1984 (8) TMI 69 - HC - Income Tax

Summary

Issues Involved:
1. Applicability of the amendment to Section 64 for the assessment year 1976-77.
2. Validity of Notification No. S.O. 475(e) dated September 5, 1975, and its retrospective effect.
3. Constitutional validity of Section 64(1)(iii) as amended by the Taxation Laws (Amendment) Act, 1975.

Detailed Analysis:

1. Applicability of the Amendment to Section 64 for the Assessment Year 1976-77:
The petitioner contended that the amendment to Section 64 is not applicable to the assessment year 1976-77. The court clarified that Section 64(1)(iii) was amended by the Taxation Laws (Amendment) Act, 1975, effective from April 1, 1976. The amendment included the income of a minor child from the admission to the benefits of a partnership in a firm, irrespective of whether the parent was a partner in the firm. The court held that the law applicable to income-tax assessment is the law as it stands in the year of assessment and not the law which was in force during the year in which the income was earned. Therefore, the amended provision was applicable for the assessment year 1976-77.

2. Validity of Notification No. S.O. 475(e) Dated September 5, 1975, and Its Retrospective Effect:
The petitioner argued that the notification appointing different dates for bringing into force the various provisions of the amending Act was invalid and void as it imposed liability on income earned before the notification was issued. The court rejected this contention, stating that the appointed date April 1, 1976, referred to the commencement of the assessment year 1976-77 and not the previous year 1976-77. It was well-established that under Indian law, the law to be applied is that in force in the assessment year unless otherwise stated or implied. The court concluded that the amended law was not given retrospective effect, as it merely applied to the income of the previous year for the assessment year starting April 1, 1976.

3. Constitutional Validity of Section 64(1)(iii) as Amended by the Taxation Laws (Amendment) Act, 1975:
The petitioner challenged the constitutional validity of the amended Section 64(1)(iii), arguing that it was unconstitutional and void as it taxed the income earned by one person in the hands of another. The court referred to several precedents, including Balaji v. ITO [1961] 43 ITR 393 and Devarajulu Naidu v. CIT [1963] 48 ITR 756, which upheld the validity of similar provisions designed to prevent tax evasion. The court noted that the object of the amendment was to prevent evasion of tax by including the income of a minor from a partnership in the parent's income. The court held that the classification made by the Legislature was reasonable and consistent with the objective of preventing tax evasion. Therefore, the amended provision did not violate the doctrine of equality before law guaranteed under Article 14 of the Constitution of India.

In conclusion, the court dismissed the writ petition, upholding the applicability and constitutional validity of the amended Section 64(1)(iii) for the assessment year 1976-77 and the validity of the notification No. S.O. 475(e) dated September 5, 1975. The petitioner's contentions were rejected, and the writ petition was dismissed with costs.