2013 (7) TMI 559 - HC - Income Tax

Constitutional validity of Section 64(1A) - Minor s income clubbed with mother s income - Held that - When provisions are made to block loopholes for any possible tax avoidance, the Legislature is competent to have a wider field of discretion not only for the substantive provision but for procedural provisions as well - Section 64(1A) is a provision for computation of income of an individual whose minor child is having income and that by itself constitutes a different class. Instead of providing a separate slab, it is provided that the income of such minor would be included in the income of the individual. There is no lack of competence in the Legislature for providing such a legislation. The object sought to be achieved is to tax the income and simply because by including the income of the minor in the hand of either of the parents, he or she has been subjected to a higher tax burden, it cannot be considered to be unconstitutional - Appellant could not point out any illegality to the provisions of clubbing the income of the minor child, earned by him in his own right, in the income of the parents - Following decision of K. V. Kuppa Raju And Others Versus Government Of India And Others 1999 (9) TMI 47 - KARNATAKA High Court - Decided against Assessee. Natural guardian - Whether income of minor should only be included in income of father to achieve object of Section 6 of Hindu Minority and Guardianship Act - Held that - The expression natural guardian has been defined in Section 4(c) as noticed above to mean any of the guardians as mentioned in section 6 of the Act of 1956. This section refers to three classes of guardians viz., father, mother and in the case of a married girl the husband. The father and mother therefore, are natural guardians in terms of the provisions of Section 6 read with Section 4(c) - Under the Hindu Law both mother and father are the natural guardians of the minor sons or daughters. It cannot be said that the mother is not the natural guardian during the lifetime of the father or until he is disqualified from being the natural guardian - Following decision of Ms. Githa Hariharan & Anr. Versus Reserve Bank of India & Anr. 1999 (2) TMI 64 - SUPREME Court - Decided against Assessee. When both mother and father are natural guardians, then adding the income of the minor child in the income of the parent, whose income is greater, cannot be said to be arbitrary, artificial or evasive of the object sought to be achieved

Summary

Issues Involved:
1. Constitutional validity of Section 64(1A) of the Income Tax Act, 1961.
2. Clubbing of minor's income with the parent whose income is greater, in light of Section 6 of the Hindu Minority and Guardianship Act, 1956.

Detailed Analysis:

Issue 1: Constitutional Validity of Section 64(1A) of the Income Tax Act, 1961

The petitioner challenged the constitutional validity of Section 64(1A) of the Income Tax Act, 1961, introduced by the Finance Act, 1992, which mandates the inclusion of a minor child's income in the total income of the parent whose income is greater. Before the Assessment Year 1993-94, minor children's incomes were assessed separately from their parents. However, the Assessing Authority clubbed the income of the petitioner's minor sons with her income for the Assessment Years 1993-94 and 1994-95, leading to higher tax liabilities.

The petitioner argued that this provision infringes Article 14 of the Constitution of India, which guarantees the Right to Equality, as it imposes a higher tax burden on the parent without allowing recovery from the minor. The petitioner also contended that the provision is arbitrary and discriminatory.

The court referenced previous judgments, including the Madras High Court's decision in K.M. Vijayan and others vs. Union of India and others, [1995] 215 I.T.R. 371 (Mad), which upheld the constitutional validity of Section 64(1A). The court noted that tax laws must satisfy legislative competence and not infringe fundamental rights. The Madras High Court observed that the provision aims to prevent tax avoidance by treating the minor's income as part of the parent's income, which is a legitimate legislative objective.

Similarly, the Karnataka High Court in K.V. Kuppa Raju and others vs. Government of India and others, [2000] 242 I.T.R. 522 (Kar), upheld the provision, stating that it is a machinery provision aimed at blocking tax avoidance loopholes. The classification under Section 64(1A) is not arbitrary or artificial but is based on a real and substantial distinction related to the legislative objective.

In light of these precedents, the court found no illegality in the provision and upheld its constitutional validity, dismissing the petitioner's claim under Article 14.

Issue 2: Clubbing of Minor's Income with the Parent Whose Income is Greater

The petitioner argued that clubbing the minor's income with the income of the mother, whose income is greater, violates Section 6 of the Hindu Minority and Guardianship Act, 1956, which designates the father as the natural guardian. The petitioner contended that the provision should only allow clubbing with the father's income, as he is the natural guardian under the Act.

The court referred to the Supreme Court's interpretation in Ms. Githa Hariharan & Anr. vs. Reserve Bank of India & Anr., AIR 1999 SC 1149, which held that under Hindu law, both parents are natural guardians. The Supreme Court emphasized gender equality and interpreted the term "after" in Section 6 of the Hindu Minority and Guardianship Act to mean "in the absence of" the father, whether temporary or otherwise.

Based on this interpretation, the court concluded that both mother and father are natural guardians, and the provision for clubbing the minor's income with the parent whose income is greater is not arbitrary, artificial, or evasive. The legislative intent is to tax the minor's income in the hands of the parent who is more financially capable, which aligns with the objective of preventing tax avoidance.

Therefore, the court upheld the constitutional validity of Section 64(1A) of the Income Tax Act, including the clause that allows clubbing the minor's income with the parent whose income is greater, dismissing the petition as devoid of merit.