profitB and gains of business .. .'',
the business must be carried on by the asseRBe11, if
a.n inclividual, or in the case of a firm, where the
assessee is a partner
actively
engaged
in
the conduct of the business. The emphasis is upon
the assessee carrying on tho business himself or as
an active p1Lrtncr in the conduct of the business.
The two conditions were obviously satisfied
by llfarimuthu Nadar in respect of hi• own share of
the profits from tho partnership. · The question is
whether they are satisfied in respect of the share of
the profits of tho minors in the two assessmen•
years. According to the Department, "such income"
must he earned income, and earned by the person
who receives it ~ tJie first jnst;mi;~ ancJ. not b;r th~
·4..
-
\
-
),-
f
-
3· S;C.R. SUPREME COURT REPORTS
107
person in whose total income it is included by the
Act. ·. In other words, to get the benefit, the income
must be earned actively by the minor or the wife,
before it can qualify for the earned income relief
in the hands of the father or the husband, as the
case may be. The case of the other side is that so
long as the father or the husband has worked
actively as a partner, the income would be entitled
to the relief, even though it was initially the income of the minor son or the wife. In the case of
a .minor, the position is clear, because a minor
cannot be a partner actively engagedin the conduct
of the business, and it is impossible that the section
is meant to apply to a minor only when a minor is
engaged actively in business as a partner. In the
case of a wife, however, the m .. tter is not so simple,
because the wife may be actively engaged in the
conduct of the business with her husband or the
husband may be dormant. If the wife is actively
engaged and the husband is not, on the reading
suggested by the assessee, earned income relief
would not be admissible to the husband, but on the
reading suggested by the Department, it would be.
If the husband is actively engaged in the business
but the wife is not, then according to the reading
suggested by the assessee.. the husband would be
entitled to the earned income relief, but not so, on
the reading suggested by the Department.
Now, the general intention of the section is
to give relief in cases where the income of the
minor child or the wife is included in the total
income of the husband who has to pay income-tax
on the consolidated amount. Cases of wives and
minors actively engaged in the conduct of a
business are very few indeed, whereas cases of
fathers and husbands actively engaged in the
.conduct of the business while their minor children
or'wives, as the case may be, are dormant, are
very numerous and of common and natural occurrence.. It j9 to be expected that the law is framed
noffor r1p:·e cases l,>utfor C!lse~ wjμch one encounter§
IS61
The Commiaaiotuf'
ol 111COmf•kx.
MadraB
v.
S.A.S.
}.J arimuthu Nadar
Hiday!ltullali J.
1901
·r1ie Cominiati~ntr
oJJn~-tax1
ft! odraa
v.
S.A.S.
JI arim~hu }{ adar
/{ idayatu l l ah J.
1961
A ugu1t JI.
108
SUPREME COURT REPORTS
[1962]
daily in onli.nary Jifo.
There is also equity (if
equitable considerat.ions can be taken into aocount
in a taxing Act) in giving earned income relief to
a person who has to pay tax on income whioh
belongs to another but which he has himself earned.
In our opinion, the section can only be read u
enacting that for purposes of earned income relief,
"such income" will be included which, though it is
the income of another person, has been earned by
the assessee, or, in the case of a firm, whore the
u.ssessee is a partner, by his being actively engaged
as part.ncr in the conduct of the business. The
wordH "where the assessee is a partner" must be
giv<'n dft>ct to, even when the income of the minor
or the wife is considered under the latter part, and
they also point to the same conclusion. In reading
the definition in this way, no violence is done to
the language of it. The condition that tho
asscssee must have worked actively as a partner
is thns applicable also to tho latter part of tho
rlefinition. In our opinion, the High Court waa
right in the answer which it gave.
The appeals foil, and are dismissed with costs.
Appeals di8missed.
CHA'NDRAKA.J.'{T KRISHNARAO PRADHAN
AND ANOTHER
v.
THE COLLECTOR OF CUSTOMS, BOMBAY
AND OTHERS
(P. B. GAJENDRAGADKAR, K. SunBA RAo,
:\I. HIDAYAT'CiLLAH, J.C. SH.AH and
RAGHUBAR DAYAr,, JJ.)
Cu~tom House .4.gent8-Lictncl-R'fllP,.s governin{l granU
tliere<if-1 alidily-Agent'a liability for •hart collection of cu.lama
dutie.!-Cmtam Hau•<
Agents
licensing
Rule8,
1960,
rr. 4, 6(a), 6(b), 6(c), 8, 9\2) (p), JO (1) (C), 11, 15 (g), J5(k),
12, 17, 19, 22 Form• C. D.-Sea Ouslama Act, 1878 (8 of 1878),
j'·
as amended by Act 21of1955, ss.4, !1,39 (/), 202-Conalilulia•
'
of Jndit1, Aris. 19 (I)(g) 19 (6).
The petitioners were working as Dakils at New Qum>~