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Issues Involved:
1. Legislative competence of the Central Legislature to enact Section 16(3)(a)(ii) of the Income-tax Act. 2. Whether Section 16(3)(a)(ii) of the Income-tax Act violates fundamental rights under Articles 14 and 19(1)(g) of the Constitution. Detailed Analysis: 1. Legislative Competence of the Central Legislature: The petitioner challenged the validity of Section 16(3)(a)(ii) of the Income-tax Act on the grounds that it was beyond the legislative powers conferred by Entry 54 of List 1 of the Seventh Schedule of the Government of India Act, 1935. The court examined whether the Central Legislature had the authority to tax an individual on the income of another, specifically a minor child. The court noted that Entry 54 allowed the Central Legislature to impose "taxes on income other than agricultural income." It was established that the term "income" should be interpreted broadly, as reiterated by Chagla, C.J., in J.N. Duggan v. Income-tax Commissioner, Bombay City, which emphasized a large and liberal interpretation of legislative entries. The court discussed various precedents, including Hoeper v. Tax Commission and United States v. Ballimore and Ohio Railroad Co., but concluded that these cases were not directly applicable to the Indian context. The court emphasized that the legislative practice in the United Kingdom, where a husband could be taxed on the income of his wife, supported the validity of the impugned provision. The court concluded that Section 16(3)(a)(ii) of the Income-tax Act was within the legislative competence of the Central Legislature, as it fell within the scope of taxing "income" under Entry 54. The provision was designed to prevent tax evasion by attributing the income of minor children admitted to the benefits of a partnership to their parent who is a partner in that firm. 2. Violation of Fundamental Rights: The petitioner argued that Section 16(3)(a)(ii) violated Articles 14 and 19(1)(g) of the Constitution. Article 19(1)(g): The court dismissed the contention that the impugned provision violated Article 19(1)(g), which guarantees the right to practice any profession or carry on any occupation, trade, or business. The court held that the provision did not prohibit or interfere with the petitioner's right to carry on the partnership business or the minor's right to the benefits of the partnership. The provision merely taxed the income arising from the partnership. Article 14: The petitioner also contended that the provision violated the equal protection clause under Article 14. The court examined whether the classification under the impugned provision was reasonable. The test for reasonable classification, as restated by the Supreme Court in State of Bombay v. Balsara, requires that the classification must be based on a real and substantial distinction bearing a reasonable relation to the object sought to be attained. The court noted that the classification targeted only those parents who were partners in a firm to which their minor children were admitted to the benefits of the partnership. This classification was based on the recommendations of the Income-tax Enquiry Commissioners, 1936, to prevent tax evasion. The court held that the classification was reasonable and had a just relation to the objective of the legislation. The court referred to Professor Willis's Constitutional Law, which permits a wide discretion in classification for taxation purposes. The court concluded that the classification under Section 16(3)(a)(ii) was not arbitrary but based on a substantial distinction aimed at preventing tax evasion. The court also distinguished the case from Hoeper v. Tax Commission, noting that the decision in Hoeper's case was based on the due process and equal protection clauses of the Fourteenth Amendment of the U.S. Constitution, which were not applicable in the Indian context. Conclusion: The court dismissed the petitions, holding that Section 16(3)(a)(ii) of the Income-tax Act was within the legislative competence of the Central Legislature and did not violate Articles 14 and 19(1)(g) of the Constitution. The classification under the impugned provision was reasonable and aimed at preventing tax evasion. The petitions were dismissed with costs.
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