2019 (4) TMI 420 - HC - Income Tax

Taxability of minor u/s 64(1)- both the parent had died - Taxability in hand of representative assessee - reopening of assessment - AO held that since both the parents expired, entire income earned was liable to be taxed in the hands of the Assessee-Minor herself - Tribunal held that no provision to assess the minor's income in the hands of the minor, hence not taxable - HELD THAT - we are of the clear opinion that the Tribunal has wholly erred in holding that since there is no provision to assess the minor's income in the hands of the minor and, if the parents do not survive, the income cannot be clubbed in the hands of any of his grandparents or anybody, who maintains minor child, and, therefore, the orders of two authorities bringing the income of minor to tax in the hands of the Minor deserve to be quashed While the foundational error in the order of the Tribunal is leaving the income of the Minor untaxed altogether, the error committed by the two authorities below, namely, Assessing Authority and First Appellate Authority, was that they held the income to be taxable in the hands of the minor girl herself, altogether forgetting the provisions of Sections 159 and 160 (1) (ii) in Chapter XV of the Act. They also possibly did not fully comprehend the entire Scheme of the Act in a composite and harmonious manner and instead of considering the question as to who should be assessed and held liable to pay the tax, they fell in error of taxability or non-taxability entirely in respect of the income of the Minor, which was apparently taxable under the provisions of the Act. The income from share of partnership firms and income of interest from money lending business do not have any exemption from tax in the exemption provisions contained in Chapter III, comprising Sections 10 to 13B and, therefore, what was apparently taxable has been let off by the learned Tribunal to be altogether non-taxable and that too ignoring the important provisions of the Act, as aforesaid. Once we come to the conclusion that Income in the present case was taxable in the hands of representative-assessee-Guardian and grandfather Mr.R.P.Sarathy for the period for which the said minor girl Ms.M.Pranuthi remained a Minor, we do not find any justification for holding otherwise, by pronouncing upon the question of validity of Reassessment proceedings under Section 147/148 of the Act. The said proceedings were also apparently rightly invoked on the basis of Return of Income filed by grandfather Mr.R.P.Sarathy himself on behalf of Minor only as NIL Return and only an Intimation of Assessment under Section 143 (1) (a) of the Act was issued by the Assessing Authority. In order to bring to tax such escaped income, the Assessing Authority rightly invoked Section 147/148 of the Act. It is brought to the notice of this Court that the Guardian of the Minor, namely, Mr.R.P.Sarathy has expired recently on 04.01.2019 and that the Minor Ms.M.Pranuthi has become major. Therefore, it is made clear that our answers have been given for the period in which Ms.Pranuthi was only Minor in the years from 1995 to 1999 and the assessment/reassessment made against her grandfather as Legal Representative was valid and the consequential recovery action can now proceed against her and her assets or business, as the case may be - Decided in favour of revenue

Summary

Issues Involved:
1. Applicability of Chapter XV, Sections 159, 160, and 161 read with Section 64(1A) of the Income Tax Act.
2. Validity of Re-assessment proceedings under Sections 147/148 of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Applicability of Chapter XV, Sections 159, 160, and 161 read with Section 64(1A) of the Income Tax Act:

The core issue was whether the income of a minor child, whose parents are deceased, should be assessed in the minor’s own hands or in the hands of the surviving guardian, specifically the grandfather in this case. The Tribunal had previously ruled that the income could not be taxed in the hands of the grandfather under Section 64(1A) of the Act, as this section pertains to clubbing provisions applicable to parents, and since both parents were deceased, the income should not be taxable in the hands of the minor herself.

The court, however, clarified that Sections 159 and 160 of the Act, particularly Section 160(1)(ii), provide that in respect of the income of a minor, the guardian or manager is the representative-assessee. This means the guardian is obligated to return the income accruing or arising to the minor and discharge the tax obligations. The court emphasized that the minor is not outside the tax net and is always liable to be taxed. The insertion of Section 64(1A) was an anti-evasion measure and not a charging provision. Therefore, the income of the minor should be assessed in the hands of the grandfather as the representative-assessee.

2. Validity of Re-assessment proceedings under Sections 147/148 of the Income Tax Act:

The second issue was whether the re-assessment proceedings for the Assessment Years 1995-96, 1996-97, and 1997-98 were justified. The court found that the re-assessment proceedings were rightly invoked based on the return of income filed by the grandfather on behalf of the minor. The initial assessment was merely an intimation under Section 143(1)(a), and the Assessing Authority rightly invoked Sections 147/148 to bring the escaped income to tax.

Conclusion:

The court concluded that the income in question was taxable in the hands of the representative-assessee, the grandfather, for the period when the minor was still a minor. The Tribunal erred in its ruling, and the orders of the lower authorities were also flawed as they failed to consider the provisions of Sections 159 and 160. The re-assessment proceedings were justified. Consequently, the appeals filed by the assessee were dismissed, and the appeals filed by the revenue were allowed. The court also noted that the guardian had recently passed away, and the minor had become a major, making the recovery action applicable to her and her assets or business.