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TMI Blog1962 (8) TMI 86X X X X Extracts X X X X X X X X Extracts X X X X ..... ome-tax Act? The assessee and his minor son were members of a Hindu undivided family up to the assessment year 1952-53. There was a division between them effected under a registered deed of partition on the 23rd July, 1952. Thereafter the assessee was assessed as an individual. On the 4th July, 1956, the assessee transferred certain shares to his minor divided son. During the year ended 31st March, 1957, a sum of ₹ 18,165 was received as dividend on the above said shares. The Income-tax Officer included this amount in the total income of the assessee, the father, applying the provisions of section 16(3)(a)(iv) of the Act. It was contended before the Income-tax Officer that since the transfer of the shares was in favour of a div ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. In a case decided by the Supreme Court in Balaji v. Income-tax Officer [1961] 43 I.T.R. 393 (S.C.), the question whether section 16(3)(a) (i) and (ii) infringed fundamental right of equality before the law arose for decision. These provisions direct the inclusion in the total income of an individual of so much of the income of a wife or of a minor child as arises directly or indirectly from the membership of the wife in a firm of which her husband is a partner and from the admission of the minor to the benefits of partnership in a firm of which such individual is a partner. This was also a case where there had been a partition in that family and the husband and the wife formed a partnership to carry on that business admitting their three ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would have otherwise been liable to pay....Sub-section (3)(a)(i) and (ii) was, therefore, enacted for preventing evasion of tax and was well within the competence of the Federal Legislature. Dealing with the constitutional validity of the provision their Lordships of the Supreme Court went on to say: But decisions of this court permitted classification if there was reasonable basis for the differentiation. It was held that what article 14 prohibited was class legislation and not reasonable classification for the purpose of legislation. Two conditions were laid down for passing the test of permissible classification, namely, (i) the classification must be founded on an intelligible differentia which distinguishes persons or things th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h his major children or outsiders, would have any reasonable basis. This argument ignores the object of the legislation. We have held that the object of the legislation was to prevent evasion of tax. A similar device would not ordinarily be resorted to by individuals by entering into partnership with persons other then those mentioned in the sub-section, as it would involve a risk of the third party turning round and asserting his own rights. The legislation, therefore, selected for the purpose of classification only that group of persons who in fact are used as a cloak to perpetrate fraud on taxation. On the question whether there was a rational relation to the object sought to be achieved by the statute, it was urged before their Lord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be any power of disposal over that income in the hands of the father. If the legislature is competent to enact a law under Entry 54 which has for its purpose the checking of evasion, there is no doubt that in so far as the provision directed the inclusion of the income of the kind referred to in the total income of the father, it was perfectly within its competence. The further argument that there is an unreasonable distinction, a distinction which has no rational relation to the purpose of the statute, on the ground that the section will not have any effect on the income derived from assets transferred to a minor married daughter fails to impress us. It is obvious that in the case of a married daughter, the right of the father to deal w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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