2003 (11) TMI 292 - AT - Income Tax

Summary

Issues Involved:
1. Whether the capital gain arising from the sale of shares by the assessee's minor son should be assessed in the hands of the assessee without allowing rebate under Section 54F of the Income-tax Act.
2. Interpretation and application of Section 54F in relation to Section 64(1A) of the Income-tax Act.
3. Definition and scope of the term 'assessee' under Section 2(7) of the Income-tax Act.

Detailed Analysis:

Issue 1: Whether the capital gain arising from the sale of shares by the assessee's minor son should be assessed in the hands of the assessee without allowing rebate under Section 54F of the Income-tax Act.

The revenue challenged the CIT(A)'s order that allowed the assessee a rebate under Section 54F for the capital gains accruing to his minor son from the sale of shares. The Assessing Officer had denied this rebate because the assessee owned a residential house on the date of the transfer of the capital asset. The CIT(A) allowed the claim, stating that the income to be clubbed is the net income after allowing the deduction under Section 54F.

Issue 2: Interpretation and application of Section 54F in relation to Section 64(1A) of the Income-tax Act.

The CIT(A) relied on decisions from ITAT Madras and the Karnataka High Court, which held that income clubbed under Section 64 should be net income after allowing relevant deductions. The Tribunal noted that Section 64(1A) mandates the inclusion of a minor's income in the total income of the parent but does not specify that it should be gross income. The Tribunal upheld the CIT(A)'s view that the income of the minor, after allowing the deduction under Section 54F, should be included in the assessee's income.

Issue 3: Definition and scope of the term 'assessee' under Section 2(7) of the Income-tax Act.

The revenue argued that the minor son could not be considered an 'assessee' under Section 2(7), and hence, the rebate under Section 54F should not be allowed. The Tribunal rejected this argument, stating that for the purposes of Sections 45(1) and 54F, the minor child must be treated as an assessee. The Tribunal emphasized that the term 'assessee' includes any person in respect of whom any proceeding under the Act has been taken for the assessment of his income. Since the proceedings were for the assessment of the minor's income, he could be treated as an assessee.

Conclusion:

The Tribunal upheld the CIT(A)'s decision, confirming that the income of the minor, after allowing the deduction under Section 54F, should be included in the total income of the assessee. The revenue's appeal was dismissed, and the Tribunal emphasized the importance of treating the minor as an assessee for the purposes of Sections 45(1) and 54F, ensuring that the computation of income is done fairly and logically.