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K.V. Kuppa Raju and ors. Vs. Government of India and ors. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKarnataka High Court
Decided On
Case NumberWrit Petition No. 27324 of 1992, connected with W.P. Nos. 31467, 35370, 35526 of 1992 and 17451 and
Judge
Reported inILR1999KAR4445; [2000]242ITR522(KAR); [2000]242ITR522(Karn)
ActsIncome Tax Act, 1961 - Sections 64 and 64(1A); Constitution of India - Article 14
AppellantK.V. Kuppa Raju and ors.
RespondentGovernment of India and ors.
Appellant AdvocateMurthy Kumar, ;R.B. Krishna and ;S. Parthasarathi, Advs.
Respondent AdvocateM.V. Seshachala and ;S. Sujatha, Advs.
Excerpt:
- section 38-c: [deepak verma, ag. cj & a.s. bopanna, j] acquisition of land land found unsuitable for inclusion in development scheme resolution of b.d.a. to allot the land to the owner from whom land was acquired by way of sale land owner already sold his interest in land to third party held, benefit of the resolution of b.d.a., will inure to the third party irrespective of the fact whether purchase was before or after issuance of preliminary notification for acquisition of land. - in reality as well as in law, the minor children cannot administer their property nor can they take decisions on the disposal of income arising therefrom. any such scheme to our mind would be far from simple in operation and would not be a better alternative to the scheme of clubbing of income in.....v.k. singhal, j. 1. the validity of section 64(1a) of the income-tax, 1961, has been assailed in these petitions. the provisions of section 64(1a) are as under : '64(1a) in computing the total income of any individual, there shall be included all such income as arises or accrues to his minor child : provided that nothing contained in this sub-section shall apply in respect of such income as arises or accrues to the minor child on account of any- (a) manual work done by him ; or (b) activity involving application of his skill, talent or specialised knowledge and experience.' 2. the full bench of the madras high court in the case of k. m. vyayan v. union of india : [1995]215itr371(mad) upholding the validity of section 64(1a) held that it was not violative of articles 14 and 19 of the.....
Judgment:

V.K. Singhal, J.

1. The validity of Section 64(1A) of the Income-tax, 1961, has been assailed in these petitions. The provisions of Section 64(1A) are as under :

'64(1A) In computing the total income of any individual, there shall be included all such income as arises or accrues to his minor child :

Provided that nothing contained in this sub-section shall apply in respect of such income as arises or accrues to the minor child on account of any-

(a) manual work done by him ; or

(b) activity involving application of his skill, talent or specialised knowledge and experience.'

2. The Full Bench of the Madras High Court in the case of K. M. Vyayan v. Union of India : [1995]215ITR371(Mad) upholding the validity of Section 64(1A) held that it was not violative of articles 14 and 19 of the Constitution of India.

3. Before us the competence of the Legislature is not challenged and the challenge is only on the following points :

(a) that there is a hostile discrimination between the income of the minor which is clubbed with the income of his/her father/mother, and the income of that minor which is not so clubbed. In a case where the income is clubbed it is liable to higher rate of tax and, therefore, the provisions are discriminatory ;

(b) there is no nexus of the object sought to be achieved in clubbing the income of the minor with either of the parents ;

(c) that the provisions are against the Directive Principles of State Policy inasmuch as a special status has been given to the minor.

4. Reliance is placed on the memorandum accompanying the Finance Bill which reads as under (see [1992] 194 ITR 170) :

'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

(iii) 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 disposal of income arising therefrom. These responsibilities fall on the parents, who, for all practical purposes, treat and use this income as part of their own income. Exclusion of minor children's income from the income of their parents also leads to tax avoidance. The existing provisions of Section 64 with regard to clubbing of minors' income have also led to litigation between Income-tax Department and the assessee.

The Bill, therefore, seeks to amend Section 64 of the Income-tax Act to provide that all income of a 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 specialised knowledge or experience will not be included in the income of his parent. It is also being provided that the income of the minor will be included in the income of that parent whose 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.

The Bill also seeks to insert a new Clause (32) in Section 10 of the Income-tax Act so as to provide that in case the income of an individual includes income of his minor child in terms of Section 64 of the Act, such individual shall be entitled to exemption of one thousand five hundred rupees in respect of each minor child if the income of such minor, as includible under Section 64, exceeds that amount. However, where the income of any minor so includible is less than one thousand five hundred rupees, the aforesaid exemption shall be restricted to the income so included in the total income of the individual. This provision is proposed to provide relief to the individual in whose total income the income of the minor child is to be included.'

5. Recommendations of the Chokshi Committee : In its final report, the Direct Tax Laws Committee examined the provisions of Section 64 in great detail and made the following recommendations :

'I-11.2. As regards the provisions of Section 64, they are principally aimed at clubbing the income of a spouse or minor child of the taxpayer in the circumstances specified therein under the amendments made by the Taxation Laws (Amendment) Act, 1975, the clubbing has been extended, incertain circumstances, to the income of the son's wife or the son's minor child, apart from further tightening up of the provisions for clubbing the income of the spouse or minor child. It has been recognised that one of the methods of tax avoidance is the diversion of income to the spouse or minor children by taxpayers. With a view to preventing such avoidance, Section 64(1) enumerates seven different contingencies for clubbing the income. One of the suggestions made to us was that these provisions could be considerably simplified by the introduction of the concept of a family comprising husband, wife and minor children, as a taxable unit. The concept of the family as a unit of assessment has been discussed for almost the last ten years, when a suggestion to this effect was contained in the Budget Speech. We have carefully examined this suggestion. This concept, in our view, has far reaching implications and repercussions on the independent status of women and their right to hold property and earn income under our law. It may also be detrimental to the interests of a large number of middle class families where women have to work to supplement the family income. It may be urged that these aspects could be taken into consideration if provisions were made to exclude various categories of incomes from particular sources and incomes from what is popularly known as streedhan from the scope of joint tax liability. Any such scheme to our mind would be far from simple in operation and would not be a better alternative to the scheme of clubbing of income in specified circumstances as contained in the present Section 64(1). Moreover, in the context of the Hindu undivided family being a separate taxable unit, further complications would arise in evolving yet another separate taxable unit. It would considerably distort the law in regard to the Hindu undivided family as a taxable unit where the law has evolved and is now reasonably well settled by several judicial pronouncements. In view of these and other considerations we are not in favour of substituting the present provisions for clubbing of incomes under Section 64(1) by the adoption of a family as a unit of assessment.

I-11.3 One of the circumstances under which the income of a minor child is clubbed with that of its parent is the income from the admission of the minor to the benefits of partnership in a firm. Prior to the amendment made in 1976, such clubbing only operated if the minor was admitted to the benefits of a partnership in which either parent was a partner. It was observed that the advantage of admitting minors to the benefits of partnership had unfortunately been misused widely. It was even suggested at one stage that the Partnership Act should be amended to prevent the admission of minors to the benefits of partnership. It was also observed that the clubbing provision was easily avoided by the admission of minors to the benefits of partnerships in which neither parent is a partner. Having observed the large scale misuse of this facility, Section 64 was amendedto provide for clubbing of the income of the minor from admission to the benefits of any partnership with the income of the parent irrespective of whether or not either parent was a partner in the same firm.

I-11.4 Our attention has been drawn to instances where the new provisions are being circumvented by the interpolation of a trust for the benefit of minors and the trustees of such trusts entering into partnerships. According to this device, a trust is created for the benefit of minors with express power to the trustees to utilize the trust funds by way of investment in business enterprises and partnerships. The legal position under partnership law is that partnership is the relationship between the persons who are named as partners and the fact that a partner is in turn accountable for his share of income to any third party is irrelevant to the partnership. The introduction of a trust takes advantage of this position under the partnership law and seeks to avoid the clubbing under Section 64(1). It is appropriate that the adoption of such a device is countered and the underlying provisions of the section are given proper effect. We, accordingly, recommend that where a minor receives income as a beneficiary under a trust and such income is derived from the profits and gains of business carried on by the trustees in partnership with others, such income of the minor should be added to the income of the parent. The clubbing provision in Section 64 should be extended to cover such cases.

I.11.5 It would follow from the recommendations made in the earlier paragraph that the device of a trust which is used to avoid the clubbing of the income of a spouse under the circumstances presently contained in Section 64 should likewise be countered. Accordingly, we recommend that if the spouse is a beneficiary under a trust and the trustees join in partnership with the individual, the clubbing provisions as presently contained in Section 64(1)(i) and Explanation 1 should become applicable.

I.11.6 The provisions for aggregating income of the spouse under Clause (i) of Section 64(1) has led to a dispute in regard to the treatment of losses which may fall to the share of the spouse from the partnership. The Gujarat High Court in Dayalbhai Madhavji Vadera v. CIT : [1966]60ITR551(Guj) , has ruled that the section contemplates inclusion of income and, accordingly, the share of loss arising to the spouse cannot be set off against the total income of the other spouse. The Karnataka High Court in Dr. T. P. Kapadia v. CIT : [1973]87ITR511(KAR) , has dissented from this view and has held that income in this section includes a loss. On general principles, income from membership in a firm would include a loss and the context of Clause (i) of Sub-section (1) does not warrant the contrary construction. The liability to assessment cannot alternate from year to year between the individual and the spouse depending on whether there is a profit or a loss. Besides, in the absence of other income, the right to carry forward the loss in a running business would be completely lost if the individual is to bevicariously liable when there is a profit and the loss is to remain a dead-loss in the assessment of the spouse. Apart from the construction of the existing provisions, in the interest of equity as well, it is appropriate that income referred to in Section 64 should include losses. Accordingly, if the income which is subject to clubbing under the section is negative amount, such negative amount should be available for set off in the income of the individual in whose hands the clubbing has to be given effect to. We, accordingly, recommend that income referred to in Section 64(1) of the Act should include loss.'

6. An Expert Group to rationalise and simplify income-tax law had given the following report (see : [1997]224ITR169(Mad) ) :

'SPECIAL PROVISIONS RELATING TO AVOIDANCE OF TAX

New provision : Taxation is now regarded as an important cost factor and so it is a common practice to undertake tax planning basically to ensure that while tax is reduced or totally avoided the transactions are structured within the legal framework of the law to minimise costs. While tax avoidance by taking advantage of law as distinguished from evasion is generally considered legitimate, the line between the two has tended to become thin. Hence, many tax systems in the world now contain provisions defining unacceptable tax planning. These provisions have come to be known as anti-avoidance provisions which cover cases other than those of sham transactions amounting to outright tax evasion.

The Ramsay doctrine which was also taken note of by the Supreme Court in the celebrated McDowell's case, explains a tax avoidance scheme as one where steps having no commercial purpose apart from the avoidance of a liability to tax are inserted in a composite transaction made up of a pre-ordained series of transactions.

While dealing with the relevant anti-avoidance provisions, Barwick C. J., observed : 'if the actual transaction into which the parties have entered involves the taxpayer any liability to tax or does not afford the taxpayer some benefit in taxation, such as a deduction, and that transaction is cast into another form which, if effective, would relieve the taxpayer of tax, wholly or partially, the intention with which that form of transaction is chosen can properly be said to be an intention 'to alter the incidence of the income-tax.' ' (italics added Mullens v. FCT 6 Australia Tax Report 504).

The Group also took note of the need to see that an anti-avoidance provision is not given a literal interpretation and that an arrangement having the 'purpose or effect' of attracting a tax avoidance or tax deduction consequence must pass an objective purpose test and also the predication test propounded by Lord Denning in Newton v. Commissioner of Taxation of the Commonwealth of Australia [1958] AC 450, 466 : 'In order to bring the arrangement within the section you must be able to predicate--by looking at the overt acts by which it was implemented--that it was implemented in that particular way so as to avoid tax.

The Group also had occasion to go through the various anti-avoidance provisions contained in the Income-tax Acts of other countries, in particular those of Australia, New Zealand, Malaysia, U. K. and Singapore. Though these provisions are more or less similar, there are shades of difference. Extracts of these provisions are given in an 'annexure' to this report.

After reviewing all the laws concerned, the Group has taken the view that Section 33 of the Singapore Income Tax Act with a few changes will be best suited to our conditions. It may be noted that an Expert Group was set up in Singapore some time in 1988 to review the anti-avoidance laws of other countries and to propose a suitable provision to that effect. The proposed provision is as under :

Sub-section (1) : Where the Assessing Officer is satisfied that the purpose or effect of any arrangement is directly or indirectly-

(a) to alter the incidence of any tax which is payable by or which would otherwise have been payable by any person ;

(b) to relieve any person from any liability to pay tax or to make a return under this Act ; or

(c) to reduce or avoid any liability imposed or which would otherwise have been imposed on any person by this Act ;

he may, without prejudice to such validity as it may have in any other respect or for any other purpose, disregard or vary the arrangement and make such adjustments as he considers appropriate, including the computation or recomputation of gains or profits, or the imposition of liability to tax, so as to counteract any tax advantage obtained or obtainable by that person from or under that arrangement.

Sub-section (2) : In this section, 'arrangement' means any scheme, trust, grant, understanding, covenant, agreement, disposition, transaction and includes all steps by which it is carried into effect.

Sub-section (3) : This section shall apply to any arrangement made or entered into, orally or in writing, whether before or after the commencement of this Act but, shall not apply to any arrangement carried out for bona fide commercial reasons and had not as one of its main purposes the avoidance or reduction of tax.

Proviso : Provided that the Assessing Officer cannot take any action under this section without the previous approval of the Commissioner.

It is suggested that the Board may issue clear instructions that the provision should not be invoked in case of ordinary commercial transactions including normal claims of expenses and allowances, and involving transactions of tax mitigation where the reduction in tax is derived from the provisions of the Act and not through any 'arrangement'. For example, contributions to provident fund, donations to recognised charity which anassessee makes with a view to obtain the benefit of incentive provisions would not be covered by the anti-avoidance law. The Board may clarify the correct import of these provisions having regard to the caveats indicated above, qualifying these provisions.'

7. The Budget Speech of the Finance Minister was to the following effect (see : [1992]194ITR1(SC) ) :

'60. It is said that the child is the father of man, but some of our taxpayers have converted children into tax shelters for their fathers. The tax law provides for clubbing of income from gifts given by parents but this does not apply to other income, including income from other gifted assets, and the practice of cross gifting is widely used to evade clubbing. The Chelliah 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. Recognising 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.'

8. It is submitted that the tax avoidance necessarily involves overt acts on the part of the assessee and the earlier proviso contained in Section 64(1) had covered all possible situations whereby the income of a parent could be diverted to a minor. The new provisions of Section 64(1A) now covers all income of the minor (with the exception of earned income) irrespective of the fact whether there is a nexus between the earning of such income and the overt act of the parent. The provisions of Section 64(1A) did not distinguish between avoidance and acceptable income. It is submitted that if the income of minor is clubbed with the parent then such income is liable to be taxed at a higher slab and a larger slice of the estate of the minor goes in taxes. Reliance is placed on the judgment given in the case of Hoeper v. Tax Commission (284 US 206-221), where it was observed that a husband cannot, consistently with the due process and equal protection clause of the 14th 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 being graduated, its amount exceeded the sum of the taxes which would have been due had their separate incomes been separately assessed. The directive principles enshrined under article 45 of the Constitution of India contemplated free and compulsory education and other articles of the Constitution provide for the welfare particularly for the minor which cannot be whittled down by causing a burden on the minor as observed in Unni Krishnan (J. P.) v. State of A. P., : [1993]1SCR594 .

9. Section 64(1A) was inserted by the Finance Act, 1992, from April 1, 1993, i.e., the assessment year 1995-94. The validity of this provision was challenged before the Patna High Court in the case of Syed Askari Hadi All Augustine Imam v. Union of India : [1994]209ITR746(Patna) , it was observed that the provisions of Section 64(1A) are for the purpose of checking the evasion of tax and the Legislature is competent to enact such a provision for imposition of tax. The provisions were held intra vires entry 82, List I of the Seventh Schedule and not violative of article 14 of the Constitution. It was also observed that there is inherent complexity in fiscal adjustment of diverse elements, permitting a large discretion to the Legislature in the matter of classification so long as it adheres to the fundamental principles underlying the said doctrine. The provisions of Section 64(1A) were considered machinery provisions relating to computation of income.

10. The Full Bench of the Madras High Court in the case of K. M Vijayan v. Union of India : [1995]215ITR371(Mad) , also examined the validity of Section 64(1A). In this matter it was alleged that there is no attempt at classification in the provisions of Section 64(1A) and lack of classification itself created inequality and is violative of article 14 of the Constitution of India. It was observed that in order to pass the test of permissible classification under article 14, the classification must not be arbitrary, artificial or evasive but must be based on some real and substantial distinction bearing a just and reasonable relation to the object sought to be achieved by the Legislature. There is no palpable arbitrariness in Section 64(1A) and hence it does not offend article 14 of the Constitution of India.

11. The provisions for clubbing the property of the wife (other than judicially separated wife) with the property of her husband were also upheld in the case of Jeet Singh v. State of U. P. : (1993)1SCC325 .

12. In Howard de Walden (Lord) v. IRC [1942] 1 All ER 287 (CA), at page 289, Lord Greene observed :

'For years a battle of manoeuvre has been waged between the Legislature and those who are minded to throw the burden of taxation off their own shoulders on to those of their fellow-subjects. In that battle, the Legislature has often been worsted by the skill, determination and resourcefulness of its opponents, of whom the present appellant has not been the least successful. It would not shock us in the least to find that the Legislature has determined to put an end to the struggle by imposing the severest of penalties. It scarcely lies in the mouth of the taxpayer who plays with fire to complain of burnt fingers.'

13. The validity of the provisions of Section 16 of the Act of 1922 and the provisions of Section 64/65 of the Act have also been upheld in the following cases.

ProvisionsCitations

Section16(3)(a)(i) and (ii) of the 1922 Act corresponding to section 64(1) (i) and (ii)

Balaji v. ITO : [1961]43ITR393(SC) . S. Srinicasan v. CIT : [1967]63ITR273(SC) . Smt. Shreekunwardevi Daga v. T. G.Trivedi. ITO : [1972]85ITR451(Bom) . E. V. Narusa Keililu v. ITO : [1960]39ITR629(AP)

Section 16(3)(a)(iv) of the 1922 Act, correspondingto section 64(l)(iv)

G. K.Devarajulu Naidu v. C/f : [1963]48ITR756(Mad) .

Section 64(l)(iii)

K. Krishnaveni v. AAC of I.T. : [1985]151ITR83(Mad) .

Section 64(1A)

Syed Askari Hadi Ali Augustine Imam v. Union ofIndia : [1994]209ITR746(Patna) .

14. In B. M. Amina Umma v. ITO : [1954]26ITR137(Mad) , the provisions of Section 16(3)(a)(ii) admission of a minor to the benefits of partnership in which his. parent is a partner was held not violative of article 14 of the Constitution.

15. In Ganga Sugar Corporation Ltd. v. State of U. P. : [1980]1SCR769 , it was observed (page 50) :

'It is well established that the modern State, in exercising its sovereign powers of taxation, has to deal with complex factors relating' to the objects to be taxed, the quantum to be levied, the conditions subject to which the levy has to be made, the social and economic policies which the tax is designed to subserve, and what not. In the famous words of Holmes J., in Bain Peanut Co. v. Pinson [1930] 282 US 499, 510 : 'We must remember that the machinery of Government would not work if it were not allowed a little play in its joints' . . . Fine-tuning to attain perfect equality may be a fiscal ideal but, in the rough and tumble of work-a-day economics, the practical is preferred to the ideal, provided glaring caprice or gross disparity does not make the levy arbitrary or frolicsome. Article 14 is not intellectual chess unrelated to actual impact or the wear and tear of life but even handed justice with some play in the joints.'

16. In Punjab Distilling Industries Ltd. v. CIT : [1965]57ITR1(SC) , it was observed that tax can be evaded by breaking the law or can be avoided in terms of the law. The entries in the legislative lists were held to be construed liberally and in their widest amplitude, and not in a narrow or restricted sense. Each general word should be held to extend to all ancillary or subsidiary matters which can fairly and reasonably be said to be comprehended by it.

17. It is submitted that the minor's rights are to be protected rather than creating a burden on them. Reliance is placed on the judgment given in the case of Kakumanu Pedasubhayya v. Kahumanu Ahkamma, : [1959]1SCR1249 , where it was observed that (page 1049) :

'Now the theory is that the sovereign as parens patriae has the power, and is indeed under a duty to protect the interests of minors, and that function has devolved on the courts. In the discharge of that function, therefore, they have the power to control all proceedings before them wherein minors are concerned. They can appoint their own officers to protect their interests, and stay proceedings if they consider that they are vexatious. In Halsbury's Laws of England, Vol. XXI, page 216, para. 478, it is stated as follows : 'Infants have always been treated as specially under the protection of the sovereign, who, as parens patriae, had the charge of the persons not capable of looking after themselves. This jurisdiction over infants was formerly delegated to and exercised by the Lord Chancellor ; through him it passed to the Court of Chancery, and is now vested in the Chancery Division of the High Court of Justice. It is independent of the question whether the infant has any property or not'.'

18. In Balaji v. ITO : [1961]43ITR393(SC) , the provisions of Section 16(3)(a)(i) and (ii) for inclusion of the wife's or minor child's share of profits of the firm in which assessee is a partner were challenged. It was considered that the provisions were enacted by the Legislature to prevent evasion of tax. For infringement of article 14 of the Constitution of India it was observed that there are two conditions laid down for passing the test of permissible classification (i) the classification must be founded on an intelligible differentia which distinguishes persons or things that are grouped together from others left out of the group, and (ii) that the differentia must have a rational relation to the object sought to be achieved by the statute in question. Making the provisions for clubbing the income of the wife and of minor children it was observed that the Legislature has selected for the purpose of classification only that group of persons who in fact are used as a cloak to perpetrate fraud on taxation. It was further observed that the section does not prevent the husband or the father, as the case may be, from debiting against them in the partnership accounts that part of the tax referable to the share or shares of their income. It may be that a father or a husband may have to pay tax at a higher rate than ordinarily he would have to pay if the addition of the wife's or children's income to his own brings his total income to a higher slab. But it may not necessarily be so in a case where the income of the former is not appreciable ; even if it is appreciable, he can debit a part of the excess payment to his wife and children. On the basis of this it is submitted that a minor who was liable to tax or at a lower rate of tax is subject to a higher rate of tax which is ultimately to be borne by them and thus a higher burden is created. The apex court while upholding the provisions observed as under (page 398) :

'But it (the relevant provision of the Income-tax Act which enabled the share of each partner of a registered firm to add to his other incomefor being charged as part of his total income) gave an effective handle to evade taxation in another direction. A husband or father could nominally take his wife or his minor sons in partnership with him so that the tax burden might be lightened, for, if the income was divided between a number of people, the income derived by an individual therefrom might fall under the limits of taxable income or under a less onerous slab. This device enables an assessee to secure the entire income of the business but at the same time to evade income-tax which he would have otherwise been liable to pay.'

19. In Sardar Baldev Singh v. CIT : [1960]40ITR605(SC) , it was observed (page 615) :

'Under entry 54 a law could, of course, be passed imposing a tax on a person on his own income. It is not disputed that under that entry a law could also be passed to prevent a person from evading the tax payable on his own income. As is well-known the legislative entries have to be read in a very wide manner and so as to include all subsidiary and ancillary, matters. So entry 54 should be read not only as authorising the imposition of a tax but also as authorising an enactment which prevents the tax imposed being evaded. If it were not to be so read, then the admitted power to tax a person on his own income might often be made in fructuous by ingenious contrivances. Experience has shown that attempts to evade the tax are often made.'

20. The provisions of Section 16 of the Act of 1922 and Section 64/65 of the Act of 1961 have been amended from time to time may be on the basis of the interpretation given by the courts or looking to the financial needs and plugging the loophole of drainage of revenue which according to the Legislature should have been received by the Government. So far as the jurisdiction to enact a law providing for taxation it is not in dispute that the provisions of entry 82, List I of the Seventh Schedule authorise Parliament to make an enactment on the taxes on income. The tax which has been levied is on income and cannot be said that it is not an income. In whose hand the income is to be taxed is a machinery provision which authorises the authorities under the Act to compute the income in a particular manner. The income of the minor for the purpose of taxation has been considered to be income of the parent. The Legislature would have provided a procedure of separate assessment of the minor and parent. It could have been provided that the slab applicable after including the income of the parent will be applicable for the income of the minor. It was only to reduce the procedural requirement such a provision is enacted. The contention that the provisions of Section 64(1A) are unworkable in a case where the parents are childless, the finances of the minor are under the control of trustee or guardian, etc. has also no force because, once a legal fiction is created it has to be carried to its ultimate object and conclusions.

21. It may not be in the strict sense evasion of tax but it is one of the modes which the legislation has considered and which is adopted to circumvent the liability of tax. Under Section 64(1A), in computing the total income of any individual the income of the minor child is sought to be included.

22. Under the Income-tax Act, a Hindu undivided family is considered to be a separate entity. For the purpose of rate of tax earlier there were different rates of taxes prescribed for specified and unspecified Hindu undivided families. The Legislature is competent to provide a different rate of tax as well and it could have been provided for assessment of an individual who is having a minor child earning income separately. It is thus a provision for computation of income of an individual whose minor child is having income and that by itself constitutes a different class. Instead of providing a separate slab, it is provided that the income of such minor would be included in the income of the individual. There is no lack of competence in the Legislature for providing such a legislation. The object sought to be achieved is to tax the income and simply because by including the income of the minor in the hand of either of the parents which has been subjected to a higher tax burden, it cannot be considered to be unconstitutional.

23. As observed above, the provisions of Section 64(1A) are machinery provisions. It was on the basis of the expert opinion, the Legislature considered to plug the loophole having tremendous scope of tax avoidance by having shown the income through the children by an individual. It is not necessary that there should be in all cases evasion or avoidance of tax. When the provisions are made to block the loophole for any possible tax avoidance, the Legislature is competent to have a wider field of discretion not only for the substantive provision but for procedural provisions as well. The decisions relied on by learned counsel for the petitioners are not of any assistance as the competence of the Legislature is not challenged and it is only on the basis of article 14 of the Constitution of India with reference to the special status of the minor validity of the provisions have been challenged. There is no hostile discrimination between those minors whose income is not included with the income of their parent as they may not be assessable at all or may be assessable at a lower rate of tax as the individual whose minor children is having income have been considered a different class by themselves. Even the expert committee has considered it to be a method for avoidance of tax. In view of the judgment given in the case of Balaji v. ITO : [1961]43ITR393(SC) , if the Legislature has selected for the purpose of classification a group of persons who are in fact used as a cloak to perpetrate fraud on taxation the provisions cannot be considered to be violative of Article 14 of the Constitution of India.

24. Petitions accordingly stand dismissed.


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