1962 (8) TMI 86 - HC - Income Tax

Summary

Issues:
1. Validity of section 16(3)(a)(iv) under article 14 of the Constitution of India.
2. Assessability of dividend income of a divided minor son in the hands of the assessee under section 16(3)(a)(iv) of the Income-tax Act.

Analysis:

Issue 1: Validity of section 16(3)(a)(iv) under article 14 of the Constitution of India

The case involved a challenge to the constitutional validity of section 16(3)(a)(iv) of the Income-tax Act, which pertains to the inclusion of income of a minor child in the total income of the father. The contention was that the provision violated article 14 of the Constitution by making a distinction between a minor son and a minor married daughter regarding the income derived from transferred assets. The argument was that there was no rational basis for this classification. However, the court referenced a previous Supreme Court decision in Balaji v. Income-tax Officer, where similar provisions were upheld as necessary to prevent tax evasion. The court highlighted that the legislation aimed to prevent tax evasion by individuals using family members in partnerships to reduce tax liability. The court concluded that the provision was valid under article 14 as it served the legislative purpose of preventing tax evasion.

Issue 2: Assessability of dividend income of a divided minor son

In this case, the assessee transferred shares to his minor divided son, resulting in dividend income received by the son. The Income-tax Officer included this income in the total income of the assessee under section 16(3)(a)(iv). The assessee contended that since the transfer was to a divided minor son, the provision should not apply. However, the court held that the provision was applicable as it aimed to prevent tax evasion through transfers to minor children. The court reasoned that once a minor child attains majority, they can control the income, thereby justifying the inclusion of such income in the father's total income. The court also highlighted the distinction made for a married minor daughter, where the husband would control the income, making tax evasion unlikely. Consequently, the court upheld the inclusion of the dividend income of the divided minor son in the total income of the assessee.

In conclusion, the court upheld the validity of section 16(3)(a)(iv) under article 14 of the Constitution and ruled in favor of including the dividend income of the divided minor son in the total income of the assessee.