1993 (1) TMI 108 - AT - Income Tax

Summary

Issues:
Clubbing of interest income of a minor with the income of the assessee under section 64 of the Income-tax Act.
Deduction under section 80L in the case of another minor and the inclusion of dividend income.

Analysis:
1. The judgment concerns appeals by the assessee regarding the assessment years 1981-82, 1982-83, and 1983-84, involving the clubbing of interest income of a minor with the income of the assessee under section 64 of the Income-tax Act.
2. The CIT(Appeals) upheld the clubbing of income derived from loans advanced by the minor to the firm, justifying the Assessing Officer's actions regarding the deduction under section 80L of the Act.
3. The assessee argued that the minor's advanced amount was from an independent source of income, separate from the share income from the firm. The Assessing Officer had assessed the minor on the interest income separately, leading to double assessment, which is not permissible under the law.
4. The Departmental Representative contended that any income received by the minor, whether share income or interest income, should be clubbed under section 40(b) of the Income-tax Act, justifying the clubbing of interest income with the income of the assessee.
5. The Tribunal observed that the controversy was not about clubbing share income but about interest income arising from funds loaned to the firm years before. The interest income was assessed both in the hands of the assessee and the minor, leading to double assessment, which is legally unsustainable.
6. Section 64 allows clubbing of a minor's income with the parent's income if funds are transferred without adequate consideration. The Tribunal found no dispute about the clubbing of share income but emphasized the onus on the assessee to prove the source of the income.
7. The Tribunal rejected the revenue's plea that assessments in preceding years were erroneous, citing lack of evidence to support the claim and noting that no action under section 263 had been taken on the assessments.
8. The Tribunal held that interest income not originating from transferred funds by the assessee cannot be clubbed with the assessee's income, emphasizing the need for independent consideration of each source of income.
9. Regarding the deduction under section 80L for another minor's dividend income, the Tribunal rejected the assessee's contention based on a Karnataka High Court decision, citing a Madras High Court decision that the deduction applies only after clubbing the wife's income with the husband's income under section 64(1)(iii).

In conclusion, the appeals were allowed in part, with the Tribunal ruling against the clubbing of interest income not originating from transferred funds and upholding the restriction on deduction under section 80L in the case of dividend income.