TaxTMI 
TaxTMI 
2019 (4) TMI 420
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.... father and mother died in a car accident on 28.06.1993. While her mother died on 28.06.1993, her father succumbed to injuries on 05.07.1993. Her grandmother also died in the same accident. At that point of time, the Assessee-Ms.M.Pranuthi was only two-and-a-half years old child. Her grandfather Sri R.P.Sarathy was her sole guardian. The Minor Ms.M.Pranuthi naturally inherited the property of her parents and grandmother and the income from such sources, which is the subject matter of controversy in the present appeals, continued to be agricultural income and money lending as well as income from partnership firm business of coffee. 3.2. The Assessing Authority, namely, Joint Commissioner of Income Tax, assessed such taxable income in the hands of Minor Ms.M.Pranuthi, holding that Section 64(1A) of the Income Tax Act could not be applied, as both the parents of the minor girl had unfortunately expired and, therefore, the clubbing provisions enacted in Section 64(1A) of the Act could not be invoked and, as such, the entire income earned was liable to be taxed in the hands of the Assessee-Minor herself. 3.3. The First Appellate Authority, namely, CIT (A) upheld the said Assessmen....
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....g on the non-applicability of the clubbing provisions in Section 64(1A) of the Act ? 6. T.C.A.Nos.1282 to 1288 of 2008, filed by the Revenue, have been admitted by another Co-ordinate Bench of this Court on 19.08.2008 on the following Substantial Questions of Law : (1) When the parents of the minor are not alive, whether or not the income of the minor is taxable in the hands of the person who is entitled to or in respect of the minor as a representative assessee under Sections 160 and 161 of the Income Tax Act ? (2) Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in holding that the paternal grandfather who filed the return ought to have shown the income in the return filed as guardian of the minor in view of Section 160 (ii) of the Income Tax Act instead of assuming a non-existent status of a caretaker and thereby evading the obligation to declare the entire income in the return filed ? 7. However, we consider it appropriate to re-frame the said Questions of Law in the following manner : (1) Whether the Provisions of Chapter XV, comprising Sections 159, 160 and 161, read with Section 64(1A) of....
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.... interdependence to decide the controversy in hand : "Section 64 : Income of individual to include income of spouse, minor child, etc. (1) In computing the total income of any individual, there shall be included all such income as arises directly or indirectly- (i) Omitted by the Finance Act, 1992, w.e.f. 1-4-1993. (ii) to the spouse of such individual by way of salary, commission, fees or any other form of remuneration whether in cash or in kind from a concern in which such individual has a substantial interest : Provided that nothing in this clause shall apply in relation to any income arising to the spouse where the spouse possesses technical or professional qualifications and the income is solely attributable to the application of his or her technical or professional knowledge and experience. xxxxx" Section 64, Sub-section (1A) : (1A) In computing the total income of any individual, there shall be included all such income as arises or accrues to his minor child, not being a minor child suffering from any disability of the nature specified in section 80U : Provided that nothing contained in this sub....
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....bing. 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." 20. The Memorandum of Explanation of the provisions in the Finance Bill,1992, in this regard, are also quoted below for ready reference : "MEASURES AGAINST TAX AVOIDANCE Clubbing of minors' income Section 64 of the Income-tax Act provides that in computing the total income of any individual, there shall be included all such income as arises directly or indirectly to a minor child of such individual from,- (i) the admission of the minor to the benefits of partnership in a firm, (ii) assets transferred directly or indirectly to the minor child by such individual otherwise than for adequate consideration, and (ii) assets transferred directly or indirectly by such individual to any person or association of persons otherwise than for adequate consideration, to the extent to which income from such assets is for the immediate or deferred benefit of such individual's minor child. In reality as well as in law, the minor children cannot administer their property nor can they take decisions on the disp....
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....g to other beneficiaries, whom they represent viz., minors and others. 23. Sections 159 and 160 of the Act, to their relevant extent, are also quoted below for ready reference : "CHAPTER XV LIABILITY IN SPECIAL CASES A.-Legal representatives Legal representatives. 159. (1) Where a person dies, his legal representative shall be liable to pay any sum which the deceased would have been liable to pay if he had not died, in the like manner and to the same extent as the deceased. (2) For the purpose of making an assessment (including an assessment, reassessment or recomputation under section 147) of the income of the deceased and for the purpose of levying any sum in the hands of the legal representative in accordance with the provisions of subsection (1),- (a) any proceeding taken against the deceased before his death shall be deemed to have been taken against the legal representative and may be continued against the legal representative from the stage at which it stood on the date of the death of the deceased; (b) any proceeding which could have been taken against the deceased if he had survived, may be taken against the legal re....
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....of the Act were brought under challenge before this Court and have already been examined and upheld by a Full Bench of this Court in the case of K.M.Vijayan v. Union of India, (1995) 215 ITR 317 (Madras) FB, with the following observations : "34. In view of the foregoing reasons, we uphold the constitutional validity of sub-section (1A) of Section 64. We also hold that it is within its legislative competence for Parliament to enact sub-section (1A) of Section 64 since it falls under Schedule VII, List I, Entry 82. Further, we hold that sub-section (1A) of Section 64 is not violative of Article 14 and Article 19. In that view of the matter, it is not possible to strike down sub-section (1A) of Section 64 as illegal, unconstitutional and ultra vires the Constitution, as alleged by the petitioners. In the result, the writ petitions are dismissed. No costs." In his concurring opinion, Abdul Hadi, J. as he then was, added the following words, explaining the main object behind the enactment of Section 64 (1A) of the Act : "48. But, it appears to me that the object of section 64(1A) has not come in mainly as anti-avoidance measure, though incidentally such an....
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....the same in the hands of either of the parents. But, in the present case, since both the parents had unfortunately expired, the clubbing provisions could not be applied and hence the Tribunal was justified in not imposing any tax on such income arising or accruing to the minor from money lending business or share from partnership firm, carrying on the coffee business. 28. What seems to have escaped the attention of the learned counsel for the Assessee as well as the authorities below in the present case is, the existence of Sections 159 and 160 of the Act, particularly, Section 160 (1) (ii), which specifically provides that in respect of the income of a minor, lunatic or idiot, the guardian or manager of such minor, lunatic or idiot shall be the representative-assessee and, therefore, he is under obligation to return such income accruing or arising to such incapacitated assessees in the eye of Contract Law and discharge their tax obligations. The representative-assessee is assessee for all purposes under the Act and he has to discharge the tax obligations on the income accruing or arising to a minor, who cannot be said to be outside the net of tax under the provisions of the ....
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....visions in Section 64(1A) of the Act cannot be said to be charging provisions and they were enacted as an antievasive measure to plug the loopholes in the taxation of the income of Minors, which was found to be used by parents, but not taxed and also to avoid diversion of parents' income to the Minor by way of gifts or otherwise and then out of that corpus of funds, income of interest etc., arising out of the hands of the Minors, not being brought to tax and, therefore, the clubbing provisions were introduced in Sub-section (1A) to Section 64 to add the income of Minor in the hands of parent, having higher taxable income. The only exception was, where the Minor, by his or her own skills, earns some income, which was to be taxed in the hands of minor child itself, without attracting the clubbing provisions. The clubbing provisions are, therefore, nothing but machinery provisions to obligate the parent of the child to discharge the tax obligations in respect of income arising or accrued to the minor child. If parents viz., father and mother are not available, as in the present case, Section 160 (1) (ii) of the Act will stand attracted and the Guardian like the grandfather in the ....