2005 (9) TMI 278

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....angalore under his guardianship. She inherited movable and immovable properties of the deceased parents and also from her grandmother as per the Hindu Succession Act. The amounts received by her by way of inheritance and gifts on birthdays were invested by her grandfather in different business concerns in her name and derived income from moneylending, house properties and other sources. Her capital growth from the year ended 31st March, 1992 to the year ended 31st March, 1999 is as under: -------------------------------------------------------------- "The assessee was born on 14th Dec, 1990. During the year ended 31st March, 1992 the assessee received verifiable gifts from relatives. 2,65,000 Net interest, etc., income earned on these after paying income tax till 31.03.1992 52,776 ----------- 3,17,776 -do- 31.03.1993 1,62,290 ----------- 4,80,066 -do- 31.03.1994 8,88,770 ----------- 13,68,836 Capital got on demise of parents P. Muralikrishna (Indl) Ry9621/I(2)slm 14,38,739 -do- (HUF) M201/Jc-Spl 21,04,003 M. Akila (mother)A704/Jc-Spl 3,87,905 ----------- Capital as on 31.03.1994 52,99,483 Capital as on 31.03.1994 52,99,483 Share in capita....

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.... and grandfather can be treated as parent. He further argued that the grandfather is looking after and maintaining the child and as such he is the guardian of the assessee. Hence, he supported the orders of the authorities below. 5. We have heard both the sides and considered the case records including the provisions and case laws cited before us by both the sides. We have gone through the computation of income submitted with the returns of income. It is clear from the notes submitted to the computation of income wherein it is claimed that the minor is not at all assessable as both of her parents are not alive and clubbing of income is also not possible under s. 64(1A) of the Act and the notes which form part of the records read as under: "It is however claimed that the minor is not assessable at all, as both her parents are not alive for applying clubbing provisions of s. 64(1A). Copies of the following papers relating to the asst. yr. 1994-95 are enclosed in this connection. (i) Note dt. 28th Dec, 1994 (ii) Grounds of appeal filed against intimation dt. 26th April, 1995. (iii) Order dt. 8th Nov., 1995 of CIT(A) thereon received On 13th Nov., 1995. The points raised by item....

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....elliah Committee has recommended that in order to plug this loophole, which accounts for a substantial leakage of revenue, the income of a minor child should be clubbed with that of the parent. There is merit in this suggestion and I propose to accept it. Recognizing, however, the existence of a number of child prodigies, especially child artistes in our country, I propose to exclude their professional income, as also any wage income of minors, from the purview of such clubbing. The practice of clubbing the income of minor children with that of the parent for tax purposes is in vogue in a number of countries." Even the provisions explained by Notes on Clauses to the Finance Bill, 1992 regarding clubbing provisions of s. 64(1A) of the Act state as under [(1992) 102 CTR (St) 119 : (1992) 194 ITR (St) 142] : "Sub-cl. (b) seeks to insert a new sub-s. (1A) in s. 64. The proposed amendment seeks to provide that all income which arises or accrues to the minor is to be included in the income of his parent. However, the income derived by the minor from manual work or from any activity involving his specialized knowledge or experience will not be included in the income of his parent. In th....

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....se total income is greater. Where the marriage of the parents does not subsist, the income of the minor will be includible in the income of that parent who maintains the minor child in the relevant previous year." In view of the above provisions, it is clear that taxing of income arising or accruing to minor child to either of the parents is to be included whose total income is greater. It provides that all income of a minor child is to be included in the income of the parent. However, there are certain exceptions which provide that the income derived by the minor from manual work or from any activity involving his skill, talent or specialized knowledge or experience will not be included in the income of his parent. Once clubbing of minor's income is done with that of one parent, it will continue to be clubbed with that parent only in subsequent years. Certain more exceptions are provided, viz., where the marriage of the parent does not subsist, the income of the minor will be includible in the income of that parent who maintains the minor child in the relevant previous year. In the present case in hand, none of the exceptions apply to the assessee as neither of the parents is su....