2016 (5) TMI 35 - HC - Income Tax

Clubbing of income of a daughter at the hands of her father - Held that - Section 64 of the Act purportedly directs for computing income of individual where income of wife be included. Section 64A of the Act also enshrines about clubbing of income of minor child with income of father under individual category if it is not derived from his (minor) manual work or activity concerning minor s skill talent and likewise. So even if for argument sake it is considered that this property of M/s. Parbati Engineering Works belongs to his wife or minor daughter income of such property will be clubbed with the income derived from M/s. Jeypore Small Scale Industries of the appellant. In view of the analysis made above we are of the view that M/s.Parbati Engineering Works belongs to appellant and income of such fabrication unit is income of the appellant. So we are of the considered view that income of M/s. Parbati Engineering Works should be clubbed with the income of the appellant. Thus we do not find any infirmity with the impugned orders of the ITAT. Facts and circumstances of the case as discussed above do not purportedly show income derived from M/s. Parbati Engineering Works is of K. Sandhyarani or K. Parbati but it is income of appellant. So the appellant being assesee is liable to pay Income Tax on the income derived from M/s. Parbati Engineering Works and question of income of his daughter at the hand of appellant does not arise. Moreover other questions whether provisions of Section 64 of the Act is contrary to above findings now becomes academic.

Issues Involved:
1. Legality of clubbing the income of the appellant's daughter with the appellant's income.
2. Applicability of Section 64 of the Income Tax Act, 1961.
3. Procedural fairness and adherence to principles of natural justice by the ITAT.
4. Validity of ex parte decisions by the ITAT without reasonable opportunity of being heard.

Issue-wise Detailed Analysis:

1. Legality of Clubbing the Income of the Appellant's Daughter with the Appellant's Income:
The appellant claimed that M/s. Parbati Engineering Works was transferred from his wife to his daughter, K. Sandhyarani, who paid ?10,000 and executed a promissory note for ?60,000. However, the daughter was a minor at the time of the transaction, raising questions about her capacity to contract and earn money. The court noted that under Section 11 of the Indian Contract Act, a minor cannot enter into a contract, rendering the promissory note void. Furthermore, the daughter admitted to the Assessing Officer that the documents were created at her father's instance and that she had no knowledge of the business. The court concluded that M/s. Parbati Engineering Works was a Benami property of the appellant, not owned by his daughter.

2. Applicability of Section 64 of the Income Tax Act, 1961:
Section 64 of the Act includes provisions for clubbing the income of a spouse or minor child with the individual's income under certain conditions. Section 64(1A) specifies that the income of a minor child should be included in the parent's income unless it arises from the child's manual work or skill. The court found that even if M/s. Parbati Engineering Works belonged to the appellant's wife or minor daughter, the income would still be clubbed with the appellant's income. Therefore, the income from M/s. Parbati Engineering Works was rightly clubbed with the appellant's income.

3. Procedural Fairness and Adherence to Principles of Natural Justice by the ITAT:
The appellant argued that the ITAT violated the principles of natural justice by not affording a reasonable opportunity to be heard. The court noted that the appellant did not appear before the ITAT on the date of hearing, and the ITAT disposed of the cases without further opportunity to the appellant. However, the court found no procedural irregularity or violation of natural justice principles, as the appellant had ample opportunity to present his case before the ITAT.

4. Validity of Ex Parte Decisions by the ITAT Without Reasonable Opportunity of Being Heard:
The appellant contended that the ex parte decisions by the ITAT were arbitrary and prejudicial. The court examined the procedural history and found that the appellant had multiple opportunities to present his case but failed to do so. The court held that the ITAT's decisions were not arbitrary or prejudicial, and the appellant's failure to appear did not constitute a violation of natural justice.

Conclusion:
The court affirmed the ITAT's orders, concluding that the income from M/s. Parbati Engineering Works was rightly clubbed with the appellant's income. The court found no procedural irregularity or violation of natural justice in the ITAT's handling of the case. The appeals were dismissed as devoid of merit.

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