TaxTMI 
TaxTMI 
1984 (10) TMI 40
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....would appear that the assessee, whose status is that of an individual for the purpose of assessment, did not derive income from any source liable to be taxed under the Act for the income-tax assessment year 1976-77. Two of the assessee's minor children, Venkata Ravindranath Tagore and Srikrishna Mohan, were admitted to the benefits of partnership in the firms known as (1) M/s. Goli Brothers, and (2) M/s. Goli Venkateswararao & Co. of Vijayawada. The share income arising to the above-mentioned minors from their admission to the benefits of partnership in the two firms referred to above amounted to Rs. 13,795. The ITO included this in the assessment made on the assessee for the assessment year 1976-77 and taxed him on that income. As already stated, the assessee did not derive income from any source. On these facts, the assessee contended before the ITO that the provisions of s. 64(1)(iii) of the Act are not applicable. According to the assessee, the above provisions are inapplicable in a case where the assessee himself has no income in the status of an individual. In order that income arising to minor children of an individual from their admission to the benefits of partnership in a....
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....ich has to be declared in the return to be filed by the assessee. That being so, urged the learned counsel for the Revenue, the individual is liable to be taxed on the share incomes arising to the minor children on their admission to the benefits of a partnership in a firm. Learned counsel relied on the decision of this court in Sivalal Sogaji, In re [1983] 140 ITR 39. Sri Ch. Srirama Rao leading the arguments on behalf of the counsel appearing for the assessees initially submitted that the decision of this court in Sivalal Sogaji, In re [1983] 140 ITR 39 requires reconsideration, inasmuch as that was a decision of this court dismissing a writ petition at the admission stage, without considering the various aspects arising for consideration in the case. In any event, that decision is distinguishable, because, in that case, the individual in whose hands the share income arising to the minors was included has income from some sources, although it was far below the minimum liable to tax, whereas in the cases on hand, the assessees do not have income from any source whatsoever excepting the share income. That fact, urged the learned counsel, distinguishes the present cases. Learned ....
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....e of an assessee and not otherwise. Learned counsel urges that if an attempt to compute the total income of the assessee is frustrated because of failure of income from any source to an assessee, s. 64 of the Act becomes inoperative. Learned counsel further pointed out that there is built-in-evidence in s. 64 of the Act itself that an assessee must have total income for the purpose of assessment under the Act before considering the question of including the share income arising to minor children. Our attention has been invited to Explanation I to s. 64(1) which provides that the share income arising to minor children can be included in the total income of that parent whose total income excluding the income referred to in s. 64(1)(iii) of the Act is greater for the purpose of assessment. This provision, according to the learned counsel, makes it clear that before the inclusion of the share income arising to minors under s. 64(1)(iii) of the Act, the ITO has to find out the total income of the parents of the minor children and ascertain whose total income is greater and then determine the situs of assessment. This provision, the learned counsel proceeded to urge, makes it unmistakabl....
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....y be relevant to make few observations. Section 64 contains provisions intended to check tax avoidance by persons through diversion of income to the members of their family. Prior to the Taxation Laws (Amendment) Act, 1975, the provisions of s. 64 dealt with the inclusion of income arising to a minor child from a partnership firm of which the assessee himself is a partner. There is no sanction to include the income arising to a minor child admitted to the benefits of a partnership in a firm of which the parent was not a partner. To plug the loophole, the Taxation Laws. (Amendment) Act, 1975, introduced s. 64(1)(iii) with effect from April 1, 1976, that is to say, with effect from the assessment year 1976-77. We have already referred to the provision, but for the sake of completeness, we may quote below the relevant provision : " 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-... (iii) to a minor child of such individual from the admission of the minor to the benefits of partnership in a firm ; " Thus, up to and in the assess....
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.... being applicable to all categories of assessees, irrespective of the fact whether they have total income liable for assessment under the Act, or they have no total income at all. On the plain language employed in the provisions of s. 64(1)(iii) of the Act, it is not possible to accept the contention that the Legislature missed the fire and failed to achieve the object of checking tax avoidance by the above amendment which became effective from April 1, 1976. The provisions contained in s. 64 of the Act form part of an indivisible scheme for the purpose of assessment in the hands of an assessee of income in respect of which he is assessable under the Act. The income so assessable in the hands of an assessee may be his own income or the income of any other person in respect of which the assessee is assessable under the provisions of the Act. Section 139(1) of the Act enjoins that every person, if his total income or the total income of any other person in respect of which he is assessable under the Act during the previous year exceeded the maximum amount which is not chargeable to income-tax, shall furnish a return of his income or the income of such other person during the previ....
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....n prescribed under rule 12 of the I.T. Rules and the assessee may be held liable for necessary consequences for the omission to declare such income. If the assessee could be held to be under an obligation to himself include in his return under the respective heads of income, the income falling under s.64 of the Act, it is futile to contend that the ITO cannot assess the assessee on the income, falling under s. 64(1)(iii) of the Act on the ground that apart from that income, the assessee has no other income. If pursuant to the obligation on the part of the assessee, the income arising to the minor children is declared in the return, the ITO is entitled to accept that return under s. 143(1) of the Act and no further proceedings will ensue. Whatever may be the position in law prior to April 1, 1972, regarding the assessee's obligation to include income under s. 64 of the Act, it is clear that after the amendment of the return with effect from April 1, 1972, the assessee cannot escape his obligation to include in his return the income falling under s. 64(1)(iii) of the Act. We derive full support for this view from the judgment of the Supreme Court in CIT v. Kochammu Amma [1980] 125....
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.... of the return prescribed by r. 12 has been amended and since then, there is a separate column providing that I income arising to spouse/minor child or any other person as referred to in Chap. V of the Act should be shown separately under that column and consequently there is no longer any scope for arguing that the assessee is not bound to disclose such income in the return to be furnished by him, we would have referred the present case to a larger Bench. But we do not propose to do so since the question has now become academic in view of the amendment in the form of the return carried out with effect from 1st April, 1972." In our opinion, the above observations provide a complete answer to the questions raised by the learned counsel for the assessees in these references. Once it is accepted that the assessee is under an obligation to himself declare in the return filed by him the income arising to his minor sons on their admission to the benefits of partnership in a firm, no further consideration becomes relevant. It would be immaterial whether such an assessee has income from any other source under the Act. In the first place, the income, although derived by his minor childre....