Commissioner of Income Tax, Tamil Nadu-I vs S. Balasubramaniam

Balasubrahmanyan, J.—Having six daughters in a Hindu family is no, especially when they are born in quick succession. The assessee, in this

case, is the karta of a HUF. He sired six daughters in a row, Radha, Seetha, Geetha, Latha, Sudha and Preetha. During a particular span of time

with which we are concerned in this reference, all these girls were minors and this gives an indication of the intervals of their arrivals. The assessee

had a plurality of business interests. He was, inter alia, a partner in two firms carrying on film distribution business. He had also a plurality of

Income Tax assessments, one assessment in his own name as an individual and another assessment in the name of his HUF. In this state of affairs,

he got all his six minor daughters admitted to the benefits of partnership, one after the other in the two firms in which he was a partner. We would

not know that prompted this decision, whether it was a pure business decision, or part of a family arrangement, or a downright taxsaving device.

We can only go by the results; or rather, but the way the results were put to argument before us. For, the admission of one''s minor daughter to the

benefits of partnership in a firm in which one is a partner if fraught with tax consequences. The assessee must have known that he was playing with

s. 64(2)(ii) of the I.T. Act, 1961, not by having six minor daughters, but by getting them admitted in his partnership firms. What apparently

emboldened the assessee must have been the phenomenon of his having a HUF as a separate subject of charge. If we may be permitted an aside,

this ancient institution of Hindu genius, the undivided family, had its work cut out, nowadays as an elementary tax avoidance device described

euphemistically as a tax shelter. Voltaire said that if there were no God, it would be useful to invent one. The vast community of Hindu taxpayers

must frankly admit that if there were no such thing as a HUF, it would be useful to invent one, at least for tax purposes. Be that as it may, the

assessee in this case was already having the tax blessings of being the karta of his undivided family, in that his partnership interests in the two firms

were all the while attributed to his undivided family. In consequence, it was in the family''s assessment, and not in his individual assessment, that his

share income was being included and brought to tax. It must have been this assessment pattern which apparently tempted the assessee into

admitting all his six minor daughters in his two firms. He had nothing to fear from one quarter at least. There was no question of the minor''s share

income being clubbed with his own share income and carried into the assessment of the undivided family. This is because the dreaded s. 64(1)(ii)

does not deal with assessment of HUFs. Its only concern is with taxpayers chargeable to tax in the status of ""individuals"". The section, as it stood

at the material time was as follows :

In computing the total income of any individual, there shall be included all such income as arises directly or indirectly -...

(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.

One would have thought that on the plain terms of this provision the share income of all the minor daughters of the assessee must stand included

in the total income of the assessee as an individual. All that the section requires in express terms is that the minor children and their parent must

both have their membership in the same firm, the one by virtue of admission to the benefits of partnership and the other by virtue of being a full

fledged partner. In this case, this requirement is fulfilled in both the firms. The ITO accordingly applied the section and included the minors'' share

income as part of the assessee''s total income in his individual assessment.

The assessee, however, opposed the assessment on a point of statutory construction. He maintained that s. 64(1)(ii), as its language was

conched at the material time, was quite powerless to reach for the minor''s share income with a view to including it in the father''s total income

excepting in a case where the father''s share income itself figured as part of his total income. This theory of s. 64(1)(ii) very much looks like ration

alising the particular fact-situation in this case, passing it off as a faithful construction of the section. The assessee, however, relied on as many as

three reported decisions, directly on the subject and directly in his favour. The Tribunal, therefore, accepted the assessee''s stand on the accept of

statutory construction and ordered the deletion of the minor''s share income from the assessee''s individual assessment.

We are not going minutely into the figures of assessment. As an indication of the stakes in this case, however, we may mention that the share

income of each minor daughter from one of the firms in one of the assessment year was Rs. 19,925 and the aggregate of all the minors'' share

income amounted to Rs. 1,19,550. The tax effect of the Tribunal''s decision was to exclude Rs. 1,19,550 from the total income of the assessee.

This is not the only consequence of the Tribunal''s order. For on the Tribunal''s determination that s. 64(1)(ii) does not apply, the share income of

the six minor daughters must be separated one from the other, and each share has to go to be considered separately in each of the minor''s

assessments. This last observation, incidentally, brings to the fore one of the implications of s. 64(1)(ii), which we are apt to take for granted. The

section, on the surface, only directs the aggregation of the share income of the minor child in the parent''s total income. Where, however, there is

more than one minor parent total income. Where, however, there is more than one minor child in the firm, then the application of s. 64(1)(ii) would

inevitably involve the aggregation of all the minor''s share incomes inter se between them. So that, when the section is held to be inoperative in a

given case the corresponding tax relief would be experienced not only in the parent''s assessment, but also in all the minor children''s assessments

inter se.

The Department have obtained a reference in this case of the following question of law :

Whether, on the facts and in the circumstances of the case, it has been rightly held that the provisions of section 64(1)(ii) of the Income Tax Act,

1961, would not be applicable and, therefore, the share income arising to the minor daughters of the assessee have to be deleted ?

It would seem that this is the first case of its kind to come before this court, although the question is by no means res integra.

The submission of Mr. Jayaraman for the Revenue is that the Tribunal''s decision is based on a misconstruction of s. 64(1)(ii). He said that on

the express terms of the section we cannot accept the Tribunal''s view that the father''s income from the firm must find a place in his total income in

order that his minor child''s share income can be included in that total income.

Mr. Srinivasamurthy, the assessee''s learned counsel, does not say that the Tribunal''s view of the provision is supported by what is expressly

enacted therein. He submitted, however, that it is an implied requirement of the statute that the father''s share income must also figure in his total

income for the minor child''s share income to be included in it.

Section 64(1)(ii) is no new provision. A section of this sort has been very much a part of our Income Tax code for upwards of 60 years now.

The Act of 1922 carried a more or less identical provision. Long familiarity with it, perhaps, has made the tax of the section pass into the jargon of

the tax practitioner''s colloquy. They are apt to say, in a rough and ready paraphrase of the section, that the minor''s share income has to be

clubbed"" with the father''s share income for inclusion in his total income. This notion of clubbing, we imagine, must be at the bottom of the

argument of Mr. Srinivasamurthy. In most cases, no doubt, the inclusion of the minor''s share income must necessarily involve the clubbing of the

minor''s share also with the father''s share income. But, on our reading of the section, the provision does not envisage, much less require, the

clubbing process. The popular paraphrase of the section is, therefore, quite misleading. All that the text of the section lays down is that the minor

child''s share must be included in the total income of the individual whose child the minor is. If we can name anything in the section as some sort of

a requirement or as a condition precedent or pre-condition to the applicability of the provision, we can, at best, point only to one consideration in

that regard, namely, the stipulation that both the father and the minor child must have their membership in one and the same firm. We do not think

we can read any other or any further requirement is s. 64(1)(ii). We have searched in vain for clues and implications else where in the statute to see

whether Parliament has required the presence of the father''s share income in his total income as a condition for including therein the minor child''s

share income from the same firm.

Mr. Srinivasamurthy, however, was not disheartened. He referred us to s. 64(1)(ii) as it stood amended subsequently under the Taxation Laws

(Amendment) Act, 1975. This subsequent amendment does not apply to the assessments in question in the present reference. But learned

counsel''s thesis is that by standing the subsequent version of the section, we would be in a position to compare and contrast, and come to a

correct conclusion.

We decline to look into the subsequent version of s. 64(1)(ii). For, the section we have before us does not present any problem at all of

construction. To take not of subsequent legislation to understand a present day statute is an inversion of the mischief rule of construction. We do

not like to stand Heydon''s case [1584] 3 Co. Rep. 7, on its head. It would be an unseemly sight.

Mr. Srinivasamurthy quoted certain cases in which courts have permitted themselves a peep into further legislation as an aid to construction.

But such cases must be very exceptional indeed. Maxwell has referred to them with the remark that resort to subsequent amendments can be done

only where the provision under study is ambiguous or obscure. We cannot say such things of s. 64(1)(ii).

Learned counsel then invited our attention to an Explanation attached to s. 64(1)(ii). The Explanation, however, does not touch the present

discussion. It is concerned with case where both the parents of a minor child are partners in a firm. In that context, the question which the

Explanation tackles, is, in whose total income the minor''s share is to be included, in the father''s or in the mother''s. Learned counsel''s reference to

the Explanation, therefore, serves no useful purpose in this case.

Learned counsel then said that s. 64(1)(ii) is an anti-tax avoidance provision. So it is. We could not quite catch what learned counsel was

driving at by this description of the section. It may be that an anti-tax avoidance provision must be strictly construed. But that is precisely what we

have been doing in this case. We have scrupulously avoided reading anything between the lines. It is the assessee who finds it to his interest to read

into the enactment implications which are not found expressed in the text. There is yet another consideration. To say that a section in a taxing Act is

an anti-tax avoidance provision, is not to give it a special status. It only puts us on notice as to why the section came into being in the statute book.

The thing about anti-tax avoidance provisions is that they only strike with full force at pre-existing tax devices and pre-existing avoidance schemes.

Their stricking capacity becomes superfluous no sooner than they are introduced. That, indeed, is the measure of their success. By the same token,

the court''s construction also must be faithful to the text. We cannot put words into the month of Parliament. It is not our job to lay down, a priori,

to what lengths an anti-tax avoidance provision must go.

Mr. Srinivasamurthy then took his stand on the decisions of other High Courts. He had three on his side, one of the Andhra Pradesh High

Court Commissioner of Income Tax Vs. Sanka Sankaraiah, , one from the Gujarat High Court Dinubhai Ishvarlal Patel Vs. K.D. Dixit, Income

Tax Officer, Ahmedabad and Others, and one from the Punjab and Haryana High Court Commissioner of Income Tax Vs. Anand Sarup, . Mr.

Jayaraman came out with a matching citation in the Department''s favour of a decision of the Allahabad High Court in Madho Prasad Vs.

Commissioner of Income Tax, .

We do not think these cases need occupy much of our time or attention. None of them the Allahabad decision included, has cared to

concentrate on the words of s. 64(1)(ii). They have been carried away by doctrines of the Hindu law and partnership law and how the impact of

the one affects the operation of the other and vice versa. In all these reported cases, as much as in the present case, the inquiry is not about what is

the tax treatment to be given to the share income which is derived from the membership in a firm by the karta of a HUF. As to that there is no

controversy at all. Certainly there is no controversy in the present case. Out concern, on the contrary, is how to treat the share income of a minor

child whose father''s share from the same firm does not get assessed in his individual hands ? The answer to this question cannot be found either in

the Hindu law or in the partnership law. We have to look for it only in s. 64(1)(ii) of the Act. For an understanding of this provision it is

unnecessary to enter into a discussion about the true view of the position of a karta in a partnership, whether he ""represents"" none but himself as

regards other partners or whether he ""represents"" his undivided family as regards his own coparceners.

We do not, therefore, subscribe to the approach of any of the cases which we have referred to. We prefer to rest our decision on a simply

understanding of the simple words of s. 64(1)(ii). The section''s only requirement is that the minor child and its father must both be in the same firm;

the section does not require that the father''s share income must find a place in the father''s total income as an individual.

We are bound to point out that the construction which the Andhra Pradesh, Gujarat and Punjab and Haryana High Courts have placed on s.

64(1)(ii) would only benefit taxpayers whose personal law is governed by the Hindu law, and even amongst this class of taxpayers it would help

only those who can afford to have their partnership share income taxed in their joint family''s hands. As far as we can see, the construction which

the assessee''s learned counsel presses upon us will not help other taxpayers similarly circumstanced whose personal law is not Hindu law. This is

indeed a caution that we must set out face against accepting the construction argued for on behalf of the assessee. Tax courts may not impose

procrustean standards of their own, where Parliament lays down its own classification of taxpayers, as when it gave the HUF a distinct taxpayer

status. Courts are powerless to set right distortions in tax burdens brought about by statute-made classifications unless they can be brought within

art. 14 of the Constitution, which is very seldom. But where the burden is well and truly laid by Parliament in perfectly neutral language so as to

apply to all of a kind without any sectarian differentiation, courts must not be astute in putting any construction on the words of the operative

provisions which would have the effect, in practice, of favouring one set of taxpayers but not others. What is more to the point, if the approach of

the Tribunal or for that matter, the approach of the cases which we have cited, were valid, it might well be thought that a Hindu who had not

succeeded in the swings of family planning might yet succeed in the round abouts of tax planning. On our construction of s. 64(1)(ii) of the Act, that

kind of thing cannot come to pass.

Mr. Srinivasamurthy is recorded as telling the Tribunal that it would be exceedingly ""strange"" that the minor children''s share income from a firm

must get taxed in the father''s individual assessment when his own share income from the same firm is not so included. Before us learned counsel

used a harsher epithet. He said that it was ""atrocious"". We must dismiss these remarks as taxplanning rhetoric. The father''s share income may get

included in his total income or (to use a Goldwynism) it may get included out of his total income, depending upon whether he represents himself or

his joint family in the firm. That has nothing what ever to do with the tax treatment under s. 64(1)(ii) of his minor children''s share income from the

partnerships.

For all the above reasons, our answer to this reference must be against the assessee and in favour of the Department. The assessee will pay the

Department''s costs. Counsel''s fee Rs. 500.