Chandra Reddy, C.J.
1. The constitutionality of Section 64 of the Indian Income-tax Act, 1961 is questioned in these Writ Petitions.
2. The orders of the Income-tax Officer including the income attributable to the shares of the minor children of the two petitioners (petitioner 1 in W. P. No. 356 of 1963 and W. P. No. 357 of 1963) in their income for purposes of assessment, are sought to be quashed in these writ petition on the ground that Section 64 of the Indian Income-tax Act, 1961 (XLIII of 1961) is beyond the legislative power of the Indian Parliament.
3. The facts culminating in this controversy are shortly these.
One Hakim Moizuddin, who was the inventor of a receipe known as the Zinda Tilismat, died in February, 1954, leaving behind his two widows, sons, daughters and an aged mother as also his lucrative business. On his death, his business devolved on his heirs-at-law. On 4-5-1954, a deed of partnership was executed amongst the heirs, and the minor children of Moizuddin were admitted to the benefits of this partnership. The partnershipexisted till the date of death of Moizuddin's motherin July, 1954. Thereafter a fresh partnership wasentered into between the heirs of Moizuddin andthose of his mother on 21st June, 1958. This timeAlso the minors were admitted to the benefits of thepartnership. On both the occasions, the partnershipwas registered under Section 26A of the IncomeTax Act.
4. While things stood thus, Income-tax Act (XLIII of 1961) came into operation on 1-4-1962. Pursuant to the impugned provision of this Act, i. e., Section 64, two orders of assessment were issued by the concerned Income-tax Officer provisionally clubbing the income of the minor children of each of the widows to their respective incomes. It may be mentioned here that the senior widow, Hafeezunnisa Begum, has three minor children, while the junior widow, Mohammad Begurn, has two children. The income ascribable to the share of the three minor children of Hafeezunnisa Begum was added to her income, while the income belonging to the two minor children of Mohammed Begum was added to her income. In other words, for purposes of assessment to tax the profits from the business, each of the widows was treated as one unit.
5. It is not disputed that this method of assessment is permissible under Section 64. But this section is assailed as being ultra vires of the Indian Parliament. It is contended that legislation is not ascribable to the relevant entry in list I of the Seventh schedule annexed to the Constitution.
6. Before we consider the scope and ambit of the entry on which this section is sought to be founded, it is convenient to extract here the terms of Section 64. It reads:
'In computing the total income of any individual, there shall be included all such income as arises directly or indirectly -
i) to the spouse of such individual from the membership of the spouse in a firm carrying on a business in which such individual is a partner;
ii) to a minor child of such individual from the admission of the minor to the benefits of partnership in a firm in which such individual is a partner;
iii) subject to the provisions of Clause (i) of Section 27, to the spouse of such individual from assets transferred directly or indirectly to the spouse by such individual otherwise than for adequate consideration or in connection with an agreement to live apart;
iv) subject to the provisions of Clause (i) of Section 27, to a minor child, not being a married daughter of such individual, from assets transferred directly or indirectly to the minor child by such individual otherwise than for adequate consideration; and
v) to any person or association of persons from assets transferred otherwise than for adequate consideration to the person or association of persons by such individual, to the extent to which the income from such assets is for the immediate or deferred benefit of his or her spouse or minor child (not be. ing a. married daughter) or both.' x x x
7. The predecessor of this Section is Section 16 (3) of Act XI of 1922. As this section has a bearing on the present enquiry, we will do well to read it here:
'In computing the total income of any individual for the purpose of assessment, there shall be included -
(a) so much of the income of a wife or minor child of such individual as arises directly or indirectly -
(i) from the membership of the wife in a firm of which her husband is a partner
(ii) from the admission of the minor to thebenefits of partnership in a firm of which such individual is a partner; x x x
8. It is pertinent to state here that in the original Act as passed in 1922 there was no provision for clubbing the income of either the wife or minor child to that of the husband or the father, as the case may be. Section 16 (3) was introduced as a result of the report of the Income Tax Enquiry Committee, 1936, which was given effect to in Section 2 of the Indian Income Tax (Amendment) Act (IV of 1937). We will presently refer to the reasons that induced that Committee to make such recommendation.
9. Before proceeding further with the legislative authority of the Indian Parliament to make the impugned law, we will notice the differences that exist between Section 16 (3) of Act XI of 1922 and Section 64 of Act XLIII of 1961 and the reasons that brought about these differences.
A comparison of the two sections will disclosethat the expression 'spouse' occurring in clause(i) of Section 64 is substituted for the terra 'wife'in Act XI of 1922. The reason for replacing the-word 'wife' by the term 'spouse' is this. In.Commissioner of Income-tax Madhya Pradesh andBhopal v. Sodra Devi, : 32ITR615(SC) , the question arose whether the income of the sons of an assessee, who happened to be a female, could be included in her total income.The answer to this depended upon whether the expression 'individual' occurring in Section 16 (3) ofAct XI of 1922 would comprehend a female.Though, normally, that word is capable of takingin a female, the learned Judges (by a majority)restricted the connotation of that term to a malahaving regard to the collocation of the words in thesection. Under clause (a) of Section 16 (3), it isonly the income of a wife or minor child of suchindividual arising directly or indirectly 'from themembership of the wife in a firm of which her husband is a partner' that was liable to be includedin the income of her husband. Thus, the emphasis was upon the words 'the income of a wife'and 'from the membership of the wife in a firm otwhich her husband is a partner'. Thus clearly theword 'individual' took its colour from the contextof Clause (a), sub-clause (i). It is because of thisthe majority said that the word should be construedas referring only to the husband i. e., a male.
10. It may be incidentally mentioned that S. K. Das, J., opined that the word 'individual' was comprehensive enough to embrace a female also and that there was no warrant for reading a restriction into the significance of that word. The consequence was that this disabled the Income-tax Department. to include the income of the husband in that of his wife or that of the minor child of a female in her income.
11. Shortly thereafter the Parliament of India constituted a Committee (Direct Taxes Administration Enquiry Committee), under the Chairmanship of Sri Mahavir Tyagi, to eliminate the difficulties experienced in the working of the Income Tax Act and to devise an effective administrative machinery which inter alia would check the eyasion of tax and would function without giving any scope for public complaint.
12. This Committee, among other things, suggested that a provision covering cases of assets transferred by the wife to her husband should be made in the new Act, as Section 16 (3) was to be confined only to cases of transfer of the assets of the husband to his wife. It is to give effect to this suggestion that Section 64 as it now stands was inserted in the new Act. If this Section is valid, the total income of the mother or father, as the case may be, could include for purposes of assessment the income of her or his minor child admitted to the benefits of partnership in a firm of which such individual is a partner.
13. The question for consideration is whether such a provision could be legally enacted in other words, whether it was within the Legislative competence of the Indian Parliament to enact this provision. This depends upon the meaning in be given to the words 'Taxes on income other than agricultural income' in entry 82 of List I of the Seventh schedule,
14. It is urged by the learned Advocate-General on behalf of the petitioners that this entry does not enable the parliament to make a law enlarging the scope of the word 'income' so as to 'include the income not belonging to an individual but which belongs to third parties. According to him, that term connotes only the income of a person and to construe it as covering the income belonging to third parties is abhorrant to the prevalent notions regarding income. In common parlance, says the learned Advocate-General, that expression signifies what one has realised and not what some other person has earned and so for purposes of taxation the income of A could not be equated to the income which B earned and which could form the subject-matter of A's assessment. It was also argued by him that such a construction would lead to great hardship in that persons, who are not in receipt of income, are called upon to pay tax on the income earned by other persons. His last argument could be disposed of by observing that considerations of hardship are irrelevant in deciding questions of legislative competence.
15. In deciding what the import of the expression 'income' in Entry 82 is, it should be remembered at the outset that these entries relate to the fields of legislative power and, therefore, they could not be read in a narrow or restricted sense. A very liberal construction should be put upon them so that they may have effect in their widest amplitude. These words should be so construed as to include and extend to al! ancillary or subsidiary matters comprehended in them.
16. In James y. Commonwealth of Australia, (1936) AC 578, it was observed by the Privy Council that a Constitution must not be construed in any carrow and pedantic sense. Lord Wright further observed:
'..,......... The words used are necessarily general, and their full import and true meaning can often only be appreciated when considered, as the years go on, in relation to the vicissitudes of facts which from time to time emerge. It is not that the meaning of the words changes, but changing circumstances illustrate and illuminate the full import, of that meaning.'
17. The statement of law to a similar effect is-to be found in United Provinces v. Atiqa Begum, Gwyer, C. J., remarked:
'I think, however, that none of the items in . the Lists is to be read in a narrow or restricted sense, and that each general word should be held to extend to all ancillary or subsidiary matters which can fairly and reasonably be said to be comprehended in it.'
18. Bearing in mind the principles enunciated above, we have to construe the word 'income' as liberally as it is capable of. It may be mentioned here that Section 16 (3). which is the ancestor of the impugned section, was the subject-matter of judicial scrutiny.
19. In Amina Umma v. Income-tax Officer, Kozhikode, : 26ITR137(Mad) the validity of Section 16 (3) was challenged. It was urged before the learned Judges of the Madras High Court that it was not within the legislative authority of the Central Legislature to insert-a provision like Section 16 (3). This contention-did not find favour with the learned Judges. They ruled that entry 54 of List I of the Seventh schedule of the Government of India Act, 1935, which is similar to entry 82 of List I of the present Constitution, conferred power upon the Indian Parliament to enact that section. The learned Judges stated that entry 54 did not place any restriction, on the power of the Legislature as to the person-who should be taxed in respect of his income. They said the only requirement of the entry was that the law should impose a tax on income and it does not cease to be a tax on income either in form or in substance though the incidence of the tax falls on another person. It was remarked there:
'The incidence of the tax whether it is the-immediate and apparent incidence, or whether it is-the ultimate or real economic incidence, does not, in our opinion, limit the taxing power given to the Central Legislature by entry 54 of List I. All that Entry 54 requires is that the tax must be a tax on income other than agricultural income. The -impugned provision in Section 16 (3) (a) (ii). Income Tax Act provides only for a tax on income. It does not cease to be a tax on income either in form or in substance, though it provides for the incidence of the tax not on the person whose income is assessed to tax, but on another. In this case that incidence of the tax on the minor child's income falls under the statute on a parent of that minor.'
This decision was referred to with approval in Narasa Reddy v. Income-tax Officer, Nellore : 39ITR629(AP) . We respectfully assent to the principles enunciated here.. We think that the exposition of law by the learned Judges is sound and gives full effect to the content of entry No. 54.
20. It may be mentioned here that the problem that presented itself for solution in that casa was similar to the one we are now called upon to solve.
21. The controversy that aroso in Baldeo Singh v. Income-tax Commissioner, Delhi and Ajmer, : 40ITR605(SC) was whether Section 23-A was unconstitutional as being outside the Legislativeauthority of the Central Legislature. It may bementioned here that sub-section (1) of that Sectionwas enacted by Act VII of 1939. That sub-sectionempowered the Department to make an order that the undistributed portion of the assessable income of the Company should be deemed to have beendistributed as 'dividends. That sub-section further provided that thereupon the proportionate share thereof of each share-holder should be included in his income for purposes of assessment. This section was made by the Central Legislature actingunder the authority derived by it from Entry No. 54 of List I of the Government of India Act, 1935.
It was argued in support of the appeal beforethe Supreme Court that Entry 54 permitted the Legislation for taxing a person on his income but not to tax one person on the income of another. It was urged that the snare-holders of the Company and the Company were different persons and since the Section sought to tax the share holders insteadof the Company, who are different persons, it wasincompetent.
This contention was negatived by the Supreme Court in the view that Section 33A was enactedfor preventing the evasion of tax and that entry 54should be construed not only as authorizing the imposition of a tax but also as authorizing an enactment which prevents the tax imposed being evaded.
It was observed by their Lordships of the Sup-reme Court:
'By providing that in the circumstances mentioned in it, the available assessable income of a 'Company would be deemed to have been distributeda? dividend and be taxable in the hands of the share holders as income received by them, the Section would prevent the members of such a groupfrom evading by the exercise of their controlling power over th' company, payment of tax on incomethat would have come to them.'
Thus, they upheld the constitutionality of Section 33A on the ground of its being conceived in the interests of prevention of evasion of tax. They leftopen the question whether Entry 54 permitted a legislation to tax one individual on the income of another and when a share-holder was taxed on theincome of the Company, the two being consideredseparate legal entities, the tax was nonetheless on income though the burden of the tax was put on one to whom the income- had not accrued.
22. We will presently show that Section 64also could be brought within the principle of thisruling.
23. That very question posed itself before a 'Division Bench of the Madras High Court in Spender v. Income-tax Officer, Madras, : AIR1957Mad133 .The legality of Section 23-A of Act XI of 1922 was sustained by the Division Bench on the ground that though the income of the undisbursed profits remained to be the income of the Company and did not become the income of the share-holders except notionally and then only for the purposes of the incidence of the tax, none-the-less the position remained that what was taxed i. e., undisbursed pro-tits, was income. Said the learned Judges:
'A provision for a further levy on undisbursedprofits, which constituted a part of the net profitsof the Company would still be a statutory provision to tax income. Legislative power to providefor a further levy on the same income, the incomeof the Company, could not be denied.
x x x So, what Section 23-A did was, in essence, to tax income, the income of the Company.'
In the opinion of the learned Judges, though the incidence of the tax was not in the first instance on the Company but on the share-holder yet he had a right to get his share of the undisbursed profits of the Company subsequently. They adopted the principle enunciated in AIR 1954 Mad irzo.
24. We will now turn our attention to a recent judgment of the Supreme Court in Balaji v. Income-tax Officer, Special Investigation Circle, Akola, : 43ITR393(SC) . Here again, the validity of Section 16 (3) of Act XI of 1922 was put in issue. The legality of this section was upheld on the ground that it prevented evasion of tax and as such was within the Legislative power of the Federal Legislature. Subba Rao, J., who spoke for the Court, observed that widest import and significance should be given to the language used by Parliament in the various entries. The question whether entry No. 54 permitted a legislation to impose the incidence of tax on a person other than the person whose income was to be assessed, was left open.
25. We will cite here Navinchandra Mafatlal v. Commissioner of Income-tax Bombay City, : 26ITR758(SC) which interpreted 'Income' in Entry 54 in List I of the Seventh Schedule to the Government of India Act, 1935 as extending to capital gains within the meaning of Section 12 (B). They aid that the word 'income' employed in Entry 54 should not be given a restricted meaning as contended for in that case. It was observed inter alia by Das, J., (as he then was), who delivered the opinion of the Court that, 'the cardinal rule of interpretation, however, is that words should be read in their ordinary, natural and grammatical meaning subject to this rider that in construing words in a constitutional enactment conferring Legislative power the most liberal construction should be put upon the words so thai the same may have effect in their widest amplitude.'
26. Interpreting the word 'income' in relation to Section 4 (2) of the Income-tax Act (XI of 1922), which creates a fiction for shifting the incidence of taxation from the non-resident husband to the wife residing in taxable territories, a Division Bench of the Madras High Court decided in Janaba Jammeelamma v. Income-tax Officer, Nagapattanam : 29ITR246(Mad) that Section fell within the ambit of Entry 54, as it imposed a tax on income and not on mere remittance.
27. The principle that runs through most of the decisions referred to above is that though the incidence of tax does not fall on the person to whom the income had accrued in the first instance but on some one else, it is none-the-less 'income' within the purview of Entry 54. For purposes of taxation, the income of one is treated artificially as the income of the person on whom the incidence of tax falls. These enactments bring within the net of the chargeability income not actually accrued but which is supposed notionally to have accrued. These legal fictions are well within the ambit of the Legislative powers founded on Entry 54 of the Government of India Act, 1935 corresponding to Entry 82 of List I of the present Constitution. They merely create an artificial or a notional income for purposes of assessment and taxation.
28. It should be remembered that the expression 'income' is a word of broadest connotation, though it is difficult to define it in any precise or general formula. There is no justification to read a restriction into it. We feel that the law expounded in : 26ITR137(Mad) is sound and is in consonance with the content of Entry 54 corresponding to Entry 82 of list I of the seventh schedule to the present Constitution. It may be stated here that what is taxed is income, though the per-f-on that is sought to pay the tax in the first instance is the individual mentioned in Section 64. This does not imply that this individual has to bear the burden of tax. Ultimately, he or she is entitled to recoupe if from the income of the minor child. Section 64 does not create any impediment in the day of the parent recovering the amount from the share of the income of the minor child.
29. It was observed in : 43ITR393(SC) by Subba Rao, J.
'The provisions do not in any way affect there rights and even the liability inter se between the husband and the wife or the minor children, as the case may be, in respect of the tax paid. It is true that in computing the total income of an individual for the purpose of assessment, their income in their capacity as partners shall be included in the income of the individual; but 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.'
This passage emphasises the principle that what is taxed under Section 64 is the income of the person to whom it had accrued, though for purposes of taxation, the income of all the minor children is added to that of the parent and it is taxed in the hands of the parent. As already stated, the parent has the unfettered right to recoupe the amounts paid by him or her from the minor children.
30. The legality of this Section can also be sustained on the ground that the Section aims at preventing the evasion of tax. The concept Underlying Section 64 is the same as that of Section 16 (3), the only alteration made in Section. 64 being the substitution of the word 'spouse' for the word 'wife'. It cannot be posited that by the date of the enactment of Section 64, the evil of tax-evasion had disappeared and the Legislature did not have in mind the prevalent practice of tax evasion. It really it was thought that this evil had vanished, there was no necessity to insert Section 64 into the present Act. That being so, the argument of the learned Advocate-General that the report of the Direct Taxes Administration Enquiry Committee 1958-59 does not make a specific reference to the object of Section 64, unlike the report of the earlier Committee of 1036 which was the basis of Section 16 (3), cannot be given effect to. Such a statement in the report was not called for having regard to the fact that Section 16 (3) was proposed to be enacted in another form. It may not be out of place to refer to the fact that Clause 64 which was as read in the Indian Parliament says:
' 'This clause corresponds to the existing Section 16 (3) with necessary changes to give effect to the recommendations of the Direct Taxes Administration Enquiry Committee contained in paragraphs 7.81 (g) and 7.81 (6) of its report.'
31. Therefore, it is not as if the Parliament was unaware of the necessity to suppress the evil of evasion of payment of tax when it enacted Section 64. We may state here that we have referred to the statement of objects and reasons or to the clause in the Bill not for purposes of interpreting Section 64 but only to ascertain the evil that was prevalent at the time of passing Section 16 (3) and when Section 64 was enacted and the measures taken to put as end to if.
32. Section 64 also can be sustained on the same ground as that contained in : 43ITR393(SC) . It cannot be disputed that a minor could not trade with his own funds independently since he has no contracting capacity. So, when a minor child is admitted to the benefits of a partnership, it is only a device to evade the higher rate of taxation. The idea in admitting minors to the benefits of partnership or to a spouse being taken in as a partner is only to distribute the profits in the names of the several members of the family and thus avoid paying tax on a higher slab. It could, therefore, be legitimately postulated that the aim of Section 64 is prevention of evasion of tax for which purpose also Section 16 (3) was introduced in Act XI of 1922. As we have already stated, the aims and objects of section 64 could safely be said to be the same as those of section 16 (3). We, therefore, find no support for the proposition that Section 64 is unconstitutional as being outside the scope of Entry 82 of List I of the seventh schedule. The Parliament has not exceeded its authority in making this law. It follows that Section 64 is valid and that the orders passed by the Department and the actions taken by it under that section cannot be successfully assailed. It follows that the orders in question cannot be impeached.
33. In the result, the writ petitions are dismissed with costs in W. P. No. 356 of 1963. Advocate's fee Rs. 250/- (two hundred and fifty.)