TMI Blog1971 (4) TMI 24X X X X Extracts X X X X X X X X Extracts X X X X ..... re was an understanding between the parties that the death of a partner will not dissolve the partnership but the partnership business will be carried on with the legal heirs of the deceased partner as partners in place of the deceased partner, the minor being deemed to have been admitted to the benefits of the partnership. The understanding has also been incorporated in the subsequent partnership deed dated December 16, 1957. Dwarkadas Daga died on November 4, 1957, leaving behind him a widow, Radhadevi Daga, petitioner and three minor daughters, viz., (i) Kusumkumari, (ii) Kumudkumari and (iii) Kalakumari. Hiralal Daga died on August 27, 1958, leaving behind him a widow, Shreekunwardevi, petitioner, and two minor sons: (i) Krishnakumar, (ii) Kishorekumar and two minor daughters: (i) Shobakumari and (ii) Nirmalakumari. These were the legal heirs of Dwarkadas and Hiralal under the Hindu Succession Act, which came into force with effect from June 17, 1956, and became absolute owners of their respective shares. As a result of the operation of the Hindu Succession Act and the understanding already existing and embodied in the partnership deed, dated December 16, 1957, these heirs of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in which the father or the mother or both are partners, the income of the minor's share in the partnership is added to the total income of the father or the mother as the case may be and the father or the mother is subjected to the tax on such total income. In other words, the father or the mother is taxed not only for his or her income but also for the income of the minor child or children who have been admitted to the benefits of the partnership. It is contended that the legislature under entry No. 82 of List I of the Seventh Schedule to the Constitution, which reads: "Taxes on income other than agricultural income" is competent to make a law for levying a tax on the income of a person and not on the income of another person, may be that other person is his or her child. It was urged that this question was raised before the Supreme Court in Balaji v. Income-tax. Officer, and in earlier cases but was expressly left open and was res integra. It is urged that under the entry No. 82, legislation could only be made for charging a person to income-tax in relation to his income only and not on the income of another. This argument has a good deal of force. Similar argument was advanced i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decision of the Supreme Court. We, therefore, hold that the Central legislature had the competence to enact section 64(ii) of the Act of 1961. The contention about the legislative competence was further supported by the learned counsel for the revenue on another ground. It is contended that even if the topic about this piece of legislation is not strictly covered by any of the entries in the Union List and, particularly, entry No. 82, even then such a legislation would be valid under the overall and residuary powers of the Central Legislature in view of article 248 and the entry No. 97 of the List I as the subject is not covered by any of the entries either in List II or List III. The contention is not devoid of substance. We, however, do not consider it necessary in this case to go into this important question on the view we have taken earlier about the legislative competence. It was then contended that section 64(ii) is constitutionally invalid as it violated the fundamental rights guaranteed under articles 14 and 19(1)(f) and (g) of the Constitution. In Balaji's case also, the constitutional validity of section 16(3)(a)(i) and (ii) of the 1922 Act was challenged on similar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and if it does not violate any of the guarantees given by Part III of the Constitution, then it is within the authority of the legislature to levy the tax, at any rate or at any slab. As Mr. Hajarnavis, the learned counsel for the revenue puts it, where there is a joint income and a joint enterprise, there is no fundamental right in a person to say that he should not be taxed at a higher slab in comparison to a person who individually does a business. It is urged on behalf of the revenue that so far as a partnership and its partners are concerned, it is in fact a concession given to the partners in the matter of the payment of the income-tax. It is put in this way. Four persons doing a joint business either as an unregistered firm or as an association of persons are required to pay the income-tax on the net income of the venture taken as one unit and are required to pay the income-tax at a higher slab. If these very four persons were to do the business in partnership and the firm is registered under the Income-tax Act, the very income is divided into four parts and each of the partners is liable to pay the income-tax on the income which falls to his share, which would be at a lowe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of minor children who are admitted to the benefits of the partnership whose share of income has to be taken into consideration in making the assessment of the father or the mother, as the case may be. This cannot be called to be an unreasonable restriction on the right of an assessee to acquire, hold and dispose of property, or to carry on any profession, trade or business, particularly when the concession is already shown to such an assessee doing a business of partnership and that concession is withdrawn to a very small extent so far as the partners wherein minors are admitted to its benefit are concerned: In Navnit Lal C. Javei v. Appellate Assistant Commissioner of Income-tax, sections 2(6A)(e) and 12(1B) of the Income-tax Act, 1922, as introduced by Finance Act No. 15 of 1955, were challenged on the ground that they violated the fundamental right of the petitioner under article 19(1)(f) and (g) of the Constitution. It was held that no fundamental right of the assessee was contravened by the aforesaid provisions and those provisions were valid. Though the provisions with which we are dealing are a little different from those considered in the aforesaid case, the same principle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income of the husband or the father, under section 64(i) of the 1961 Act, the share of income of the spouse and of the minor children admitted to the benefits of the partnership are added to the income of the father or the mother, as the case may be, for the purpose of making the assessment. The same factors, therefore, which held the provisions of section 16(3)(a)(i) and (ii) of the Income-tax Act, 1922, valid will be relevant and will govern the provisions of section 64(i) and (ii) of the Income-tax Act, 1961, and we do not see why different considerations should apply in applying the test to these two provisions. We are, therefore, of the opinion that the provisions of section 64(i) and (ii) of the Income-tax Act, 1961, do not infringe the fundamental guarantees given under article 19(1)(f) and (g) of the constitution, nor do they violate any of these fundamental guarantees and are constitutionally valid. Then remains the last attack on the validity of the provisions of section 64(i) and (ii) of the Income-tax Act, 1961, on the ground of its being violative of the fundamental right guaranteed under article 14 of the Constitution. The attack in this respect is manifold. It is u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the last two categories also. In the said provision no connection can be established with the object sought to be achieved which is the prevention of the evasion of tax which is non-existent in cases of categories Nos. 2 and 3. It is argued that if the evil of the evasion of tax is to be remedied, as the object of the Act is to strike at the evasion of the tax, then the remedy for that purpose should be commensurate or proportionate with that object and should not be excessive. It is said that in the case of the first category there may arise a presumption of evasion, but in the second category, there is only a likelihood of evasion while in the case of the third category, there is no possibility of evasion and these three stand on different footing. It is, therefore, urged that so far as categories Nos. 2 and 3 are concerned, the remedy adopted is too excessive, and, therefore, unreasonable and the provisions of section 64(i) and (ii) of the 1961 Act are bad and violative of article 14 of the Constitution. The argument is attractive and has got considerable force. Where it is crystal clear that the funds, of the minor children which are invested in the partnership are absolutely i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upon the adventure of the parents is such cases. This would be so even if the funds may belong to the minors exclusively, either by way of succession or otherwise. It is not unlikely that the parents may use the funds belonging to their children to their advantage to the maximum possible and even by inflating those funds for reducing the tax liability. There may be cases where taking advantage of the control over the property of the minors the parents would try to exaggerate the value of that property and then put the same into partnership so that the share of income of the minors could be increased while that of the parents proportionately reduced, with the result that the income-tax payable on the total income of the parents would be reduced and subsequently the income falling to the share of the minor would be diverted to their advantage. We do not say that this would in every case be done. There are also honest and innocent people who would not resort to such dirty tactics but the possibility of there being some unscrupulous persons who would resort to such tactics cannot be excluded. No doubt, however fool-proof the provision is sought to be made, there could be found some lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er over those funds is still there. One such source of independent funds to the minors would be by way of succession under the Hindu Succession Act so far as Hindu families are concerned, but in such cases also there can also be a possibility of attempts to reduce the tax. Taking all these factors into consideration if the minors of all the categories are grouped together so as to reduce the chances of evasion of tax to a minimum, it cannot be said that unlike or dissimilar persons have been grouped together and are treated alike. In the larger interests of the public it was necessary to group them together in order to achieve the object. It cannot be expected that for finding out the tax liability the authority should hold elaborate enquiries for finding out whether the funds alleged to be of the minors are part of the funds of their parents or their independent or exclusive funds and the source from which they derived them and the nature and extent of those funds. Such a requirement would not be in the general interest and is likely to defeat the very object of the Act. In Balaji's case their Lordships of the Supreme Court have considered a similar question while testing the va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nger be considered to be a good law in view of the decision of the Supreme Court in what is known as the bank nationalisation case: Rustom Cawasji Cooper v. Union of India. We do not think that the authority of Balaji's case is shaken by the decision in the bank nationalisation case. It is urged on the authority of the bank nationalisation case that in order to find out the object of the Act the impact of it on any particular class of persons is to be seen and it is to be found out whether it is necessary to achieve that object and if it is so necessary, then alone it could be said that there is a nexus between the classification and the object sought to be achieved. Reference was made to paragraphs 56 to 60 of the said case. We do not think that this decision bears out the contention of the learned counsel for the assessee. It was further urged that the authority of Balaji's case is further impaired because of the prevalent circumstances and the social changes that have occurred since then as also the legislative changes. It is urged that the validity of section 16(3)(a)(i) and (ii) of the old Act was upheld because it was dealing with only a father who had the full control over ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cision in Balaji's case ceases to be an authority for upholding the validity of section 64(i) and (ii) of the Income-tax Act, 1961, which, as we said earlier, is not much different from section 16(3)(a)(i) and (ii) of the 1922 Act. In fact, on the argument advanced on behalf of the assessee, if the women in India have become more advanced than before then the legislature was justified in adding the income of the minor children to the income of their mothers also. We have, however, no material before us to take a different view. It is also urged that the Hindu Succession Act has now made a change in the status of the minor children and both males and females on succession get absolute ownership to the property, as in the present case the wife and the sons and daughters of a Hindu succeed to his property on his death and get shares in accordance with the provisions of section 8 of the Hindu Succession Act and become absolute owners of the property which they inherited. It is, therefore, said that in a partnership where a Hindu was a partner, his widow and his children become partners in their own rights and the investment of the children is independent of their mother's property, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X
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