TaxTMI 
TaxTMI 
1961 (8) TMI 8
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....tioner and his wife formed themselves into a partnership to carry on their business and admitted their three minor sons to the benefits thereof. On September 22, 1952, a partnership deed was executed giving an equal share to each of the partners. On the basis of the partnership deed, in respect of the assessment year 1952-53, the petitioner filed two applications before the Income-tax Officer, Wardha, one under section 25A of the Act for recognizing the partition, and the other under section 26A for registration of the firm. Both the applications were finally ordered by the Income-tax Appellate Tribunal, Bombay, by its order dated September 3, 1958, that is, the partition was recognized and the firm was granted registration. For the assessment years 1953-54 and 1954-55 also, the Income-tax Department registered the firm under section 26A of the Act. The assessment proceedings in respect of the said three years are pending before the concerned income-tax authorities. For the assessment year 1955-56 also, the Income-tax Officer allowed the registration of the firm, but determined the total income of the petitioner at Rs. 2,44,625 as against the total income returned by him at Rs. 58,....
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....than agricultural income ". The said entry is identical with item 82 of List I of the Seventh Schedule to the Constitution. The argument is that income-tax is a tax imposed upon a person in relation to his income and, therefore, A can only be taxed on his income and not on the income of B. Learned counsel for the respondents, on the other hand, would Contend that the express terms of the entry did not restrict the legislative power to tax only the income of the person assessed, that what could be taxed under that entry was " income " and, therefore, nothing prevented the Legislature from imposing the incidence of the tax on a person other than the person whose income was to be assessed. Alternatively, he would make a distinction between the taxability of the income and the machinery for its collection, and contend that, though the income of the wife and the minor sons was only taxable, there was nothing illegal in imposing the immediate incidence on the father, as there was sufficient intimate nexus between the individual, his wife and minor sons, doing business in partnership, leaving the ultimate liability inter se to be settled between themselves. This question was directly rais....
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....sion of tax in such cases. The Legislature accepted those recommendations and the loopholes were sought to be plugged by enacting the said sub-section. Sub-section (3)(a)(i) and (ii) was, therefore, enacted for preventing evasion of tax and was well within the competence of the Federal Legislature. The constitutional validity of the said provision was next questioned on the ground that it violated the doctrine of equality before the law enshrined in article 14 of the Constitution. Under article 14, " The State shall not deny to any person equality before the law or the equal, protection of the laws within the territory of India." But decisions of this court permitted classification if there was reasonable basis for the differentiation. It was held that what article 14 prohibited was class legislation and not reasonable classification for the purpose of legislation. Two conditions were laid down for passing the test of permissible classification, namely, (i) the classification must be founded on an intel ligible differentia which distinguishes persons or things that are grouped to gether from others left out of the group, and (ii) that the differentia must have a rational relation....
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....d/or minor children, whether genuine or not, and partnerships between others. In demarcating a group, the net was cast a little wider, but it was necessary, as any further sub-classification as genuine and non-genuine partnerships might defeat the purpose of the Act. Strong reliance is placed upon the decision of the Supreme Court of America in Albert A. Hoeper v. Tax Commission of Wisconsin and it is, therefore, necessary to consider it in some detail. There, the appellant married a widow. Both the parties had separate incomes and made separate returns. Under the relevant tax Act, the incomes of the wife were added to the income of the husband for the purpose of taxation. The result was to increase the rate of the appellant's income-tax and to charge him with a tax otherwise payable by his wife. It was contended that the said law deprived the taxpayer of the due process and equal protection of the law. Roberts J., who expressed the majority view, accepted the contention and struck out the law. The learned judge observed at page 251 thus : " We have no doubt that, because of the fundamental conceptions which underlie our system, any attempt by a state to measure the tax on one ....
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....things are done in her name without her knowledge of the same. When the Legislature of this country, which is assumed to know the conditions of the people and their requirements, with the awareness of this particular widespread fraudulent device in the matter of evasion of taxes, made a law to prevent the said fraud, it is difficult for this court in the absence of any counterbalancing circumstances to hold, on the analogy drawn from American decisions, that the need for such a law is not in existence. On the contrary, there is a direct decision of the Madras High Court in Amina Umma v. Income-tax Officer, Kozhikode, sustaining the said provision on the ground of reasonable classification. Rajagopalan J., speaking for the Division Bench, after considering the relevant decisions on the subject, observed at page 150 thus : "The reasonableness or otherwise of a classification has to be decided with reference to all the circumstances of the case including the social and economic structure prevalent in the area where the taxing statute is in operation ... An attempt to prevent by legeislation an evasion of just tax liability and the necessary classification to give effect to that obje....
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.... of taxes, is a law within the meaning of Part III of the Constitution, and therefore it must stand the test laid down by article 13 of the Constitution. The " law " in article 265 of the Constitution must be a valid law. A law to be valid must not only be one passed by the Legislature in exercise of a power conferred on it, but must also be one that does not infringe the fundamental rights declared by the Constitution. When a licence fee was imposed by a municipality under a bye-law framed in excess of the power conferred on it by the pro visions of the U. P. Municipalities Act, this court in Mohammed yasin v. Town Area Committee, Jalalabad held that the enforcement of the said bye-law against a, citizen constituted an infringement of his right under article 19(1)(g) of the Constitution. Where a State sought to impose sales tax in exercise of a power conferred under a provision which was ultra vires the State Legislature, this court held in Himatlal Harilal Mehta v. State of Madhya Pradesh that a threat by the said State to realise tax from the assessee without the authority of law by using the coercive machinery of the impugned Act was a sufficient infringement of his fundamental....
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.... from taking his wife as a partner in his business but also prevents a wife, who has got a business of her own, from taking her husband as a partner in the business ; (3) the husband has to pay a tax at a rate higher than that he would have to pay if the income of the wife was not added to his income ; (4) the same situation is created inter se between a parent and his minor children vis-avis their joint business. Learned counsel, therefore, contended that the provisions prevented the honest pooling of resources of the members of a family so intimately connected with each other to the detriment of the family prosperity, and that it amounted to an unreasonable restriction on the said fundamental rights. There is some plausibility in this argument, but if an overall picture of the situation is taken, the reasonableness of the restrictions will be apparent. In State of Madras v. V. G. Row Patanjali Sastri C. J. lays down the following test of reasonableness : "The nature of the right alleged to have been infringed, the underlying purpose of the restrictions imposed, the extent and urgency of the evil sought to be remedied thereby, the disproportion of the imposition, the prevailing ....