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TMI Blog2019 (4) TMI 420X X X X Extracts X X X X X X X X Extracts X X X X ..... and First Appellate Authority, was that they held the income to be taxable in the hands of the minor girl herself, altogether forgetting the provisions of Sections 159 and 160 (1) (ii) in Chapter XV of the Act. They also possibly did not fully comprehend the entire Scheme of the Act in a composite and harmonious manner and instead of considering the question as to who should be assessed and held liable to pay the tax, they fell in error of taxability or non-taxability entirely in respect of the income of the Minor, which was apparently taxable under the provisions of the Act. The income from share of partnership firms and income of interest from money lending business do not have any exemption from tax in the exemption provisions contained in Chapter III, comprising Sections 10 to 13B and, therefore, what was apparently taxable has been let off by the learned Tribunal to be altogether non-taxable and that too ignoring the important provisions of the Act, as aforesaid. Once we come to the conclusion that Income in the present case was taxable in the hands of representative-assessee-Guardian and grandfather Mr.R.P.Sarathy for the period for which the said minor girl Ms.M.Pranuthi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sri R.P.Sarathy was her sole guardian. The Minor Ms.M.Pranuthi naturally inherited the property of her parents and grandmother and the income from such sources, which is the subject matter of controversy in the present appeals, continued to be agricultural income and money lending as well as income from partnership firm business of coffee. 3.2. The Assessing Authority, namely, Joint Commissioner of Income Tax, assessed such taxable income in the hands of Minor Ms.M.Pranuthi, holding that Section 64(1A) of the Income Tax Act could not be applied, as both the parents of the minor girl had unfortunately expired and, therefore, the clubbing provisions enacted in Section 64(1A) of the Act could not be invoked and, as such, the entire income earned was liable to be taxed in the hands of the Assessee-Minor herself. 3.3. The First Appellate Authority, namely, CIT (A) upheld the said Assessment Order and also negatived the contention of the Assessee that Re-assessment proceedings under Section 147/148 of the Act were not justified. 3.4. Being aggrieved, the Assessee, through her grandfather- Mr.R.P.Sarathy, filed further appeals before the learned Income Tax Appellate Tribunal, whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e not alive, whether or not the income of the minor is taxable in the hands of the person who is entitled to or in respect of the minor as a representative assessee under Sections 160 and 161 of the Income Tax Act ? (2) Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in holding that the paternal grandfather who filed the return ought to have shown the income in the return filed as guardian of the minor in view of Section 160 (ii) of the Income Tax Act instead of assuming a non-existent status of a caretaker and thereby evading the obligation to declare the entire income in the return filed ? 7. However, we consider it appropriate to re-frame the said Questions of Law in the following manner : (1) Whether the Provisions of Chapter XV, comprising Sections 159, 160 and 161, read with Section 64(1A) of the Act, are applicable in the facts and circumstances of the case, and whether the minor child has to be assessed to taxable income in her own hands or in the hands of the surviving guardian, namely, grandfather ? and (2) Whether the Re-assessment proceedings undertaken by the Assessing Authority for Assessment Ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1992, w.e.f. 1-4-1993. (ii) to the spouse of such individual by way of salary, commission, fees or any other form of remuneration whether in cash or in kind from a concern in which such individual has a substantial interest : Provided that nothing in this clause shall apply in relation to any income arising to the spouse where the spouse possesses technical or professional qualifications and the income is solely attributable to the application of his or her technical or professional knowledge and experience. xxxxx Section 64, Sub-section (1A) : (1A) In computing the total income of any individual, there shall be included all such income as arises or accrues to his minor child , not being a minor child suffering from any disability of the nature specified in section 80U : Provided that nothing contained in this sub-section shall apply in respect of such income as arises or accrues to the minor child on account of any- (a) manual work done by him ; or (b) activity involving application of his skill, talent or specialised knowledge and experience . Explanation .-For the purposes of this sub-section, the income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Clubbing of minors income Section 64 of the Income-tax Act provides that in computing the total income of any individual, there shall be included all such income as arises directly or indirectly to a minor child of such individual from,- (i) the admission of the minor to the benefits of partnership in a firm, (ii) assets transferred directly or indirectly to the minor child by such individual otherwise than for adequate consideration, and (ii) assets transferred directly or indirectly by such individual to any person or association of persons otherwise than for adequate consideration, to the extent to which income from such assets is for the immediate or deferred benefit of such individual s minor child. In reality as well as in law, the minor children cannot administer their property nor can they take decisions on the disposal of income arising therefrom. These responsibilities fall on the parents , who, for all practical purposes, treat and use this income as part of their own income. Exclusion of minor children s income from the income of their parents also leads to tax avoidance . The existing provisions of section 64 with regard to c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erson dies, his legal representative shall be liable to pay any sum which the deceased would have been liable to pay if he had not died, in the like manner and to the same extent as the deceased. (2) For the purpose of making an assessment (including an assessment, reassessment or recomputation under section 147) of the income of the deceased and for the purpose of levying any sum in the hands of the legal representative in accordance with the provisions of subsection (1),- (a) any proceeding taken against the deceased before his death shall be deemed to have been taken against the legal representative and may be continued against the legal representative from the stage at which it stood on the date of the death of the deceased; (b) any proceeding which could have been taken against the deceased if he had survived, may be taken against the legal representative; and (c) all the provisions of this Act shall apply accordingly. (3) The legal representative of the deceased shall, for the purposes of this Act, be deemed to be an assessee . (4) Every legal representative shall be personally liable for any tax payable by him in his capacity as legal repr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on (1A) of Section 64. We also hold that it is within its legislative competence for Parliament to enact sub-section (1A) of Section 64 since it falls under Schedule VII, List I, Entry 82. Further, we hold that sub-section (1A) of Section 64 is not violative of Article 14 and Article 19. In that view of the matter, it is not possible to strike down sub-section (1A) of Section 64 as illegal, unconstitutional and ultra vires the Constitution, as alleged by the petitioners. In the result, the writ petitions are dismissed. No costs. In his concurring opinion, Abdul Hadi, J. as he then was, added the following words, explaining the main object behind the enactment of Section 64 (1A) of the Act : 48. But, it appears to me that the object of section 64(1A) has not come in mainly as anti-avoidance measure, though incidentally such anti-avoidance was also in the contemplation of the Legislature . The main object behind the legislation of the said provision seems to be that all minor's income should be clubbed with the parent (except of course that which has been excluded specifically as mentioned above), since for all practical purposes, the parent treats and u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... artnership firm, carrying on the coffee business. 28. What seems to have escaped the attention of the learned counsel for the Assessee as well as the authorities below in the present case is, the existence of Sections 159 and 160 of the Act, particularly, Section 160 (1) (ii), which specifically provides that in respect of the income of a minor, lunatic or idiot, the guardian or manager of such minor, lunatic or idiot shall be the representative-assessee and, therefore, he is under obligation to return such income accruing or arising to such incapacitated assessees in the eye of Contract Law and discharge their tax obligations. The representative-assessee is assessee for all purposes under the Act and he has to discharge the tax obligations on the income accruing or arising to a minor, who cannot be said to be outside the net of tax under the provisions of the Act. Though the minor may not have capacity to contract because of his or her tender age, but he or she can very well hold the property and it is the guardian of such minor, who manages the estate of the minor. That is the reason, why ' Guardian ' has been included in the definition of representative-assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inor by way of gifts or otherwise and then out of that corpus of funds, income of interest etc., arising out of the hands of the Minors, not being brought to tax and, therefore, the clubbing provisions were introduced in Sub-section (1A) to Section 64 to add the income of Minor in the hands of parent, having higher taxable income. The only exception was, where the Minor, by his or her own skills, earns some income, which was to be taxed in the hands of minor child itself, without attracting the clubbing provisions. The clubbing provisions are, therefore, nothing but machinery provisions to obligate the parent of the child to discharge the tax obligations in respect of income arising or accrued to the minor child. If parents viz., father and mother are not available, as in the present case, Section 160 (1) (ii) of the Act will stand attracted and the Guardian like the grandfather in the present case will become the Legal Representative, liable to discharge all the tax obligations under the Act on behalf of the minor. The later amendment by insertion of Sub-section (1A) to Section 64 of the Act, therefore, cannot be said to mean that the income taxable in the hands of the Minor was b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ind any justification for holding otherwise, by pronouncing upon the question of validity of Reassessment proceedings under Section 147/148 of the Act. The said proceedings were also apparently rightly invoked on the basis of Return of Income filed by grandfather Mr.R.P.Sarathy himself on behalf of Minor only as NIL Return and only an Intimation of Assessment under Section 143 (1) (a) of the Act was issued by the Assessing Authority. In order to bring to tax such escaped income, the Assessing Authority rightly invoked Section 147/148 of the Act. 37. Therefore, all the Substantial Questions of Law in the aforesaid present Appeals are answered against the Assessee and in favour of the Revenue. 38. It is brought to the notice of this Court that the Guardian of the Minor, namely, Mr.R.P.Sarathy has expired recently on 04.01.2019 and that the Minor Ms.M.Pranuthi has become major. Therefore, it is made clear that our answers have been given for the period in which Ms.Pranuthi was only Minor in the years from 1995 to 1999 and the assessment/reassessment made against her grandfather as Legal Representative was valid and the consequential recovery action can now proceed against he ..... X X X X Extracts X X X X X X X X Extracts X X X X
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