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TMI Blog2003 (11) TMI 292X X X X Extracts X X X X X X X X Extracts X X X X ..... ital asset. The entire gain arising on sale of shares by the assessee's minor son Harminder Bassi was assessed in the hands of the assessee without allowing rebate under section 54F in respect of investment made in the residential house by the assessee's minor son. So the short question that arises before us is whether capital gain which was liable to be assessed in the hands of the assessee in terms of section 64(1A) was to be assessed without allowing rebate under section 54F. 3. In order to resolve this controversy, we have to take into account the following relevant provisions of the Income-tax Act: "2(7). 'assessee' means a person by whom any tax. or any other sum of money is payable under this Act, and includes-- (a) every person in respect of whom any proceeding under this Act has been taken for the assessment of his income or of the income of any other person in respect of which he is assessable, or of the loss sustained by him or by such other person, or of the amount of refund due to him or to such other person; (b) every person who is deemed to be an assessee under any provision of this Act; (c) every person who is deemed to be an assessee in default under any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... house on the date of transfer of original asset, the exemption under section 54F could not be allowed. The exemption claimed was added back. 5. On appeal, the CIT(A) allowed the claim of the assessee with the following observations: "5. At the time of hearing before me, it has been submitted that contention of the Assessing Officer is not correct and income to be clubbed is income after allowing deduction under section 54F and in this respect, reliance has been placed on the decision of ITAT Madras B Bench in the case of MAC Khalieli v. DCIT as reported in 47 TTJ page 369. In this case, it has been held as under: 'Even though the income of the spouse is to be added to the total income of the assessee, the addition has to be under the same head. In other words, the character of the income as capital gains and the computation of that income as capital gains will not be affected in any way. Therefore, as capital gains it will be eligible for such exemption as are admissible. The revenue objected to the grant of relief under section 54F on the ground that the amount had not been deposited in a bank account as required under section 54F(4). The case of the wife is stronger than th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered the submissions of the parties and examined the relevant material available on record. We have also considered the statutory provisions as are applicable to the facts of the case. The ld. D.R. during the course of hearing vehemently contended that in terms of definition of 'assessee' as per clause (7) of section 2, the minor son of assessee master Harminder Bassi could not be considered as an assessee. Shri Madan Lal Bassi was the assessee and, therefore, question of application of provisions of section 54F was to be considered in his hands. As said Madan Lal Bassi already owned a house on the date of transfer of assets in question, no deduction under section 54F could be allowed in this case. She accordingly supported the order of the Assessing Officer. The ld. counsel for the assessee, on the other hand, relied on certain decisions to support the impugned order of the CIT(A). We shall hereinafter deal with those decisions. 7. In the case of AddL CIT v. H.L. Gulati [1982] 138 ITR 648 (All.), the assessee had transferred Rs. 50,000 to his wife for construction of a house property. The total cost of the house was Rs. 1,40,000. Their Lordships of the Allahabad High Court accep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee had a residential house on the date of transfer by minor child. The exemption was rightly denied. 12. On careful consideration of above submissions, we do not find any reason to accept them in the light of clear scheme of the Act emerging from fair reading of the provisions extracted in the earlier part of this order. The application of provisions of section 64(1A) is not in dispute. But that section has to be applied in the end. First income of the minor child is to be computed as per provisions of the Income-tax Act and then instead of subjecting that income to tax separately, it is added to the other income of the assessee and tax charged on his total income. As noted above, gross receipts are not subjected to tax, only 'income' has been brought under charge by adding it to the income of the father or mother whichever is higher. 13. Under section 45(1), any profits or gains arising from the transfer of a capital asset are chargeable to income-tax as capital gain. This subsection, however, saves as otherwise provided in various section including section 54F. In other words, if section 54F is applied, only the amount of capital gains found taxable after application ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aken for assessment of his income'. The words employed in the above clause are 'in respect of whom any proceeding under this Act has been taken'. The proceedings in question in respect of capital gains accruing or arising on the sale of capital assets are admittedly taken in the case of minor child. The proceedings are for assessment/computation of minor child's income, under section 45(1) read with section 54F of the Act. Now 'assessment' is a word of much wider magnitude. It is used in different sections of Income-tax Act to convey different meaning. The Privy Council in the case of Khemchand Ramdas 6 ITR 414 stated about the above word as under: "The word 'assessment' is used in Income-tax Acts as meaning sometimes the computation of income, sometimes the determination of the amount of tax payable, and sometimes the procedure laid down in the Act for imposing liability upon the taxpayer." In the case of A.N. Lakshman Shenoy v. ITO 34 ITR 275, a Constitution Bench of the Supreme Court held as under: "The three expressions 'levy', 'assessment' and 'collection' are of the widest significance and embrace in their broad sweep all such proceedings for raising money by the exerci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of sections 22 to 26-(1) an individual who transfers otherwise than for adequate consideration any house property to his or her spouse, not being a transfer in connection with an agreement to live apart, or to a minor child not being a married daughter, shall be deemed to be the owner of the house property so transferred." The other clauses of section 64 made admittedly applicable were also 'subject to provisions of clause (1) of section 27'. In the above situation, the assessee transferor was treated to be the owner of property sold and, therefore, question of ownership for purposes of section 53 was held to be required to be seen in his hands. In the present case, there is no transfer by the assessee-father to the minor child for inadequate consideration. The peculiar provisions made applicable in the above case are not attracted. The income of the minor is being added in the income, of his father as a matter of policy and not on account of any evasion or avoidance of tax. 20. The question of avoidance of tax through transfer of assets is an important consideration which weighs with the court in deciding the issue and that would be more than evident from the following obse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l income subject to the provisions of clause (1) of section 27, the assets transferred directly or indirectly to the spouse otherwise for adequate consideration or in connection with an agreement to live apart, is included and deemed ownership of the assessee is acknowledged. The Tribunal has proceeded, in our opinion, on a misreading of the judgment of this court in R. Ganesan's case [1965] 58 ITR 411. The provision of law with which the court was concerned had no such claim as sections 22 to 27, 45, 53 and 64 of the Act have in connection with a house property which is taxable to income. It will be a wrong to the cause of the revenue, if, for the income from the house property, the transferor-spouse is held liable and he is deemed to be the owner of the house property so transferred and in the case of capital gain, the ownership is recognised in favour of the transferee-spouse." 21. As noted above, in the case of R. Ganesan, provisions of section 27(1) were not applicable. However, provisions of section 16(3) of 1922 Act were attracted. The said section provided as under: "16(3) In computing the total income of any individual for the purpose of assessment there shall be inclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me which the owner of the property derives, it is only that income which can be brought in for inclusion under section 16(3) of the Act. We are unable to see how insofar as the assessee of the assessee is concerned or the computation of his total income by the application of section 16(3) of the Act requires, any higher income in respect of the property could be brought in, than what the law by a particular mode of computation determines as the income from that property. Whether it is in the assessment of the owner of the property or the assessment of the assessee in respect of the income from that property by reason of section 16(3) of the Act, the mode of determination of the income from the property is equally applicable. It would follow therefore that the sum that can be included in the total income of the assessee in respect of the property in question must be the sum which is arrived at on the application of section 9(2) and the first proviso thereto. It would be for the departmental authorities to determine the amount on the lines indicated above." 22. If above principles are taken into account, there is no reason why computation of capital gains be not made in the hands o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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