1953 (9) TMI 20 - HC - Income Tax

Separate assessment of minors' income for tax purposes under Section 40

SAIFUDDIN ALIMOHAMED AND ANOTHER Versus COMMISSIONER OF INCOME-TAX, BOMBAY CITY

The High Court held that the income of each minor should have been separately assessed by their guardians and managers. The Court emphasized the ... - Issues Involved:1. Validity of the assessment of Rs. 55,467 on the appellants.2. Necessity of splitting up and separately assessing the said income.3. Separate assessment of income for each minor by their guardians and managers.Detailed Analysis:1. Validity of the Assessment of Rs. 55,467 on the AppellantsThe primary issue was whether the income of Rs. 54,979 from the business carried on by the guardians of the minors could be rightly charged to tax under Section 3 read with Section 10 of the Indian Income-tax Act, 1922, in the hands of the guardians as an association of persons. The Tribunal held that the business was carried on by an association of persons and the whole income was liable to be assessed in the hands of the guardians. However, the High Court noted that the Department did not consistently maintain this position and raised a question of whether the assessment should proceed under Section 40 or Section 41 of the Act. The High Court concluded that the assessment should be made under Section 40, which deals with the liability of guardians, as it was the specific provision applicable to the case.2. Necessity of Splitting Up and Separately Assessing the Said IncomeThe High Court examined whether the income should be split and separately assessed for each minor. It was argued that since each minor was entitled to one half of the properties and business, the income should be separately assessed. The Court emphasized that under Section 40, the tax liability imposed on the guardians was vicarious and co-extensive with that of the minors. The Court found that the Department should have assessed the income in the hands of the guardians only to the extent of the minors' shares, rather than as a single unit of an association of persons.3. Separate Assessment of Income for Each Minor by Their Guardians and ManagersThe High Court agreed with the assessee's contention that each minor's share of the income should be separately assessed. The Court noted that the guardians were appointed to manage the minors' property and business, and the income from the business should be assessed in the hands of the guardians as representing the minors. The Court highlighted that the income earned by the guardians from the business was different from the income to which the minors were entitled, which was their share of the net profits after all expenses. Thus, the High Court concluded that the income of each minor should have been separately assessed by their guardians and managers.ConclusionThe High Court answered the question in the affirmative, stating that each minor being entitled to one half of the properties and business, the income of each minor should have been separately assessed on the minor by her guardians and managers. The Court emphasized the correct application of Section 40, which imposes a vicarious liability on the guardians to pay tax on behalf of the minors. The Commissioner was directed to pay the costs of the reference, including the costs of the motion.