1985 (2) TMI 57 - AT - Income Tax

Tribunal upholds assessment reopening and minor children's income inclusion, emphasizing legal liability.

The Tribunal affirmed the validity of reopening the assessment under section 147(a) due to the assessee's failure to disclose minor children's income. It ... Inclusion in assessee's income of a minor's share arising from admission to benefits of partnership - reopening assessment under section 147 for escapement of income due to omission in return - application of a statutory amendment effective from 1-4-1976 to the assessment year 1976-77 - double taxation not a bar to assessment where income is legally exigible in another personReopening assessment under section 147 for escapement of income due to omission in return - Validity of reopening the assessment on the ground that income had escaped assessment owing to the assessee's omission to disclose minors' income in the original return - HELD THAT: - The assessee's original return left blank the column for income of spouse/minor child and did not disclose the minors' partnership income. The ITO, on discovering that the minors had been admitted to the benefits of a firm, formed the belief that income chargeable to tax had escaped assessment due to failure to disclose material facts and issued notice under section 148 leading to reassessment under section 147(a). The Tribunal relied on precedent establishing that the amended return form requires disclosure of income arising to spouse or minor child and that non-disclosure can justify reopening. Consequently the omission amounted to an omission or failure to disclose fully and truly all material facts necessary for assessment and attracted section 147(a). [Paras 5]Reopening under section 147 was valid because the assessee omitted to disclose the minors' income in the original return, causing escapement of income.Inclusion in assessee's income of a minor's share arising from admission to benefits of partnership - application of a statutory amendment effective from 1-4-1976 to the assessment year 1976-77 - Whether the minors' partnership income falls to be included in the assessee's total income under section 64(1)(iii) as applicable to assessment year 1976-77 - HELD THAT: - Section 64(1)(iii) as amended was made effective from 1-4-1976 and therefore governed the assessment year 1976-77. The amended provision covers income arising directly or indirectly to a minor from admission to benefits of partnership without distinguishing whether the source of investment was the parent or another person. The Tribunal held that the law in force at the beginning of the relevant assessment year applies to that year's assessment; hence the amended section applied and operated as a substantive provision to include the minors' partnership shares in the assessee's income. [Paras 6, 7, 8]The minors' partnership income was correctly includible in the assessee's total income under section 64(1)(iii) as applicable to AY 1976-77.Double taxation not a bar to assessment where income is legally exigible in another person - Whether prior separate assessments of the minors precluded inclusion of the same income in the assessee's assessment - HELD THAT: - The Tribunal observed that the Act does not prohibit double taxation where the income is legally liable to be assessed in the hands of another person. Reliance was placed on authority that legislative scheme determines in whose hands income is taxable, and an income must be assessed in the person in whose hands it is legally exigible irrespective of prior assessment elsewhere. Decisions limiting double assessment to partners/unregistered firms or AOPs were held not to extend to the distinct statutory scheme of section 64(1)(iii) concerning minors. Remedies, if any, against prior assessments of the minors lie under other provisions of the Act. [Paras 9]Prior assessments of the minors did not bar inclusion of their partnership shares in the assessee's assessment.Final Conclusion: The Tribunal upheld the reassessment under section 147 and the inclusion of the minors' partnership shares in the assessee's total income under section 64(1)(iii) as applicable to AY 1976-77; the appeal is dismissed. Issues:1. Validity of reopening the assessment under section 147(a).2. Inclusion of minor children's income in the assessment of the assessee under section 64(1)(iii).3. Applicability of the amended section 64(1)(iii) for the assessment year in question.4. Whether income of minors separately assessed can be included in the assessment of the assessee.Analysis:Issue 1: The validity of reopening the assessment under section 147(a)The assessee failed to disclose income arising to minor children in the original return, leading to the ITO initiating action under section 147(a) based on the belief that income had escaped assessment due to the omission. The Tribunal held that the provisions of section 147(a) were applicable as the assessee did not disclose material facts necessary for assessment, citing the Supreme Court's decision in CIT v. Smt. P.K. Kochammu Amma [1980] 125 ITR 624.Issue 2: Inclusion of minor children's income in the assessment of the assessee under section 64(1)(iii)The ITO included the income of minor children from a partnership firm in the assessment of the assessee under section 64(1)(iii) of the Income-tax Act, 1961. The Tribunal upheld this inclusion, stating that the explicit provision of section 64(1)(iii) mandated the inclusion of such income in the assessee's assessment.Issue 3: Applicability of the amended section 64(1)(iii) for the assessment year in questionThe assessee argued that the amendment to section 64(1)(iii) was not relevant for the assessment year in question as it was introduced after the period to which the income of minors related. However, the Tribunal rejected this contention, emphasizing that the law as on 1-4-1976, when the amendment was made effective, must apply to the assessment year 1976-77.Issue 4: Whether income of minors separately assessed can be included in the assessment of the assesseeThe assessee contended that since the minors were separately assessed, their income should not be included in the assessee's assessment. The Tribunal disagreed, stating that the income had to be assessed in the hands of the person legally liable, regardless of separate assessments on minors. The principle of double taxation does not apply in this scenario, as established by previous Supreme Court decisions.In conclusion, the Tribunal dismissed the appeal, affirming the validity of reopening the assessment, the inclusion of minor children's income in the assessee's assessment, the applicability of the amended section 64(1)(iii), and the inclusion of minors' income despite separate assessments.