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2016 (5) TMI 35 - ORISSA HIGH COURT

2016 (5) TMI 35 - ORISSA HIGH COURT - [2016] 386 ITR 419 - Clubbing of income of a daughter at the hands of her father - Held that:- Section 64 of the Act purportedly directs for computing income of individual where income of wife be included. Section 64A of the Act also enshrines about clubbing of income of minor child with income of father under individual category if it is not derived from his (minor) manual work or activity concerning minorís skill, talent and likewise. So even if for argume .....

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should be clubbed with the income of the appellant. Thus, we do not find any infirmity with the impugned orders of the ITAT. - Facts and circumstances of the case as discussed above do not purportedly show income derived from M/s. Parbati Engineering Works is of K. Sandhyarani or K. Parbati but it is income of appellant. So, the appellant being assesee is liable to pay Income Tax on the income derived from M/s. Parbati Engineering Works and question of income of his daughter at the hand of .....

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23.6.2004 passed by the learned Income Tax Appellate tribunal, Cuttack Bench, Cuttack (hereinafter called ITAT ) in I.T.A. Nos. 277 to 280/CTK/2002 for the assessment years 1994-95 to 1997-98 and another common order dated 2.7.2004 in ITA Nos. 56 and 57 of 2004 for the assessment years 1992-93 and 1993-94. As common questions of law involved in all the Appeals, they are disposed of by this common order. FACTS 2. The factual matrix leading to the case of the appellant is that the appellant is th .....

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Parbati Engineering Works till her marriage in 1994. After marriage she could not give personal attention and executed power of attorney in favour of the appellant to run the business. It is stated that Smt. K. Sandhayarani got proprietorship of M/s. Parbati Engineering Works from her mother Smt. S. Parbati having purchased same from her mother on payment of ₹ 10,000/- and executed a promissory note of ₹ 60,000/- as security in favour of her mother. It is averred that M/s. Parbati En .....

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llant. In the order the Assessing Officer for no good reason clubbed the income of M/s. Parbati Engineering Works along with the fabrication unit of the appellant and demand was made for ₹ 5,09,494/- for 1995-96, ₹ 6,42,146/- for 1994-95, ₹ 12,18,714/- for 1997-98, ₹ 2,37,422/- for 1992-93, ₹ 1,93,550/- for 1993-94 and ₹ 3,65,512/- for 1996-97. Against these orders the appellant filed appeals before the Commissioner of Income Tax (Appeals) who without examinin .....

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by affirming the orders passed by the authorities below. Then against the orders of the ITAT the present appeals have been filed by the appellant challenging same raising various contentions. SUBMISIONS 3. Learned counsel for the appellant submitted that the order of the ITAT are illegal and arbitrary for violation of natural justice for being not followed the principles of audi alterm partem. The ITAT has also committed error by confirming the order of the First Appellate Authority in observing .....

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executed by the daughter of the appellant as she was minor by then. 4. It is submitted by learned counsel for the appellant that the ITAT has failed to appreciate the facts of the case by not affording reasonable opportunity of being heard to the appellant. The ITAT has also failed to appreciate that the Assessing Officer without following the statutory provisions of the Act has reopened the case under section 148 of the Income Tax Act. He further submitted that section 64 of the Act provides t .....

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ent case the authorities below without considering such provision of law, clubbed the income of the daughter of the appellant, who is major at the time of assessment with the income of the appellant. It is submitted by learned counsel for the appellant that the order passed by the ITAT being dehors to the provisions of law should be set aside. Learned counsel for the appellant raises the following questions of law for determination: (i) Whether in the facts and circumstances of the case, the ITA .....

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the Income Tax Act, 1961 and therefore legally unsustainable in the particular circumstances of the case? (iii) Whether in the facts and circumstances of the case, failure on the part of the ITAT, Cuttack Bench, Cuttack to decide on each of the grounds of appeal taken by the appellant does not vitiate the proceedings and render the order non-est in law? (iv) Whether in the facts and circumstances of the case, the appeal decided ex parte without ext ending reasonable opportunity of being heard t .....

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her father although purchased in her name, in view of such submission there is no wrong in clubbing the income of M/s. Parbati Engineering Works, which is under the control of the assessee, with the income of the appellant. He further submitted that rightly the authorities below have appreciated the fact that the daughter of the appellant being minor has acquired the property of M/s. Parbati Engineering Works as Benami property of the appellant inasmuch as minor has no capacity to contract under .....

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the case, it is legal and justified to club the income of a daughter at the hands of her father and whether it is contrary to the provisions of Section 64 of the Income Tax Act, 1961? DISCUSSIONS. 7. It is an admitted fact that the appellant is an assessee under individual capacity. It is also an admitted fact that Smt. K. Parbati is the wife of the appellant and Smt. K. Sandhyarani is the daughter born out of their wedlock. It is also the admitted fact that the appellant being assessee has der .....

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the orders passed by the authorities below including the Assessing Officer at the time of such transaction K. Sandhyarani was minor. If she was minor it is difficult to understand how she earned money to pay the same to her mother. Moreover, when she was minor how she has got capacity to execute promissory note in favour of her mother. Section 11 of the Indian Contract Act reads follows:- 11. Who are competent to contract.-Every person is competent to contract who is of the age of majority acco .....

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tract K. Sandhyarani should have been age of majority as required under section 11 of the Indian Contract Act. In the case of Mathai Mathai v. Joseph Mary @ Marykkutty Joseph & ors., reported in (2015) 5 SCC 622, where Their Lordships observed at paragraphs-9 and 10 as follows:- 9. The first point is required to be answered against the appellant for the following reasons:- It is an undisputed fact that Exh. A1 is the mortgage deed executed by the uncle of the appellant and the first responde .....

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ent the parties should have been of age of majority as required under Section 11 of the Indian Contract Act, 1872. The aforesaid aspect fell for interpretation before the Privy Council in the case of Mohori Bibee v. Dharmodas Ghose[1], wherein the Privy Council after interpretations of relevant provisions of Section 11 of the Indian Contract Act, 1872, has held that the contracting parties should be competent to contract as per the above provision and the minor s contract was held to be void as .....

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void or voidable presupposes the existence of a contract within the meaning of the Act, and cannot arise in the case of an infant. Their Lordships are therefore of opinion that in the present case there is not any such voidable contract as is dealt with in section 64. Thus, it was held that a minor cannot be a contracting party, as a minor is not competent to contract as per Section 11 of the Indian Contract Act. At this juncture, it is also necessary to extract Sections 2 and 11 of the Indian .....

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l is said to be accepted. A proposal, when accepted, becomes a promise; (c) The person making the proposal is called the promisor and the person accepting the proposal is called the promisee ; (d) When, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise; (e) Every promise and every set of .....

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be enforceable by law becomes void when it ceases to be enforceable. 11. Who are competent to contract- Every person is competent to contract who is of the age of majority according to the law to which he is subject, and who is of sound mind and is not disqualified from contracting by any law to which he is subject. This important factual and legal aspect has been conveniently ignored by the authorities including the High Court while adverting to Exh.A1, the mortgage deed. A strong reliance was .....

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the said document for the reason that the deceased mother at the time of execution and registration of the document was a minor, aged 15 years, and she was not represented by her natural guardian to constitute the document as valid as she has not attained majority according to law. Many courts have held that a minor can be a mortgagee as it is transfer of property in the interest of the minor. We feel that this is an erroneous application of the law keeping in mind the decision of the Privy Coun .....

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differently for a minor who is a mortgagor and a minor who is a mortgagee as there are rights and liabilities in respect of the immovable property would flow out of such a contract on both of them. Therefore, this Court has to hold that the mortgage deed-Ex.A1 is void ab initio in law and the appellant cannot claim any rights under it. Accordingly, the first part of first point is answered against the appellant. 10. With due respect it appears from the aforesaid decision that the Hon ble Apex C .....

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consistently found fact that K. Sandhyarani was a minor while executed the promissory note to succeed to M/s. Parbati Engineering Works of her mother and there being no objection to such findings by the appellant, we are constrained to observe that such document is void one. Apart from this, question arises in mind as to her capacity to earn money and pay ₹ 10,000/- for purchasing of M/s. Parbati Engineering Works from her mother. On the other hand, it is clear from the orders of the auth .....

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Income Tax return etc. It is revealed from orders of the Assessing Officer that while K. Sandhyaani was examined, she admitted that she has no knowledge about M/s. Parbati Engineering Works and such property belongs to her fat her. She has also admitted before the Assessing Officer that all documents are created b y appellant. So taking into consideration of all these documents and statement of K. Sandhdyarani, we are of the considered view that M/s. Parbati Engineering Works is not owned by K. .....

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me 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 t .....

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him; or (b) activity involving application of his skill, talent or specialised knowledge and experience. Explanation.-For the purposes of this sub-section, the income of the minor child shall be included,- (a) where the marriage of his parents subsists, in the income of that parent whose total income (excluding the income includible under this sub-section) is greater ; or (b) where the marriage of his parents does not subsist, in the income of that parent who maintains the minor child in the pre .....

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