1995 (7) TMI 56 - HC - Income Tax

Summary

Issues Involved:
1. Constitutional Validity of Section 64(1A): Whether section 64(1A) of the Income-tax Act, 1961, as amended by the Finance Act, 1992, is constitutionally valid.
2. Violation of Fundamental Rights: Whether section 64(1A) violates Articles 14, 19, and 265 of the Constitution of India.
3. Legislative Competence: Whether Parliament had the legislative competence to enact section 64(1A).

Summary:

1. Constitutional Validity of Section 64(1A):
The petitioners argued that section 64(1A) is unconstitutional as it clubs the income of a minor child with that of the parent, which was previously assessed independently. They contended that the amendment is beyond the scope of preventing tax avoidance and inconsistent with the scheme of the Income-tax Act. The court held that section 64(1A) is constitutionally valid. The Finance Minister's speech and the Chelliah Committee's recommendations highlighted the need to plug loopholes allowing tax evasion through minors' incomes. The court found that the legislative intent was to treat the minor's income as part of the parent's income for practical purposes, thus justifying the amendment.

2. Violation of Fundamental Rights:
The petitioners claimed that section 64(1A) is violative of Articles 14, 19, and 265 of the Constitution. They argued that the provision lacks classification and creates inequity by treating unequals equally. The court rejected these arguments, stating that the classification is based on a rational distinction aimed at preventing tax evasion. The court cited several Supreme Court decisions, including Balaji v. ITO [1961] 43 ITR 393 (SC) and R. K. Garg v. Union of India [1982] 133 ITR 239, to support the view that laws related to economic activities should be viewed with greater latitude. The court concluded that section 64(1A) does not violate the fundamental rights enshrined in the Constitution.

3. Legislative Competence:
The petitioners questioned the legislative competence of Parliament to enact section 64(1A), arguing that it taxes one person for the income of another without any nexus. The court upheld the legislative competence of Parliament, referencing Entry 82 of List I of Schedule VII and Article 248 of the Constitution, which grants Parliament the power to legislate on matters not enumerated in the State List or Concurrent List. The court also referred to Union of India v. Harbhajan Singh Dhillon [1972] 83 ITR 582 (SC) and Attorney-General for India v. Amratlal Prajivandas [1995] 83 Comp Cas 804; AIR 1994 SC 2179, which support the wide interpretation of legislative powers in matters of taxation.

Conclusion:
The court dismissed the writ petitions, upholding the constitutional validity of section 64(1A) of the Income-tax Act, 1961. The provision was found to be within the legislative competence of Parliament and not violative of Articles 14, 19, and 265 of the Constitution. The court emphasized the legislative intent to prevent tax evasion and ensure that minors' incomes are treated as part of their parents' incomes for tax purposes.