TaxTMI 
TaxTMI 
1954 (3) TMI 69
X X X X Extracts X X X X
X X X X Extracts X X X X
....nor children of the petitioner were admitted to the benefits of that partnership with a total of 8 annas share between them. The petitioner was entitled to a four annas share. This partnership also was registered under Section 26-A of the Income-tax Act. After determining the income of the firm of the assessment year 1952-53, and after apportioning it between the shares under Section 23(5) of the Income-tax Act, the Income-tax Officer assessed the petitioner to tax on her income and also that of her three minor children under the provisions of Section 16(3) (a)(ii) of the Income-tax Act. It was on the same basis that he proposed to assess the petitioner of the assessment year 1953-54 also but that assessment had not been completed when the petitioner filed these petitions in this Court for the issue of writs prohibition. The petitioner challenged the validity of the proceedings before the Income-tax Officer on the ground that Section 16(3) of the Income-tax Act was ultra vires the Central Legislature. Section 16(3)(a)(ii) of the Income-tax Act, which was inserted by the Amending Act IV of 1937, runs:- "I....
X X X X Extracts X X X X
X X X X Extracts X X X X
....that the income is that of the minor child, that is, it recognises the legal right of the minor child to that income. For limited purpose of assessment of that income to Income-tax that income of the minor is included in the income of the minor child's parent, provided the other requirements of Section 16(3)(a)(ii) of the Income-tax Act are satisfied. The contention of Sri Rajah Aiyar, the learned counsel for the petitioner, was that Entry 54 in the Federal Legislative List of the Government of India Act, 1935, did not confer on the legislature any legislative power to tax A on the income of B, that is, in this case to tax the petitioner on the income of her minor children. Acceptance of that contention means that Entry 54 would have to be read or at least interpreted as "a tax on income of the person assessed to the tax". Does Entry 54 read with Section 100 of the Government of India Act, 1935, necessarily carry with it such a limitation is the question for determination. It was a rule of construction repeatedly laid down by courts in India and in England that Chagla, C.J., restated when he observed in J.N. Duggan v. Income-tax Commissioner, Bombay City [1952] 21 I.T.R. 458....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the tax- payer out of the Government. It imports an actual gain and increase of wealth in hand." Quite apart from the question whether the principles that underlie the American legislation on income-tax can decide the question at issue before us, the legislative competence of the Central Legislature (in India), it should be clear that the invalidity of the Wisconsin stature was rested in Hoeper's case(1) not on total absence of legislative powers but on the ground that in exercising that power of legislation, the legislature transgressed the constitutional limits of due process and equal protection of laws guaranteed by the American Constitution, Neither of these limitations was imposed on the Indian Legislature by the Government of India Act of 1935. We shall consider later whether the impugned statutory provision offends any of the provisions of our Constitution. Hoeper's case* may not be of any direct assistance in deciding the limits of legislative authority conferred on the Indian Legislature by Entry 54 of the Federal Legislative List read with Section 100 of the Government of India Act. The wisconsin legislature could exercise sovereign authority which the Indian....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... than Hoeper's case [1952] 21 I.T.R. 458 can this be of any direct assistance to us in deciding the question of the ambit of the legislative power conferred on the Indian Legislature by Entry 54 read with Section 100 of the Government of India Act, 1935. In Willams v. Singer; Pool v. Royal Exchange Assurance*** the provisions to be interpreted were those of the statute of the Parliament of the United Kingdom whose sovereignty in the legislative field recognised no constitutional limits. Therefore that case again may no be an authority for the position which the learned counsel for the petitioner sought to substantiate. The next case to which our attention was drawn by Sri. Rajah Aiyar was Patiala State Bank, In re*. At pages 112-113, after pointing out that the Ruler of the Patiala State could not be regarded as a "person" within British India, Beaumond, C.J., observed:- "I think that, properly considered, Income-tax is a tax on a person in relation to his income. The tax is not imposed on income generally; it is imposed on the income of a person, natural or artificial, as ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Entry 5 does not indicate whose income may be taxed by the Central Legislature; no limitations place upon the power of the Legislature as to the person who should be taxed in respect of his income." We respectfully agree with that view of the scope of Entry 54. How wide was the scope of the legislative power in relation to the income-tax, was indicated by the Supreme Court in the unreported decision, Commissioner of Income-tax v. Bhogilal Laherchand Since reported at 25 I.T.R. 50, (Civil Appeal No. 160 of 1950):- "The term 'deemed' brings within the net of chargeability income not actually accruing but which supposed notionally to have accrued. It involves a number of concepts. By statutory fiction income which can in no sense be said to accrue at all may be considered as so accruing. Similarly the faction may relate to the place, the person or be in respect of the year of taxability." When such is the content of legislative power, we are unable to hold that the legislature had no power to enact the impugned provision to lay a tax liability on the minor child's ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... a separate class as a composite tax.....In interpreting the sixteenth amendment the Supreme Court seemed to take the position that an income-tax has now been made an indirect tax and an excise tax." There is therefore nothing in the fundamental concepts of income-tax even as understood in America prevent the imposition of the immediate and apparent incidence of the tax on a person other than the person whose income is to be assessed. Such a concept is well-recognised by the legislative practice in the United Kingdom, the most familiar instance being the liability imposed by the income-tax laws of England on the husband for the tax payable on the income of his wife living with him. It is not necessary to consider in detail now the evolution of the rights of married women in England. Our investigation is quite limited in its scope. Under the English income- tax, law, the income assessed is that of the wife, but the incidence falls upon the husband under certain circumstances, the main requirements being that the husband and wife live together. As we have already pointed out, such statutory incidence in addition to being consistent with legislative practice in England is also n....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... be based upon some real and substantial distinction bearing a reasonable and just relation to the object sought to be attained and the classification cannot be made arbitrarily and without substantial basis." Professor Willis observes at pages 587-588 of his Constitutional Law: "The Supreme Court permits a wider discretion is classification under the power of taxation, if possible, than it does under the police power. one reason for this undoubtedly is the urgent need for revenue by the various governmental agencies. A State Does not have to tax everything in order to tax something. It is allowed to pick and choose districts, objects, persons, methods, and even rates for taxation if it does so reasonably. The Constitution does not say how cases shall be decided. All it says is that the States shall not deny to any person within their jurisdiction the equal protection of the laws. It does not say when persons are within the jurisdiction of a State, nor what are equal laws. As a consequence the Supreme Court decides cases as it thinks they ought to be decided with no other mandate than one to decide. The Suprem....
X X X X Extracts X X X X
X X X X Extracts X X X X
....dency to avoid taxation by the admission of minor children to the benefits of partnership in the father's business. Moreover, the admission is, as a rule, merely nominal, but being supported by entries in the firm's books, the Income-tax Officer is rarely in a position to prove that the alleged participation in the benefits of the partnership is unreal. There is the genuine case which is intended to be relieved by the Income-tax (Second Amendment) Act, 1933 and the question arises as to the nature and extent of the restriction, which will exclude from relief only the case in which a father is attempting to obtain an allowance for what is, in effect, merely the cost of maintenance of his children. We suggest that the income of a minor should be deemed to be the income of the father (1) if it arises from the benefits of the partnership in a business in which the father is a partner, or (2) if, being the income of a minor other than a married daughter, it is derived from assets transferred directly or indirectly to the minor by his or her father or mother, and (3) if it is derived from assets apportioned to him in the partition of a Hindu undivided family." Much the same wa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r actual enjoyment of the property of the minor as capital of that firm, it is difficult to hold that such a classification is unreasonable, all the more so when what the impugned provision was designed to get at was evasion of tax liability though the capital of the business, income of which business was taxed. was in reality contributed by the parent himself. The contention of the learned counsel for the petitioner was that the classification in this case was not reasonable but arbitrary and that contention he sought to support by the observations in Hoeper's case*. and also on the observations in Schlasinger v. Wisconsin**, and Hainer v. Donnan***. Schlasinger's case** was referred to in Hoeper's case*, and both were referred to in Hainer's case***. We think it is enough if we examine the scope of the decision in Hoeper's case*. What was held in Hoeper's case(1) was that a husband cannot consistently with the due process and the equal protection clauses of the Fourteenth Amendment be taxed by a State on the combined total of his and his wife's incomes as shown by separate returns where her income is her separate property and by reason of the tax be....