TMI Blog1984 (8) TMI 69X X X X Extracts X X X X X X X X Extracts X X X X ..... respondent herein, included the income earned by the above two minor sons totalling about Rs. 24,051 along with the petitioner's income on the basis of the amendment brought in the year 1975 to s. 64 of the I.T. Act, 1961. Aggrieved by the order of the ITO, the petitioner preferred an appeal to the first respondent, the AAC of Income-tax, contending that the income earned by her minor sons cannot be clubbed with her income as the amendment to s. 64 is not applicable to the assessment year 1976-77, and that even if the amendment is taken to be applicable to the assessment year 1976-77, the notification No. S.O. 475(e) dated September 5, 1975, appointing different dates for bringing into force the various provisions of the amending Act will be invalid and void as it will have a retrospective effect so as to impose the liability on the income which was earned before the notification was issued. The said contention of the petitioner was rejected by the first respondent on the ground that the law applicable to income-tax assessment is the law as it stands in the year of assessment and not the law which was in force during the year in which the income was earned and that in any event ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Government issued the notification No. S.O. 475(e) dated September 5, 1975, wherein the amendment to s. 64(1) was brought into force on April 1, 1976. The first contention advanced by the learned counsel for the petitioner is that the amendment can only be operative for the income earned after April 1, 1976, and it will not apply for the assessment year 1976-77, ending March 31, 1976, that if the amendment were to be taken as applicable to the assessment year 1976-77, it will amount to giving a retrospective effect to the amendment and that such a retrospective effect is not contemplated by the provisions of the Amending Act, either expressly or by necessary intendment. The second contention urged by the learned counsel for the petitioner is that the amended provision in s. 64(1)(iii) is constitutionally invalid for the parent is forced to pay the tax due by the minor child arising out of his being admitted to the benefits of the partnership with which the parent has no connection, and the Constitution of India does not permit the State to levy income-tax on an individual on an income of another person. It is said that the amended provision in s. 64(1)(iii) infringes the doctrin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the reasons urged by the petitioner for holding the amended s. 64(1)(iii) to be ultra vires are not tenable at all in view of the decisions above referred to and the decision of the Supreme Court in Tulsidas Kilachand v. CIT [1961] 42 ITR 1 and Sevantilal Maneklal Sheth v. CIT [1968] 68 ITR 503. In the face of these rival contentions of the opposing parties, we have to consider the first question whether the amended provision in s. 64(1)(iii) is constitutionally valid, and (2) Whether the said provision is operative for the assessment year 1976-77 ? Section 16(3)(a)(i) and (ii) of the Indian I.T. Act, 1922, was earlier challenged as infringing the fundamental right of equality before law and also as violating article 19(1)(f) and (g) of the Constitution. The Supreme Court in Balaji v. ITO [1961] 43 ITR 393 held that Entry 54 of the Federal Legislature " taxes on income other than agricultural income " which is identical with item 82 of List I of the Seventh Schedule of the Constitution 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 and that if it were not to be so read, then the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpt to prevent by legislation an evasion of just tax liability and the necessary classification to give effect to that object cannot, in our view, be termed unreasonable. " In Chairman, C.B.D.T. v. Malhotra [1981] 128 ITR 543, the Delhi High Court has pointed out that the basic presumption is that the Legislature does not intend to enact legislation which operates oppressively and unreasonably, and the retrospective laws will generally have such operation, and that in the absence of any indication in the statute that the Legislature intended it to operate retrospectively, it must not be given retrospective effect, and if perchance any reasonable doubt exists, it should be resolved in favour of prospective operation. In CIT v. Prem Bhai Parekh [1970] 77 ITR 27 (SC), s. 16(3) of the Indian I.T. Act, 1922, came up for consideration and the Supreme Court held that before an income can be held to come within the ambit of s. 16(3), it must be proved to have arisen directly or indirectly from a transfer of assets made by the assessee in favour of his wife or minor children, that the connection between the transfer of assets and the income must be proximate and the income in question mus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een admitted to the benefits of a partnership and the income is derived therefrom that income should be clubbed with that of the parent and no nexus is contemplated by the section. It is because of this the assessee contends that it is open to the Legislature to tax an individual on the income of another individual. Normally, a minor can be admitted only to the benefits of the partnership and he is not liable to meet the losses of the firm. While such is the legal position, if a minor is to be admitted to the benefits of the partnership without any obligation on his part to meet the losses of the firm, there should be some motive for the other partners to admit the minor to the benefits of the partnership, and it is possible that the Legislature felt that it is only at the instance of the parent, the partners have admitted the minor to the benefits of the partnership without any obligation on his part to bear the losses and that might have been taken as a sufficient nexus for taking the income of the minor as the income of the parent. It is said that the provision deals with only the income of the minor through a partnership to the benefits of which the minor has been admitted and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on, the Legislature does not travel beyond the legislative field. In Venugopala Ravi Varma Rajah v. Union of India [1969] 74 ITR 49, the Supreme Court again pointed out that it is for the Legislature to determine the objects on which the tax shall be levied and the rates thereof and the courts will not strike down an Act as denying the equal protection of the laws, merely because, other objects could have been, but are not, taxed by the Legislature. Therefore, it is not possible to accept the petitioner's contention that since the minor's income from other sources is not clubbed with that of the parent, the income earned by the minor from a partnership to the benefits of which he has been admitted cannot also be brought to charge as the income of the parent. As already stated, the income of the minor from a partnership has been taken as the income of the parent as the Legislature found that the creation of partnerships or admitting minors to the benefits of the partnership is one of the methods adopted to evade tax and as pointed out by the Wanchoo Committee, normally it is possible for parent in one family to admit a minor from another family to the benefits of the partnership in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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