1982 (4) TMI 164 - AT - Income Tax

Income-tax Act: Parent's income essential for minor's share. Tribunal rejects appeal, upholds decision.

Income Tax Officer. Versus S. Krishna Iyer / PA Venkataraman / C. Subbiah Chettiar / ST Balasubramaniam Chettiar.

Income Tax Officer. Versus S. Krishna Iyer / PA Venkataraman / C. Subbiah Chettiar / ST Balasubramaniam Chettiar. - ITD 002, 595, Issues Involved:1. Inclusion of minor children's share income in the hands of the parent under section 64(1)(iii) of the Income-tax Act, 1961.2. Interpretation of section 64(1)(iii) concerning whether the parent must have other income for the minor's income to be included.3. Consideration of conflicting judicial precedents on the applicability of section 64(1)(iii).Issue-wise Detailed Analysis:1. Inclusion of Minor Children's Share Income in the Hands of the Parent under Section 64(1)(iii):The central issue in these appeals is whether the share income from certain firms of minor children can be included in the hands of the parent-assessee under section 64(1)(iii) of the Income-tax Act, 1961. The income sought to be assessed represents the share of profits of minor children admitted to the benefits of a partnership. The Tribunal noted that the dispute is purely a question of law concerning the interpretation of section 64(1)(iii).2. Interpretation of Section 64(1)(iii) Concerning Whether the Parent Must Have Other Income for the Minor's Income to Be Included:The Tribunal examined whether it is a precondition for the parent to have some other income for the minor's share income to be included under section 64(1)(iii). The learned departmental representative argued that the amendment to section 64(1)(iii) effective from 1-4-1976 mandates the inclusion of the minor's income without requiring the parent to have other income. The representative emphasized that the section is couched in mandatory terms and does not attach any precondition for inclusion.On the other hand, the learned counsel for the assessee contended that section 64(1)(iii) presupposes the existence of the parent's income. They argued that without the parent having individual income, the question of inclusion does not arise. The counsel also referenced various judicial decisions supporting this interpretation, including CIT v. Sanka Sankaraiah and Dinubhai Ishvarlal Patel v. K. P. Dixit.3. Consideration of Conflicting Judicial Precedents on the Applicability of Section 64(1)(iii):The Tribunal considered conflicting judicial precedents, including decisions from the Allahabad High Court, Andhra Pradesh High Court, Gujarat High Court, and Punjab and Haryana High Court. It was noted that the dispute in these cases revolved around whether the minor's share income should be included when the parent is a partner representing an HUF, not in an individual capacity. However, the present dispute is distinct as it concerns whether the parent must have a total income apart from the minor's share income for section 64(1)(iii) to be applicable.The Tribunal concluded that the scheme and provisions of section 64 are intended to prevent tax avoidance by diverting income to minor children. The amendment to section 64(1)(iii) removed the requirement that the parent must be a partner in the firm where the minor derives income. However, the Tribunal held that the parent must have some income of their own, even if below the taxable limit, for section 64(1)(iii) to be effective. The requirement of a total income that can be computed under the Act apart from the minor's share income cannot be dispensed with.The Tribunal emphasized that the Explanation to section 64(1)(iii) necessitates determining the total income of each parent to decide in whose hands the minor's income should be included. This condition presupposes the computation of total income in the hands of the parent, excluding the minor's share income.Conclusion:The Tribunal rejected the department's appeal and upheld the orders of the first appellate authorities. It concluded that section 64(1)(iii) requires the parent to have some income of their own for the minor's share income to be included in the parent's total income. The Tribunal found no merit in the department's contention and affirmed that the provisions of section 64(1)(iii) are not applicable when the parent has no source of income at all.