2005 (9) TMI 278 - AT - Income Tax

Summary

Issues Involved:
1. Clubbing of minor's income under Section 64(1A) of the IT Act.
2. Assessment of minor's income in the absence of parents.
3. Legal representative's role in income assessment.
4. Applicability of CBDT Circular No. 754.

Detailed Analysis:

1. Clubbing of Minor's Income Under Section 64(1A) of the IT Act:
The core issue in these appeals is whether the minor's income can be clubbed in the hands of grandparents or other relatives under Section 64(1A) of the Income Tax Act when both parents are deceased. The provision mandates that the income of a minor child should be included in the income of the parent whose total income is greater, or in the income of the parent who maintains the minor child if the parents' marriage does not subsist.

2. Assessment of Minor's Income in the Absence of Parents:
The minor's parents died in 1993, and the minor inherited substantial movable and immovable properties. The income derived from these properties was managed by the grandfather. The minor's income was initially filed as 'nil' on the grounds that the minor's income is not taxable independently. The Assessing Officer (AO) assessed the income in the hands of the grandfather as the legal representative. However, the Tribunal concluded that Section 64(1A) does not provide for clubbing the minor's income in the hands of grandparents or any other relatives if both parents are deceased.

3. Legal Representative's Role in Income Assessment:
The grandfather, acting as the legal representative, filed appeals against the AO's assessments. The Tribunal examined whether the grandfather could be treated as a 'parent' under Section 64(1A). The Tribunal held that the term 'parent' in the context of Section 64(1A) does not extend to grandparents or other relatives, and thus, the minor's income cannot be assessed in the hands of the grandfather.

4. Applicability of CBDT Circular No. 754:
The Tribunal referred to CBDT Circular No. 754, which clarifies that from the assessment year 1993-94, a minor's income should be included in the parent's income, and the minor is not obliged to file a return independently. The Tribunal emphasized that the circular supports the view that in the absence of both parents, the minor's income cannot be clubbed with any other relative's income.

Conclusion:
The Tribunal concluded that the provisions of Section 64(1A) are explicit in that the minor's income can only be clubbed with the income of the parents. Since both parents of the minor are deceased, the minor's income cannot be assessed in the hands of the grandfather or any other relative. The orders of the lower authorities were quashed, and the appeals were allowed in favor of the assessee.