K.M. Vijayan vs Union of India

Thanikkachalam Abdul Hadi, J.—These writ petitions are filed by different income tax assessees praying for a writ of declaration or any

other appropriate writ, order or direction declaring the provisions of section 64(1A) of the income tax Act, 1961 (''the Act''), as amended by the

Finance Act, 1992, as illegal, beyond the scope of preventing avoidance of tax and inconsistent with the scheme of the income tax Act and

violative of articles 14, 19 and 265 of the Constitution of India. Since the contentions raised by the petitioners and the relief sought in the above

writ petitions are similar and common, they are taken up together and disposed of by this common order.

Writ Petition No. 16425 of 1992 :

The petitioner herein is an advocate. He is an income tax assessee. His wife, Mrs B.Vasanthakumari, and his minor daughter, V. Suchitra, are also

assessees with regard to their independent source of income. Insofar as the daughter of the petitioner is concerned, the source of her income is

traceable to the property which she obtained by a will from her maternal grandfather while she was five months'' old. She receives rental income

from such property, which she reinvests and gets income by way of interest. Since the minor daughter''s income is not traceable to the fictitious

income covered under the unamended section 64, she got herself assessed under the Act, from the date she used to get assessable income. For the

past several years, she was an assessee under the Act in her individual capacity. Until the assessment year 1992-93, her income was not clubbed

with the petitioner''s income as her source of income was not derived from any one of the ways mentioned in section 64, as it was then prevailing.

But after the amendment, her income is clubbed with her father''s income, who was hitherto assessed independently. The grievance of the petitioner

is, as per the amended Act, by clubbing the income of his minor daughter who was hitherto assessed independently, the tax burden at his hands

became higher for no fault of his. The petitioner has no proximate or even remote connection with his minor daughter''s income, besides the actual

assessment. He has difficulty to pay the advance tax on the clubbed income of his minor daughter and failure to do so will have penal

consequences on him. Therefore, the impugned amendment causes grave prejudice to his right to be assessed on his own income without clubbing

the income of his minor daughter on which she was assessed hitherto by separate assessment. It was, therefore, prayed that a writ of declaration

may be issued declaring the impugned amendment, viz., subsection (1A) of section 64 as illegal and unconstitutional since it is violative of Articles

14, 19 and 165 of the Constitution.

Writ Petition No. 15325 of 1993 :

The petitioner herein has challenged the provisions of section 64(1A) as amended by the Finance Act, 1992, insofar as it seeks to club the

income of her minor daughter with his income and taking away her right to continue as an independent assessee since the assessment year 1993-

The petitioner''s husband has already moved another writ petition. Writ Petition No. 16425 of 1992, for the very same relief. According to the

petitioner, the statute seeks to club the income of the minor daughter with that of the parent whose income is higher. Since both the petitioner and

her husband are assessees, they are unable to determine on the date of filing the writ petition, whose income is higher. It will be known only after

the audit is over. Under such circumstances, both the parents of the minor child filed the writ petitions challenging the validity of section 64(1A).

Writ Petition No. 18768 of 1992 :

The petitioner herein is an income tax assessee. The petitioner''s wife was also an assessee in respect of her income from the finance business in

the name of Mohanlal Madanlal, a sole proprietary concern. The petitioner is having two children. The petitioner''s wife died in a car accident. She

was having about Rs. 6 lakhs of movables in cash and other movables at the time of her death. The petitioner and his two minor children

succeeded to her properties equally u/s 15 of the Hindu Succession Act. The petitioner''s minor children are receiving income from such property.

The petitioner''s minor children were independently assessed on the said income which they derived from their mother by succession. Since the

income from the source of their succession was outside the scope of section 64 of the unamended Act, the petitioners'' minor children were

assessed independently till the assessment year 1992-93. However, section 64 was amended by the Finance Act, 1992, to the effect that all the

income of a minor will be clubbed with that of his parents save the exclusive income earned by the minor out of his own skill, profession or manual

labour, even though there are innumerable lawful sources of income of a minor which are not traceable to the avoidance of tax on the part of their

parents through the minor. The petitioner states that unlike other laws, Hindu law recognises the right to property of a Hindu child even from the

date he is in the womb of his mother. Further, the Hindu Succession Act recognises ''minor child'' as a person and the right of the minor to succeed

to the property of his grandfather as a coparcener or to his father or mother as an heir is a statutory right conferred on the minor on his independent

status. Therefore, the property that a minor gets by ''devolution'' is not property that is hit by transfer inter vivos which income is otherwise clubbed

with the parent u/s 64. The petitioner states that the impugned amendment totally overlooked the status of the minor''s right to succeed to property

under Hindu law and, consequently, denies the right of a minor to be assessed independently from the said source of income as an individual

person under the Act.

Writ Petition No. 18769 of 1992 :

The petitioner herein is an income tax assessee. In pursuance of a family arrangement between the petitioner''s father and the petitioner, the

petitioner''s minor son was provided with a settlement of an immovable property at Cooks Road, Otteri, Madras, by a partition deed dated 31-3-

1986, in which the petitioner''s minor son had a coparcenary interest. The petitioner''s minor son was deriving income from the said partitioned

property by way of rent and was assessed to income tax independently as a minor assessee on such income since 1987. The unamended

provisions of section 64 seek to club only the income of a minor with that of his parent if a minor gets income from property transferred to him

without consideration by his father, or paternal grandfather or the minor is admitted to the benefits of a partnership firm in which his parents are

partners or from which they are having substantial income. The petitioner''s minor son got property by way of partition to which he has an existing

right by way of devolution and the income derived from the same is recognised as an independent income of the petitioner''s minor son and was

assessed independently. According to the petitioner, the amendment discriminates, while recognising the income of a minor, including the one

derived by manual labour which is prohibited under the Directive Principles of State Policy and relevant labour laws relating to prohibition of

employment of children and it failed to recognise the devolutionary and other statutory rights of a minor to succeed to property and the income

therefrom. Hence, section 64(1A) is unconstitutional.

Writ Petition No. 5744 of 1993 :

The petitioner herein is a minor and is represented by his father and guardian, Professor N. Jayasankaran, who was a member of a joint Hindu

family of which the karta was his father, the late Shri M.A. Natesa Iyer. In 1960, the joint family consisted of his father, his brother and himself. A

deed of partition was effected on 22-1-1960, whereby complete partition of joint family property was recorded and the properties of the joint

family were divided as mentioned in the said deed. The partition deed divided the immovable properties into three schedules, viz, A, B and C.

Schedule A was allotted to the petitioner''s grandfather, Schedule B was allotted to the brother of the petitioner''s father and Schedule C was

allotted to the petitioner''s father. This partition deed was accepted by the ITO. After that, the petitioner''s father continued to hold that property as

his own. By a registered partition deed dated 6-4-1981, the property of the joint family consisting of the petitioner and his father, his mother and

his sister was completely partitioned and the immovable properties were divided into Schedules A and B. Schedule A was allotted to the

petitioner''s father and Schedule B was allotted to the petitioner, who is a minor. As the petitioner is a minor, his father continued to be the guardian

of the property in question. The property allotted to the minor son fetches interest income out of investments made in NSS, bank deposits and

fixed deposits. The interest therefrom has hitherto been assessed in the hands of the petitioner who is also an assessee. By section 35(b) of the

Finance Act, 1992, a new sub-section was inserted in section 64, which provides for clubbing of income of the minor with that of his parents. By

virtue of new sub-section (1A) to section 64, the interest income of the minor also becomes liable to be clubbed in the hands of the parent having

the larger income. The provisions of section 64(1A), according to the petitioner, are ultra vires article 14 of the Constitution of India and is liable to

be struck down.

In these writ petitions the common case put forward by the petitioners is as under :

The general scheme of the Act is traceable to section 1 to section 151 of the Act, wherein the income tax is payable on the income of an individual

on the basis of the charging section provided u/s 4 to section 9 of the Act. Section 14 to section 59 deal with the enumeration of six heads of

income and their allied principles. Sections 60 to 65 deal with fictional inclusion of other persons'' income in certain circumstances with that of the

individual. The said chapter is a fictional extension of the scheme to defeat the avoidance of tax. The definitions of ''assessee'' u/s 2(7), ''income''

u/s 2(24) and ''person'' u/s 2(31) were interpreted to include a minor also under the concept of individual and person. The legislative history of

section 64 would go to show that it is made in order to foil the attempt of an individual to avoid tax at his hands by transferring it to his spouse and

minor child. The Supreme Court in Tulsidas Kilachand Vs. The Commissioner of Income Tax, Bombay City I, , had explained that the said

provision was designed to overtake and circumvent a growing tendency on the part of taxpayers to endeavour to avoid or reduce the tax liability.

The validity of section 64 on the limited object of curtailing avoidance of tax sought to be achieved was upheld by the Supreme Court in Balaji Vs.

Income Tax Officer, Special Investigation Circle, and in S. Srinivasan Vs. Commissioner of Income Tax, Madras, . However, the Supreme Court

in The Commissioner of Income Tax Bombay Vs. Manilal Dhanji, Bombay, , and a series of decisions held that while administering the provision

like section 64 creating an artificial or vicarious liability to tax, the authorities should follow the strict construction rule. While interpreting section

171(9) of the Act, amended by the Finance (No. 2) Act, 1980, not recognising the family partition under the Hindu law, the Division Bench of this

court construed that non-recognition of partial family partition u/s 171(9) and clubbing of the coparcener''s income as a whole was illegal and

accordingly struck down sub-section (9) of section 171 as ultra vires in M.V. Valliappan and Others Vs. Income Tax Officer and Others, ). The

impugned amendment seeks to do two things, viz., (i) it couples the entire income of a minor with that of his/her father even though there is no

fictitious transfer traceable to the parents in any one of the manners provided u/s 64. It fails to note whether there is any attempt at all on the part of

the father to avoid tax at their hands through minors which alone can be clubbed by the artificial extension, and (ii) while it recoginses the income of

minor treated separately to the cases of prodigy income of a minor on the reasoning that it has no nexus to the source of the parent, it failed to

exempt all such income of a minor that would have the similar character of independent source, de hors the father. Further, the analogous provision

relating to the spouse was retained even after the amendment, the effect being that a minor who was assessed separately until 1992-93, in spite of

the provisions of section 64 of the pre-amended Act, loses his right to be assessed separately even though he was entitled to be assessed

separately if his income was not the one traceable to the source u/s 64. The impugned Act in practice converts the source of income prior to

amendment being outside section 64 into an income u/s 64(1A) under the amended Act. To that extent, the amendment has a retrospective

implication which is not available to the statute unless it is specifically declared so. The impugned amendment by clubbing the entire income of the

minor de hors the source being traceable to any measure of avoidance of tax puts an additional burden on the individual for no fault, either

proximate or remote connection, of such individual with the income of the minor. The statute having recognised the eligibility of an individual

(minor) to be an assessee cannot prevent that right in the absence of any measure of avoidance of tax. The impugned amendment is inconsistent

with the scheme of the Act, is discriminatory and is violative of articles 14, 19 and 265. The Amendment also infringes the right of a minor to hold

property in his name and to have an income and assessment of his own which is otherwise permissible under the general law of the land. The

impugned amendment cannot be sustained unless it is traceable to a fictitious role on the part of an individual to avoid tax at his hands through the

minor. The amendment cannot be enlarged beyond the need for checking avoidance of tax. In the instant cases, the minors who were legally

assessed separately till 1992-93 on their income, accepting the fact of their source of income being not traceable to fictitious income enumerated

u/s 64, would lose the same from the present assessment year. The impugned amendment, therefore, besides infringing the past lawful right of a

minor of being independently assessed, prevents the minor from earning income independently of her/his father and to be assessed.

The respondents filed a common counter-affidavit in all these writ petitions wherein it is stated as under :

The reason for the introduction of section 64(1A), by the Finance Act, 1992, is explained in the circular of the Central Board of Direct Taxes,

Circular No. 636 dated 31-8-1992 [ see [1992] 198 ITR (St.) 1], and in the speech of the Finance Minister reported in [1992] 194 ITR (St.)

17.The petitioners have challenged the vires of the provisions of section 64(1A) on a misreading of the provisions of the said section by stating that

section 64 dealt with only cases where there is a transfer of property to the minor child by the parents. The petitioners have overlooked the other

part of the provisions wherein clubbing of income is made without any reference to transfer of assets by the parents. The Central Legislature is

competent to enact the provision of section 64(1A). The power of Parliament to levy tax is not curtailed by the incidence of tax and section

64(1A) provides for levy of tax on income and it is still a tax on income though not on the income of the person whose income is to be assessed

but on another for the purpose of imposing the tax liability. This submission is supported by the decisions of this Court in B.M. Amina Umma Vs.

Income Tax Officer, Kozhikode, and K. Krishnaveni Vs. Appellate Asst. Commissioner of Income Tax, ''C'' Range, Madras and Another, . The

provisions of section 64(1A) do not contravene article 14 or 19 as the said provision is designed to avoid and circumvent the growing tendency on

the part of the taxpayers in their endeavour to avoid or reduce their tax liability through numerous devices and the scope of the provisions is limited

to minors who are ordinarily under the protection and control of the assessee and dependent on the assessee. As observed by the Supreme Court

in Balaji''s case (supra) there is no classification between genuine and non-genuine cases and the net is cast a little wider, but it was necessary that

any further sub-classification between genuine and non-genuine transactions might defeat the purpose of the Act. The decision of this Court in

M.V. Valliappan''s case (supra) is not relevant for the purposes of the case and further the Supreme Court has granted stay of the operation of the

judgment in SLP Civil No. 4707-4718 of 1988, dated 25-4-1988 - see [1988] 171 ITR (St.) 52. This Court in K. Krishnaveni''s case (supra)

has considered that question and held that the section was prospective in nature and the same reasoning will apply to the facts of the case. Section

64(1A) does not prevent the minor from holding property even after the introduction of section 64(1A) and it provides only for the incidence of

tax. It was, therefore, submitted that the writ petitions are devoid of merits and, therefore, they are liable to be dismissed.

Before us the arguments advanced by the learned counsel for the petitioners are as under :

Under section 64(1A) all income which accrues or arises to the minor child will be clubbed in the hands of the parent whose total income is higher

except in the cases mentioned in the proviso to the said section. Clubbing of income has to be done irrespective of whether there is any transfer of

assets, the source of income and payment of consideration. There is no attempt for classification in the provisions of section 64(1A). The lack of

classification itself creates inequity and section 64(1A) is violative of article 14. Reliance was placed on the following decisions, viz. Kunnathat

Thathunni Moopil Nair Vs. The State of Kerala and Another, New Manek Chowk Spinning and Weaving Mills Co. Ltd. and Others Vs.

Municipal Corporation of The City of Ahmedabad and Others, ; The State of Kerala Vs. Haji K. Haji K. Kutty Naha and Others etc., .

According to the learned counsel for the assessees, it is not the phraseology of the statute that governs the situation but the effect of the law that is

decisive. The effect of section 64(1A) is that it operates unevenly on minors who receive income. Section 64(1A) also leads to an anomalous

situation. In order to support this contention reliance was placed upon the decision reported in KHANDIGE SHAM BHAT AND ANOTHER

Vs. AGRICULTURAL Income Tax OFFICER, KASARAGOD, AND ANOTHER., . It was further submitted that section 64(1A) is also

violative of article 14 as it operates unequally within its range of selection and cannot be justified on the basis of valid classification. For supporting

this contention, reliance was placed on Income Tax Officer, Shillong and Others Vs. R. Takin Roy Rymbai and Others, and Raja Jagannath Baksh

Singh Vs. The State of Uttar Pradesh and Another, Again it was submitted that since section 64(1A) fails to make any classification, it is liable to

be struck down by applying the test of ''palpable arbitrariness''. In order to support this contention reliance was placed on Federation of Hotel and

Restaurant Association of India, etc., Vs. Union of India (UOI) and Others, and Plakkad Estate (P.) Ltd. and Others Vs. Agricultural Income Tax

Officer and Others, .

Another line of argument advanced by the learned counsel for the assessees was that section 64(1A) is also liable to be struck down as it suffers

from lack or absence of legislative competency. Parliament has no power to levy tax on one person for the income of another, unless there is some

nexus between the person taxed and the income of the recipient. In order to support this line of argument reliance was placed upon the following

decisions, viz., Sardar Baldev Singh Vs. Commissioner of Income Tax, Delhi and Ajmer, ; Balaji''s case (supra) and M.V. Valliappan''s case

(supra). Yet another line of argument advanced by the learned counsel for the assessees was that, u/s 171(1), partial partition was recognised

under the Act. After partial partition the members of the joint family are entitled to get their shares by metes and bounds. After partial partition, the

income from the property would be divided according to the shares allotted to the members of the joint family. Therefore, the tax effect on each

member in respect of the share received on partial partition would be less than the tax effect on the whole of the property if it was not divided

under partial partition. Section 64(1A) by clubbing the income of the minor in the hands of the parent, whoever is getting higher income, would

render the provisions of section 171(1) nugatory. Therefore, it was pointed out that section 64(1A) is liable to be struck down since it is violative

of article 265.

It is further submitted that the income of the minor child assessed in his or her hands in the year in which the income is earned if the earnings are

invested in shares, bank deposits or in real estate, the income there from the subsequent years will be clubbed in the hands of the parents under the

impugned section 64(1A). It was further submitted that, under the relevant provision, before the amendment, clubbing was permissible only in

respect of the assets transferred directly or indirectly without adequate consideration by the paternal grand-parents. The in come was then clubbed

in the hands of the concerned grand-parents. There was no clubbing in the case of gifts from the maternal grandfather, uncles or other relatives or

friends. After the amendment the clubbing will be done irrespective of the relationship between the minor and the transferor. The income will now

be clubbed in the hands of the father or mother who may have nothing to do with the transfer or gift. Again it was contended that before the

amendment, the transfer would be valid and no clubbing was permissible if the transfer was made for adequate consideration. The provision for

clubbing would apply only if the transfer was for inadequate consideration. But u/s 64(1A), income earned from all sources of a minor is to be

clubbed in the hands of the parent except what is exempted under the proviso. Under the impugned section 64(1A), clubbing will be done

irrespective of whether the transfer is for adequate, inadequate or no consideration. The income will be clubbed in the hands of the parents, even

though the father/mother may have provided consideration. The learned counsel for the assessees also submitted that there is no provision that

enables the father/mother to recover the tax paid on the clubbed income. Section 64(1A) merely states that when computing the total income of the

assessee, the minor''s income will be included. There is no legal fiction stipulating that the income of the minor will be deemed to be the income of

the parents. The parents are therefore liable to pay income tax on the minor''s income without any right to recover the tax from the minors.

According to the learned counsel for the assessee under the impugned provisions the concerned parent is liable to pay income tax where there may

not be any right to receive the income. The liability of the parents under the new provision is unlimited, whereas the liability of the legal

representative or representative is limited u/s 159(6) and section 162, of the Act, respectively.

It was also submitted that an individual assessee is entitled to deduction u/s 80L of income from dividends, bank interest, interest from post

office savings, NSS, etc., up to Rs. 13,000 in addition to the minimum exemption limit. Similarly, in respect of the tax rebate u/s 88 for payment

towards LIC premium, contribution to PPF, NSC, tax rebate up to Rs. 12,000 or 20 per cent of the amount invested is granted. Section 80CC,

section 80CCB, etc., give deductions up to Rs. 20,000 or Rs. 30,000 to an individual assessee for investment in new shares, mutual funds, etc.

Under such circumstances, it was submitted that although there was provision for clubbing there is no benefit by way of additional deduction on the

above items on the minor''s income that has been clubbed in the hands of the parents. Therefore, the minor''s income is fully taxed without any

deduction at all. Therefore, according to the learned counsel for the assessee this amounts to hostile discrimination against minors and, therefore,

the impugned provision is violative of article 14.

Both the senior counsel for the Government of India and the standing counsel for the income tax Department submitted by way of reply as

under:

The Finance Bill, 1992 (38 of 1992), was introduced in the Lok Sabha and the same was enacted by Parliament with effect from 1-4-1993. In

terms of section 35(b) of the said Finance Act amendments were introduced in the Act, whereby sub-section (1A) to section 64 was introduced,

which reads as under :

(1A) In computing the total income of any individual, there shall be included all such income as arises or accrues to his minor child :

Provided that nothing contained in this sub-section shall apply in respect of such income as arises or accrues to the minor child on account of any--

(a) manual work done by him; or

(b) activity involving application of his skill, talent or specialised knowledge and experience.

Explanation 1. 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 previous year,

and where any such income is once included in the total income of either parent, any such income arising in any succeeding year shall not be

included in the total income of the other parent, unless the Assessing Officer is satisfied, after giving that parent an opportunity of being heard, that

it is necessary so to do.

It remains to be seen that section 16 of the 1922 Act and section 64 of the 1961 Act were enacted to prevent avoidance of tax through

transfer of assets directly or indirectly. Section 64(1A) includes income of the minor child irrespective of its source, in the hands of the parent

having the larger income. The proviso carves out two exceptions to this case. The earlier provisions relating to clubbing were held to be valid by

the Supreme Court and various other High Courts. The provisions of section 16(3) (a) (i) and (ii) which were corresponding to unamended section

64(1) (i) and (ii) were held to be valid and not in violation of articles 14 and 19(1) (b) as can be seen from the decision of the Supreme Court in

Balaji''s case (supra). The provisions of section 16(3) (a) (iv) of the 1922 Act corresponding to the unamended section 64(1) (iv) of the 1961 Act

were held to be valid and not in contravention of article 14 as can be seen from G. K. Devarajulu Naidu Vs. Commissioner of Income Tax, Kerala

and Coimbatore, . The unamended section 64(1) (i) and (ii) did not violate articles 14 and 19(1) (b) and (g) as can be seen from the decisions in

Shreekunwardevi Daga Vs. L.G. Trivedi, Income Tax Officer, A-ward, Wardha and Others, Smt. Savitri Devi v. CIT 1974 Tax LR 74 (All).

Section 64(1) (iii) as substituted with effect from 1-4-1976, providing for clubbing of income of a minor who was admitted to the benefits of a

partnership firm was held to be valid as can be seen from the decision in K. Krishnaveni''s case (supra). The Central Legislature is competent to

enact the provision of section 64(1A). This can be seen from the decision of this court in B.M. Amina Umma''s case (supra). u/s 64(1A) since

Parliament wanted to tax the deemed income, the rest of the arguments advanced by learned counsel for the petitioners are not acceptable. The

decision rendered by this court in the case of M.V. Valliappan (supra) is of no relevance in the present case. Further, that decision is also stayed

by the Supreme Court. The provisions of sections 4 and 5 are subject to the provisions of section 64(1A). It was, therefore, submitted that the writ

petitions are liable to be dismissed.

It remains to be seen that while introducing the Bill (38 of 1992) before Parliament, the Finance Minister in his speech stated as under [ see

[1992] 194 ITR (St.) 17]:

It is said that the child is the father of man, but some of our taxpayers have converted children into tax shelters for their fathers. The tax law

provides for clubbing of income from gifts given by parents but this does not apply to other income, including income from other gifted assets, and

the practice of cross-gifting is widely used to evade clubbing. The Chelliah Committee has recommended that in order to plug this loophole, which

accounts for a substantial leakage of revenue, the income of a minor child should be clubbed with that of the parent. There is merit in this

suggestion and I propose to accept it. Recognising, however, the existence of a number of child prodigies, especially child artistes in our country, I

propose to exclude their professional income, as also any wage income of minors, from the purview of such clubbing. The practice of clubbing the

income of minor children with that of the parent for tax purposes is in vogue in a number of countries. (p. 17 St.)

The interim report on Tax Reforms for December 1991, submitted by Dr. Raja J. Chelliah Committee reads as under (at para 6.38 of the Report)

:

At present, in India the income of the minor admitted to the benefits of any partnership is included in the income of the parent, irrespective of

whether or not either parent is a partner in the same firm. Further, any income accruing to a minor from any asset transferred to him by the parents

or the grandparents is included in the income of the parent or grandparent who has transferred such income-generating asset. However, in respect

of all other incomes accruing to him, the minor is a separate taxable entity. Keeping in view the rationale for aggregation of the minor''s income with

that of the parents, the Committee recommends that--

(a) All incomes of a minor, other than wage income, should be aggregated with the total income of--

(i) the parent having the higher income, where the total income of one parent or of both the parents happens to fall below the exemption limit for

individuals;

(ii) any one of the parents at the option of the parents where the income of both the parents exceeds the exemption limit; and

(iii) if over time the income of the parent, with whom the income of the minor was aggregated earlier, goes below the exemption limit, the parent

having the higher income.

(b) It follows that the income of the minor arising from assets transferred to him or her by any one including his grandparents should be aggregated

with the income of the parent as recommended above.

The question as to whether the income of a minor is to be included with the income of one of the parents or not is also a matter governed under

entry 82 of List I of Schedule VII to the Constitution of India. In Navnitlal C. Javeri Vs. K.K. Sen, Appellate Assistant Commissioner of Income

Tax, ''D'' Range, Bombay, , the Supreme Court while considering entry 82 of List I of Schedule VII to the Constitution of India and sections

2(6A) (e) and 12(1B) of the Indian income tax Act, 1922, held that section 12(1B) provides that if a controlled company adopts the device of

making a loan to one of its shareholders, he will be deemed to have received the amount out of the accumulated profits as dividends and would be

liable to pay tax on his income. The word ''income'' in entry 82 of List I of Schedule VII to the Constitution of India must receive a wide

interpretation on the facts of each case. Having regard to the fact that the Legislature was aware of the devices to evade tax, it would be within its

competence to device a fiction for treating an ostensible loan as the receipt of the dividend.

According to the facts arising in Balaji''s case (supra), the petitioner and his wife started a business in partnership and admitted their three

minor sons to it. In computing the total income of the petitioner for the purpose of assessment, the ITO included the share of income of the wife

and three minor sons u/s 16(3) (a) (i) and (ii) of the Indian income tax Act, 1922. The petitioner moved the Supreme Court under article 32 of the

Constitution of India challenging the constitutionality of the said provisions on the grounds, viz., (i) that they were ultra vires the Legislature under

entry 54 of the Federal Legislative List of the Government of India Act, 1935; (ii) that they contravened the provisions of article 14 and article

19(1) (f) and (g). While deciding the issue arising in this case, the Supreme Court came to the following conclusions as can be seen from the

headnote, which is extracted as under :

The entries in the Legislative Lists are not powers but fields of legislation and the widest import and significance should be attached to them. Thus

interpreted, there could be no doubt that entry 54 of the Federal Legislative List must cover such legislation as the impugned provisions intended to

prevent the evasion of tax.

The two tests of permissible classification under article 14 as laid down by this Court were (i) that the classification must be founded on an

intelligible differentia, and (ii) that the differentia must be reasonably connected to the object of the legislation. So judged it could not be said that

the intelligible differentia on which the impugned provision founded its classification had no rational relationship to its object, viz., the prevention of

the evasion of the tax. The impugned provision did not, therefore, violate article 14.

The tax authorised by law may be questioned as offending the fundamental freedom under article 19. A tax law like any other law must also

satisfy (i) that the appropriate Legislature was competent to enact it, and (ii) that it did not infringe any of the fundamental rights.

Even so, the restriction imposed by the impugned provisions must be held to be reasonable. Although the mode of taxation it provided might

be a little hard on a husband or a father in the case of genuine partnership, that was sufficiently offset by the resulting benefit to the public as also by

the fact that the additional payment of tax made by the husband or the father on the income of the wife or minor children would ultimately be borne

by them in the final accounting between them. In these circum stances it cannot be said that the provisions of section 16(3) imposes an

unreasonable restriction on the fundamental rights of the petitioner under article 19(1) (f) and (g).

So also, while considering the provisions of section 16(3) (a) (ii) of the Indian income tax Act, 1922, articles 14, 19 and the Government of

India Act, 1935, section 100, Schedule VII, List I, entry 54, this Court in the decision in B.M. Amina Umma''s case (supra), came to the following

conclusions as can be seen from the headnote, which is extracted as under:

There is nothing in entry 54 of List I in Schedule 7 of the Government of India Act, 1935, to limit the legislative field not merely to tax on persons

but further to limit the scope to tax only on the income of the person assessed. All that entry 54 requires is that the tax must be a tax on income

other than agricultural income. Section 16(3) (a) (ii) of the Indian income tax Act, 1922, provides only for a tax on income. The imposition does

not cease to be a tax on income either in form or in substance, though the section provides for the incidence of the tax not on the person whose

income is to be assessed to tax, but on another. There is nothing in the fundamental concepts of income tax to prevent the imposition of the

immediate and apparent incidence of the tax on a person other than the person whose income is to be assessed. Section 16(3) (a) (ii) was,

therefore, well within the legislative power conferred on the Central Legislature by entry 54 read with section 100 of the Government of India Act,

1935. It does not also contravene any of the fundamental rights guaranteed by the Constitution of India.

Section 16(3) (a) (ii) does not in any way prohibit or even interfere with the right of the parent of the minor to practise any profession or to carry

on any occupation, trade or business. It also does not contravene the equal protection of the laws guaranteed by article 14 of the Constitution

inasmuch as the classification is reasonable.

An attempt to prevent by legislation an evasion of just tax liability and the necessary classification to give effect to that object cannot be termed

unreasonable. (p. 137)

In the case of THE PATIALA STATE BANK, IN RE., Beaumont, CJ. observed:

... I think that, properly considered, income tax is a tax on a person in relation to his income. The tax is not imposed on income generally; it is

imposed on the income of a person, natural or artificial, as defined in section 3. The assessment has to be made against the person, and the tax has

to be collected from the assessee. The tax is not made a charge on the income upon which it is levied, and I think, broadly speaking, it is accurate

to say that income tax is a tax imposed upon a person in relation to his income... (p. 112)

The Supreme Court in Commissioner of Income Tax/excess Profits Tax, Bombay City Vs. Bhogilal Laherchand, held that, ""the term ''deemed''

brings within the net of chargeability income not actually accruing, but which is supposed notionally to have accrued. It involves a number of

concepts. By a statutory fiction income which can in no sense be said to accrue at all may be considered as though accruing. Similarly, the fiction

may relate to place, the person or be in respect of the year of taxability"".

While considering the decision in Albert A. Hoeper v. Tax Commission of Wisconsin [1931] 76 L. Ed. 248, this Court in B.M. Amina

Umma''s case (supra) observed as under :

As we understand the decision in Hoeper''s case (76 L. Ed. 248), the court did not intend to lay down as a proposition of law universal in its

scope and applicable at all times under all circumstances and to all States even within the United States that under no circumstance could a

husband be taxed on the wife''s income. Nor can that decision be treated as authority for universal application that under no circumstance could

any State in America tax A on the income of B. The reasonableness or otherwise of a classification has to be decided with reference to all the

circumstances of the case including the social and economic structure prevalent in the area where the taxing statute is in operation.... (p. 149)

The decision of this Court in B.M. Amina Umma'' case (supra), is still considered to be good law and it is holding the field.

Again in K. Krishnaveni''s case (supra), while considering the constitutionality of the provisions in section 64(1) (iii) this Court came to the

following conclusions as can be seen from the headnote which is extracted as under:

If the Legislature feels that there is a possibility of evasion of one''s income by showing it as the minor''s income and to avoid such an evasion there

is a clubbing of the income earned by a minor through a particular source with the income of the father, it cannot be said to fall outside the

legislative power to enact a law on income tax. It is true that u/s 64(1) (iii) of the income tax Act, 1961, prior to its amendment, the clubbing of the

income of the minor who has been admitted to the benefits of the partnership in which his parent is a partner with the income of the parent was

based on a nexus between the income of the minor from the partnership and the interest of the parent in the partnership. But the present provision

is to the effect that even if the parent is not a partner, if a minor has been admitted to the benefits of a partnership and income is derived therefrom,

that income should be clubbed with that of the parent and no nexus is contemplated by the section. 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, that the

partners would 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 sufficient nexus for taking the income of the minor as the income of the parent. The object of the amendment is to prevent evasion of

tax and the Legislature might have thought that a similar device would not ordinarily be resorted to by individuals whose minor sons earn income

from other sources and not from partnerships to the benefits of which they have been admitted. Having regard to the fact that the object of the

provision is to prevent evasion of tax, the Legislature appears to have selected for the purpose of classification only that group of persons who are

likely to use partnership as a cloak to perpetrate fraud. The provision as amended is therefore constitutionally valid. (p. 83)

So also, while considering articles 14,246 and 256 and Schedule 7, List I, entry 52, and entry 97, and Schedule 7, List II, entry 54, in relation

to the validity of the U.P. Sugar Cane (Purchase Tax) Act, the Supreme Court in Ganga Sugar Corporation Ltd. and Others Vs. State of Uttar

Pradesh and Others, held that:

Article 14, a great right by any canon, by its promiscuous forensic misuse, despite the Dalmia decision has given the impression of being the last

sanctuary of losing litigants. In the present case, the levy which is uniform on all sugarcane purchases, is attacked as ultra virus, on the score that

the sucrose content of various consignments may vary from place to place, the range of variation being of the order of 8 to 10 per cent and yet a

uniform levy by weight on these unequals is sanctioned by the Act. The price of cane is commanded as the only permissible criterion for purchase

tax. The whole case is given away by the very circumstance that, substantially, the sucrose content is the same for sugarcane in the State, the

marginal difference being too inconsequential to build a case of discrimination or is blamable on the old machinery. Neither in intent nor in effect is

there any discriminatory treatment discernible to the constitutional eye. Price is surely a safe guide but other methods are not necessarily vocational.

It depends on practical considerations of the administration, traditional practices in the trade, other economic pros and cons enter the verdict but,

after a judicial generosity is extended to the legislative wisdom, if there is writ on the statute perversity, ''madness'' in the method or gross disparity,

judicial credulity may snap and the measure may meet with its funeral. (p. 296)

The learned counsel for the petitioners placed reliance on the decision in Kunnathat Thathunni''s case (supra) for the purpose of explaining

article 14 of the Constitution of India. While considering this decision, the Supreme Court in Ganga Sugar Corpn.'' s case (supra), held that:

Reference to Kunnathat Thathunni Moopil Nair Vs. The State of Kerala and Another, , was made at the bar to persuade us that unequals cannot

be tortured into equality a vice which stultifies the soul of article 14 as Anatole France exposed in his sardonic epigram that ''the law, in its majestic

equality, forbids the rich as well as the poor to sleep under bridges, to beg in the streets, and to steal bread''. We are sure that equality has two

sides, both important, and Moopil Nair adverted to one of the facets. Nothing more can be squeezed out of that case. The inequality of the

situation in the total conspectus of socio-economic facts and human condition, must be striking and the unjust equality the rule forces down on

unequals must be glaring. In taxation, the many criteria of intrinsic intricacy and pragmatic plurality persuade the court, as a realist instrument and

respecter of the other two branches, to allow considerable free play although never any play for caprice, mala fides or cruel recklessness in intent

and effect. (p. 298)

The learned counsel for the petitioners submitted that u/s 171, partial partition of the property belonging to a HUF is accepted. After partial

partition and after recognition by the ITO, all the sharers including that of a minor would be entitled to be assessed separately. In such

circumstances, if section 64(1 A) is given effect, that would render section 171 nugatory. It was further submitted that in M.V. Valliappan''s case

(supra) sub-section (9) of section 171 was held to be unconstitutional by this Court. Therefore, according to the petitioner''s counsel, sub-section

(1A) of section 64 is liable to be struck down. But this decision has no relevance to the issue arising in this case. Further, that decision of this Court

is the subject-matter of a pending appeal and was stayed by the Supreme Court as can be seen from [1988] 171 ITR (St.) 52. In fact, sub section

(9) of section 171 was introduced for the purpose of curtailing tax evasion. Anyhow this issue is now sub judice before the Apex Court and,

therefore, we desist from pronouncing on the correctness of the same in these proceedings.

The learned counsel for the petitioners submitted that child labour is prohibited under various legislations and the earning of the child through his

skill is assessed separately in the hands of the minor, while legitimate income of the minor coming from whatever source is clubbed in the hands of

the parent whose income is higher. It remains to be seen that even income tainted with illegality is also taxable under the Act. Further, sub-section

(1A) of section 64 was introduced only for the purpose of curtailing the evasion of tax. Hence, the abovesaid contentions advanced by the learned

counsel for the petitioners hold no water.

The learned counsel for the petitioners further submitted that by clubbing the minor''s income in the hands of the parent whose income is higher

would deprive the parent claiming various benefits provided under the Act. In other words, such clubbing would reduce various benefits provided

under the Act, both to the minor as well as to his parent. If they are assessed separately both of them can claim such benefits separately in their

individual assessments. It remains to be seen that the Legislature wanted to tax the ''minor''s'' income in the hands of the parent whose income is

higher as ''deemed income'' which is permissible under the law. In the decision of Bhogilal Laherchand''s case (supra), it was held that ""the term

''deemed'' in section 4 brings within the net of chargeability income not actually accruing but which is supposed notionally to have accrued. It

involves a number of concepts. By statutory fiction income which can, in no sense, be said to accrue at all may be considered as so accruing.

Similarly, the fiction may relate to the place, the person or be in respect of the year of taxability"". Further, the Legislature is competent to tax a

person on the income belonging to another person. In such circumstances, both the persons who earned the income and the person on whom tax is

levied cannot claim the benefits provided under the Act. Therefore, it is not possible for the petitioners herein to contend that if two assessments

are made individually on the minors and his parents, both of them would be entitled to the benefits provided under the various provisions of the Act

and such benefits are curtailed because of the introduction of sub-section (1A) of section 64. In fact, the constitutional validity of sub-section (1A)

of section 64 was upheld by the Patna High Court in SYED ASKARI HADI ALI AUGUSTINE IMAM AND OTHERS Vs. UNION OF

INDIA AND OTHERS .

In this context, it is worthwhile to mention that the Supreme Court in the case of McDowell and Co. Ltd. Vs. Commercial Tax Officer, pointed

out that (headnote) :

Tax planning may be legitimate provided it is within the framework of the law. Colourable devices cannot be part of tax planning and it is wrong to

encourage or entertain the belief that it is honourable to avoid the payment of tax by dubious methods. It is the obligation of every citizen to pay the

taxes honestly without resorting to subterfuges. There is behind taxation laws as much moral sanction as is behind any other welfare legislation and

it is a pretence to say that avoidance of tax is not unethical and that it stands on no less a moral plane than honest payment of taxation. The proper

way to construe a taxing statute, while considering a device to avoid tax, is not to ask whether the provisions should be construed literally or

liberally nor whether the transaction is not unreal and not prohibited by the statute, but whether the transaction is a device to avoid tax and whether

the transaction is such that the judicial process may accord its approval to it. It is neither fair nor desirable to expect the Legislature to intervene

and take care of every device and scheme to avoid taxation. It is up to the court to take stock to determine the nature of the new and sophisticated

legal devices to avoid tax and to expose the devices for what they really are and to refuse to give judicial benediction. (p. 148)

Further, in a matter like this we cannot put it better than what the Supreme Court has said in Ganga Sugar Corpn.''s case (supra) in the

following passage (at page 297) :

It is well established that the modern State, in exercising its sovereign powers of taxation, has to deal with complex factors relating to the objects to

be taxed, the quantum to be levied, the conditions subject to which the levy has to be made, the social and economic policies which the tax is

designed to subserve, and what not. In the famous words of Holmes, J., in Bain Peanut Co. v. Pinson [1930] 282 US 499,501: ''We must

remember that the machinery of Government would not work if it were not allowed a little play in its joints....

Fine-tuning to attain perfect equality may be a fiscal ideal but, in the rough and tumble of work-a-day economics, the practical is preferred to the

ideal, provided glaring caprice or gross disparity does not make the levy arbitrary or frolicsome. Article 14 is not intellectual chess unrelated to

actual impact or the wear and tear of life but even-handed justice with some play in the joints.

In view of the foregoing reasons, we uphold the constitutional validity of sub-section (1A) of section 64. We also hold that it is within its

legislative competence for Parliament to enact sub-section (1A) of section 64 since it falls under Schedule VII, List I, entry 82. Further, we hold

that sub-section (1A) of section 64 is not violative of article 14 and article 19. In that view of the matter, it is not possible to strike down sub-

section (1A) of section 64 as illegal, unconstitutional and ultra vires the Constitution as alleged by the petitioners. In the result, the writ petitions are

dismissed. No. costs.

Writ Petition Nos. 16425 of 1992, 5744 of 1993, 18768 and 18769 of 1992 and 15325 of 1993:

Abdul Hadi, J.

I have had the benefit of going through the judgment of my learned brother Thanikkachalam, J. While agreeing with the conclusions reached by

him, as found in the last paragraph of his judgment, I want to give my own reasons to reach the same conclusions, though in some respects, the

said reasons may overlap with those given by him.

The question in these writ petitions is whether section 64(1A) is constitutionally valid. The attack is made both on the basis of incompetency of

Parliament to enact the said provision and on the basis that it offends the fundamental rights enshrined in article 14.

The said sub-section (1A), which was introduced in section 64 by the Finance Act, 1992, with effect from 1-4-1993, enacts that in computing

the total income of any individual (for the purpose of levying the tax on such total income under the Act), there shall be included ''all'' such income

as arises or accrues to his minor child. [There is no doubt an amendment to the said sub-section (1A) with effect from 1 4-1995, whereby the said

subsection will not operate if the abovesaid minor child is one suffering from any permanent physical disability spoken of in section 80U of the Act.

But we are not concerned with this amendment by the Finance Act, 1994]. However, the Finance Act of 1992 itself has added a proviso to the

said sub-section (1A), saying that nothing contained in the said sub-section shall apply in respect of the income of the minor child arising or

accruing on account of any (a) manual work done by him; or (b) activity involving application of his skill, talents or specialised knowledge and

experience. It may also be incidentally noted that section 10(32) (which was also inserted by the abovesaid Act of 1992), also provides that when

the abovesaid clubbing takes place u/s 64(1A), there shall be exclusion from the total income up to Rs. 1,500 of the income of each minor, coming

under the said section 64(1A).

Since my learned brother has set out the factual contexts in which the abovesaid attack is made, I need not repeat the same here.

In dealing with the validity of section 64(1A), let me first deal with the aspect of legislative competence of Parliament which enacted the said

provision. Entry 82 of List I of Schedule VII to the Constitution of India provides for ''taxes on income other than agricultural income''. No doubt,

only such income is charged to tax in all the above cases. But, the attack is on the ground that the minor child''s income is fictionally treated as the

income of his or her father and actually clubbed with his own income and charged to tax in his hands. (The result being both the said minor''s

income and the father''s income suffer tax at a heavier rate. But, it is settled law that the said entry 82 is wide enough to confer power to prevent

evasion of income tax.) [ vide PUNJAB DISTILLING INDUSTRIES LTD. Vs. COMMISSIONER OF Income Tax, PUNJAB.,

However, the main argument of the learned counsel for the petitioners, is, that there is not even an attempt to evade income tax by the

respective minor''s father or mother, as the case may be, in the abovesaid writ petitions, since the income itself accrued to the minor not because of

any step or action taken by the father or the mother, as the case may be, but because of some other extraneous circumstances, viz., either because

of the grant of property by the minor''s maternal grandfather to the minor or in view of minor''s inheritance from his mother, who died in an accident

or in view of the family partition which took place several years ago.

But, even assuming that this argument, that there was not even an attempt to evade income tax can be accepted, it must be remembered that

even if section 64(1A) does not fall under entry 82 on that ground, it would have necessarily to fall under the residuary entry 97 of List I, read with

article 248, of the Constitution of India, because it is nobody''s case that the abovesaid income of the respective minors would fall under List II or

List III of the Seventh Schedule to the Constitution of India. Article 248 of the Constitution of India says :

(1) Parliament has exclusive power to make any law with respect to any matter not enumerated in the Concurrent List or State List.

(2) Such power shall include the power of making any law imposing a tax not mentioned in either of those Lists.

Entry 97 runs as follows :

Any other matter not enumerated in List II or List III including any tax not mentioned in either of those Lists.

A similar view has also been expressed by the Supreme Court in Union of India (UOI) Vs. Shri Harbhajan Singh Dhillon, and Attorney

General for India v. Amratlal Prajivandas [1995] 83 Comp. Cas. 804. In this connection, the following observation in Attorney General for India''s

case (supra) (paragraph 22), which, inter alia, dealt with the legislative competence of Parliament to enact the Conservation of Foreign Exchange

and Prevention of Smuggling Activities Act is significant (at page 822 of 83 Comp. Cas.) :

... Be that as it may, it is not necessary to pursue this line of reasoning since we are in total agreement with the approach evolved in Union of India

(UOI) Vs. Shri Harbhajan Singh Dhillon, ; a decision by a Constitution Bench of seven Judges. The test evolved in the said decision is this in short:

where the legislative competence of Parliament to enact a particular statute is questioned, one must look at the several entries in List II to find out

(applying the well-known principles in this behalf) whether the said statute is relatable to any of those entries. If the statute does not relate to any of

the entries in List II, no further inquiry is necessary. It must be held that Parliament is competent to enact that statute whether by virtue of the

entries in List I and List III or by virtue of article 248 read with entry 97 of List I. In this case, it is not even suggested that either of the two

enactments in question is relatable to any of the entries in List II. If so, we need not go further and enquire to which entry or entries these Acts

relate. It should be held that Parliament did have the competence to enact them. (p. 822)

So, the attack that Parliament has no legislative competency to enact the abovesaid section 64(1A) falls to the ground.

No doubt, the learned counsel for the petitioners also relied on a Division Bench judgment of this court in M.V. Valliappan''s case (supra)

wherein section 171(9) was held to suffer from legislative incompetency. Section 171 deals with assessment after partition of a HUF. Section

171(1) states that a Hindu family hitherto assessed as undivided shall be deemed for the purposes of this Act to continue to be a HUF, except

where and in so far as a finding of partition has been given under this section in respect of the HUF. But, section 171(9), which was introduced by

the Finance (No. 2) Act, 1980, with effect from 1-4-1980, states that:

(9) Notwithstanding anything contained in the foregoing provisions of this section, where a partial partition has taken place after the 31st day of

December, 1978, among the members of a Hindu undivided family hitherto assessed as undivided,(a) no claim that such partial partition has taken

place shall be inquired into under sub-section (2) and no finding shall be recorded under sub-section (3) that such partial partition had taken place

and any finding recorded under sub-section (3) to that effect... shall be null and void; (b) such family shall continue to be liable to be assessed

under this Act as if no such partial partition had taken place;....

In other words, in the case of the abovesaid partial partition, the said partition is not recognised for assessment purposes and assessment is

made on the HUF as if no such partition took place even with reference to income attributable to property got under the said partition by any of

the coparceners of the family. In the abovesaid Division Bench decision, this Court, inter alia, held that the abovesaid section 171(9) lacks

legislative competency. The relevant conclusion of the Division Bench is as follows :

... It is, therefore, abundantly clear that the validity of section 171(9) cannot be sustained on the ground that it is a measure to counteract the

tendency to tax avoidance. Consequently, inasmuch as the income which does not belong to the Hindu undivided family but in fact and in law

belongs to a member of the Hindu undivided family consequent upon a partial partition, is brought to tax in the hands of the Hindu undivided family,

the provision in section 171(9), in our view, necessarily suffers from legislative incompetence. (p. 287)

Thus, in this Division Bench judgment, after holding that the above- said section 171(9) is not to counteract the tendency to tax avoidance, the

Court held that the said provision suffers from legislative incompetence. But, with due respect, I have to point out that this decision did not take

note of the abovereferred decision in Harbhajan Singh Dhillon''s case (supra), the ratio of which has been accepted and reiterated in Amratlal

Prajivandas''s case (supra). Those decisions are based on article 248 of the Constitution of India and residuary entry 97 of List I of the Seventh

Schedule. Therefore, I am unable to persuade myself to accept the correctness of the abovesaid conclusion of the Division Bench regarding the

legislative competence with reference to the abovesaid section 171(9).

I may also point out that a Division Bench of the Patna High Court, while upholding the constitutional validity of the abovesaid section 64(1A)

has not only held that the abovesaid section 64(1A) is not violative of article 14, but has also held that Parliament had the legislative competency to

enact the said provision under the abovesaid entry 82 itself. No doubt, the reasoning of the Patna High Court for coming to the said conclusion is

that the said provision u/s 64(1A) was enacted only for the purpose of checking the tendency to evade tax and would, therefore, squarely fall

under entry 82 itself. In this connection, I must also observe that the factual contexts in which these writ petitions have been filed, as stated above,

do not show that there was any attempt or move to evade the tax. In one case, as already stated above, the minor''s income in question is from the

property she has secured from her maternal grandfather and not from her father, the assessee, and it is nobody''s case that there was any move by

the father or the minor daughter to get the said property from the said grandfather. Likewise, in one other case, the minor children got the property

from their mother, on her death in an accident, by way of inheritance from her. Here again, there is no move to avoid tax by the assessee-father of

the minor child or anybody. In the other two cases also, there was a partition in the HUF in question and as a result, the minor in question is

allotted a property and through which the minor derives the income in question, which is sought to be clubbed with that of the minor''s parents.

Here again, it cannot be said that there is any move for evasion of tax. Even in K. Krishnaveni''s case (supra) a Division Bench of this Court held,

while upholding the validity of section 64(1) (iii), thus (at page 89) :

... Here, the Legislature has proceeded to treat the income of the minor from the partnership to the benefits of which he has been admitted without

reference to any interest of the parent in the partnership. But as has been held by the Supreme Court while dealing with the unamended provisions

in section 64 of the 1961 Act, if the Legislature feels that there is a possibility of evasion of one''s income by showing it as the minor''s income and

to avoid such an evasion the clubbing of income earned by a minor through a particular source with the income of the father cannot be said to fall

outside the legislative power to enact a law on income tax..... [Emphasis supplied] (p. 89)

Thus, in that case and also in many similar cases earlier decided, there was at least a possibility to evade income tax by showing the income as

the income of the minor or the income of some other close relative. But, in the present cases, there is no such ''showing'' at all by anybody including

the assessee and it cannot be said that there is any ''possibility of evasion'' of tax.

But, it appears to me that the object of section 64(1A) has not come in mainly as anti-avoidance measure, though incidentally such anti-

avoidance was also in the contemplation of the Legislature. The main object behind the legislation of the said provision seems to be that all minor''s

income should be clubbed with the parent (except of course that which has been excluded specifically as mentioned above), since for all practical

purposes, the parent treats and uses the said minor''s income as part of his or her own income. This position is apparent from the following passage

appearing in the Memorandum explaining the provisions in the Finance Bill, 1992, which, inter alia, brought out the abovesaid section 64(1A) [see

[1992] 194 ITR (St.) 179]:

In reality as well as in law, the minor children cannot administer their property nor can they take decisions on the disposal of income arising

therefrom. These responsibilities fall on the parents, who, for all practical purposes, treat and use this income as part of their own income.

Exclusion of minor children''s income from the income of their parents also leads to tax avoidance. The existing provisions of section 64 with regard

to clubbing of minor''s income have also led to litigation between the income tax Department and the assessees.

The Bill, therefore, seeks to amend section 64 of the income tax Act to provide that all income of a minor is to be included in the income of his

parent. However, the income derived by the minor from manual work or from any activity involving his specialised knowledge or experience will

not be included in the income of his parent ....

[Emphasis supplied]

The net result is, if section 64(1A) is at least partially an anti-avoidance measure, it would fall under entry 82 of List I itself. If it is not an anti-

avoidance measure at all, even then, Parliament will be entitled to enact such a provision in view of article 248 and entry 97 of List I, as already

stated above, in the light of the two Supreme Court decisions cited supra.

No doubt, in Balaji''s case (supra), one other question was posed regarding this legislative competency aspect, that is, whether Parliament had

power to tax one person for the income of another. But, the decision on the question was left open as it was done earlier also in Sardar Baldev

Singh''s case (supra). The relevant observation of the Supreme Court in Balaji''s case (supra) is as follows :

... A final decision by this court on such an important question at the earliest point of time is highly desirable, but, with some reluctance, we are

leaving open this question once again, as the position can be satisfactorily disposed of on a narrower basis. (p. 397)

In that case, the Supreme Court was considering the constitutional validity of old se6tion 16(3) (a) (i) and (ii) of the Indian income tax Act,

1922, under entry 54 of the Government of India Act, 1935 (corresponding to the above said entry 82 of the present Constitution). Only because

the Supreme Court held therein that the abovesaid provisions under the old income tax Act were enacted with a view to prevent evasion of

income- tax, the Supreme Court held that it would fall within the abovesaid entry 54 itself and that is why there was no necessity to decide the

abovesaid question whether the person can be taxed on an income of another when there is no possibility of evasion of income tax. Anyway, in my

view, in view of article 248 and entry 97 of List I and the interpretation put on it by the Supreme Court itself in the abovereferred to Harbhajan

Singh Dhillon''s case (supra) and Amratlal Prajivandas''s case (supra), the abovesaid question may not actually arise insofar as the legislative

competency of Parliament is concerned, though the question may have to be decided in the context of violation of any fundamental right.

Then, coming to the question whether the abovesaid section 64(1A) offends article 14, the contention of the petitioners is that since the income

of all the minors [excepting of course, the minors who are spoken of in the above proviso to section 64(1A) ] are treated alike, it is a case of

unequals being treated equally, since, according to the petitioners, cases where there is possibility of tax avoidance and cases where there is no

possibility of tax avoidance are treated alike. In other words, according to them, when there is no tax avoidance as in the present cases, the

minor''s income cannot be clubbed with that of his parent and that such a clubbing, which is provided u/s 64(1A) is palpably arbitrary and offends

article 14. In this regard the decisions in Haji K., Haji K. Kutty Naha''s case (supra), N. Takin Roy Rymbai''s case (supra) and Federation of

Hotel & Restaurant Association of India''s case (supra) were relied on. But, I do not think that those decisions would actually help the petitioners.

In Haji K., Haji K. Kutty Naha'' s case (supra) which dealt with the validity of the Kerala Buildings Tax Act, the Supreme Court, no doubt,

held that in enacting the said Act, no attempt at any rational classification was made by the Kerala Legislature. But, in the present case, it cannot be

said that there is no rational classification. As already observed, the main object of bringing section 64(1A) as found in the abovereferred to

Memorandum explaining the provisions in the abovesaid Finance Bill, 1992, is to club all income of a minor child with that of his parent since, for

all practical purposes, the parent treats and uses the said income as part of his or her own income. Viewed in that angle, it cannot be said that there

is no rational classification.

Further, in this regard, the following observation of the Supreme Court in R.K. Garg and Others Vs. Union of India (UOI) and Others, are

also quite significant:

...What is necessary in order to pass the test of permissible classification under article 14 is that the classification must not be ''arbitrary, artificial or

evasive'' but must be based on some real and substantial distinction bearing a just and reasonable relation to the object sought to be achieved by

the Legislature....

Now, while considering the constitutional validity of a statute said to be violative of article 14, it is necessary to bear in mind certain well-

established principles which have been evolved by the courts as rules of guidance in discharge of its constitutional function of judicial review. The

first rule is that there is always a presumption in favour of the constitutionality of a statute and the burden is upon him who attacks it to show that

there has been a clear transgression of the constitutional principles. This rule is based on the assumption, judicially recognised and accepted, that

the Legislature understands and correctly appreciates the needs of its own people, its laws are directed to problems made manifest by experience

and its discrimination are based on adequate grounds. The presumption of constitutionality is indeed so strong that in order to sustain it, the court

may take into consideration matters of common knowledge, matters of common report, the history of then the and may assume every state of facts

which can be conceived existing at the time of legislation.

Another rule of equal importance is that laws relating to economic activities should be viewed with greater latitude than laws touching civil rights

such as freedom of speech, religion, etc. It has been said by no less a person than Holmes, J., that the Legislature should be allowed some play in

the joints, because it has to deal with complex problems which do not admit of solutions through any doctrinaire or strait-jacket formula and this is

particularly true in the case of legislation dealing with economic matters, where, having regard to the nature of the problems required to be dealt

with, greater play in the joints has to be allowed to the Legislature. The court should feel more inclined to give judicial deference to legislative

judgment in the field of economic regulation than in other areas where fundamental human rights are involved.... (p. 254)

Further, in Ganga Sugar Corpn. Ltd''s case (supra) also similar observations are found. Even the following observation in Balaji''s case (supra)

is significant:

It was then said that there might be genuine partnerships between an individual and his wife and, therefore, there is no reasonable relation between

the classification and the object sought to be achieved, at any rate to the extent of those genuine cases. But there is no classification between

genuine and non-genuine cases: the classification is between cases of partnership between husband, wife and/or minor children, whether genuine or

not, and partnerships between others. In demarcating a group, the net was cast a little wider, but it was necessary, as any further sub-classification

as genuine and non-genuine partnerships might defeat the purpose of the Act. (p. 399)

In Balaji''s case (supra), the Supreme Court was also not inclined to follow the old American decision in Albert A. Hoeper''s case (supra). In

the American case, the appellant married a widow and both parties had separate incomes and made separate income tax returns and under the

relevant tax Act, the incomes of the wife were added to the income of the husband for the purpose of taxation and charged to tax and the Supreme

Court of America upheld the contention that the relevant provision offended ''due process and equal protection of the law'' (corresponding to

article 14 of our Constitution) and held ""that which is not in fact the taxpayer''s income cannot be made such by calling it his income"". No doubt,

there was a dissenting judgment also in the abovesaid American decision. However, our Supreme Court declined to follow the said ruling of the

majority of the Supreme Court of America and the relevant observation of our Supreme Court in Balaji''s case (supra) in this regard is as follows :

... That apart, the present social and economic position of women in India as compared with their compeers in America, even as if existed in 1931,

is so low that it would be inappropriate to apply the decision made in America to a similar case arising in India. A wife in India, particularly, if she

be illiterate - a large majority of them are illiterate - would ordinarily be in economic matters a tool in the hands of her husband. Many things are

done in her name without her knowledge of the same. When the Legislature of this country, which is assumed to know the conditions of the people

and their requirements, with the awareness of this particular widespread fraudulent device in the matter of evasion of taxes, made a law to prevent

the said fraud, it is difficult for this court in the absence of any counterbalancing circumstances to hold, on the analogy drawn from American

decisions, that the need for such a law is not in existence. (p. 400)

After so saying, the Supreme Court also referred to a direct decision of the Madras High Court in B.M. Amina Umma''s case (supra)

sustaining the relevant provision on the ground of reasonable classification, no doubt, on the footing that the relevant provision was to prevent the

evasion of tax.

Even N. Takin Roy Rymbai''s case (supra) observed that in view of the intrinsic complexity of fiscal adjustments of diverse elements, a

consider ably wide discretion in the matter of classification for taxation purposes must be given while dealing with the attack under article 14. It is

also pertinent to note the following observation in Khandige Sham Bhat''s case (supra) :

... If there is equality and uniformity within each group, the law will not be condemned as discriminative, though due to some fortuitous

circumstance arising out of a peculiar situation some included in a class get an advantage over others, so long as they are not singled out for special

treatment.... (p. 26)

The observation in this regard even in Federation of Hotel & Restaurant Association of India''s case (supra) is that the test (in dealing with the

question of alleged violation of article 14) could only be one of palpable arbitrariness applied in the context of the felt needs of the times and social

exigencies informed by experience, and it cannot be said that there is any such palpable arbitrariness in the present cases. Therefore, I also hold

that the abovesaid section 64(1A) does not offend article 14.

I may also add that the learned counsel for the petitioners also relied on the following passage in M.V. Valliappan''s case (supra), in support of

their contention that section 64(1A) offends article 14 :

The effect of section 171(9) also is that income over which the Hindu undivided family has no control is required to be disclosed in the return as its

own income and the joint family is exposed to the consequences of a penalty being levied in case the disclosure is found to be inaccurate, not full

and complete. For such a disclosure, the Hindu undivided family has to depend on the person who is the owner of the property and if the

information with regard to his income is not truly and fully disclosed to the Hindu undivided family, the consequence is that the Hindu undivided

family is required to face penal consequences in respect of income which, in fact as well as in law, does not belong to it at all. Liability to

punishment for concealment not by the Hindu undivided family but by one of its members would be contrary to all established principles of penal

jurisprudence. A provision of law which has the effect of fastening such a penal liability in respect of something over which the Hindu undivided

family has no control, cannot but be construed as arbitrary. (p. 276)

But, it must be noted that the underlying reasoning in the abovesaid passage in the context of the facts of the said case is that the income over

which the HUF has no control is required to be disclosed in the return as its own income and the family is exposed to the consequences of a

penalty. But, in all the present cases, which deal with clubbing of income of minor children, it cannot be said that the parent-assessee has no such

control since for all practical purposes the parent could treat and use the said minor''s income as part of his or her own income. So, the abovesaid

passage may not go to support the claim of the petitioners herein.

That apart, as pointed out by the learned counsel for the revenue, the Supreme Court has also held in Commissioner of Income Tax, Kerala

Vs. Smt. P.K. Kochammu Amma Peroke, which dealt with the proceedings initiated by the income tax authorities for levying penalty on the

assessee for non-disclosure of income coming u/s 64(1) (i) and (iii), that the penal provision under the Act would be attracted. The Supreme

Court, after referring to sections 4, 5, 2(45) and 64(1) has observed as follows :

... It is clear from this provision that though the share of the spouse or minor child in the profits of a partnership firm in which the assessee is a

partner is not the income of the assessee but is the income of such spouse or minor child, it is liable to be included in computing the total income of

the assessee and it would be assessable to tax in the hands of the assessee. The total income of the assessee chargeable to tax would include the

amounts representing the shares of the spouse and minor child in the profits of the partnership firm. If this be the correct legal position, there can be

no doubt that the assessee must disclose in the return submitted by him, all amounts representing the shares of the spouse and minor child in the

profits of the partnership firm in which he is a partner, since they form part of his total income chargeable to tax. The words ''his income'' in section

139, sub-section (1), must include every item of income which goes to make up his total income assessable under the Act. The amounts

representing the shares of the spouse and minor child in the profits of the partnership firm would be part of ''his income'' for the purpose of

assessment to tax and would have to be shown in the return of income filed by him. (p. 628)

Incidentally, in this connection and particularly in the light of the observations of the Supreme Court in the abovereferred Smt. P.K. Kochammu

Amma''s case (supra), while referring to the charging section 4 read with sections 5 and 2(45), I may also observe with due respect that the

observation in M.V. Valliappan''s case (supra) that section 171(9) entrenches upon or enlarges the scope of sections 4 and 5 does not seem to be

correct. This is so, because section 5 which defines the scope of total income chargeable to tax under the Act, itself says that the total income

includes all incomes referred to therein ''subject to the provisions of this Act''. Section 2(45) which defines ''total income'' also says that it means

the total amount of income referred to in sections, computed ''in the manner laid down in the Act''. Likewise, section 4, which is actually the

charging section also says, ""income tax.... shall be charged"". in accordance with and subject to the provisions.... of this Act in respect of the total

income...."". In view of the abovesaid expressions (which are italicised above) used in the abovesaid sections, it cannot be said that section 171(9)

entrenches upon or enlarges the scope of sections 4 and 5. Likewise, no such attack can be made with reference to section 64(1A) also.

One other submission by the learned counsel for the petitioner in Writ Petition No. 5744 of 1993 is as follows : u/s 171(9) only partial partition

has been derecognised. Complete partition is still permissible u/s 171(1). On account of section 64(1A), income from the assets received on a

valid complete partition will also be clubbed. Hence, the amended section will render section 171(1) redundant insofar as the minor is concerned.

So, if section 171 is to be read harmoniously with section 64(1A), the latter provision will have to be read down so as to exclude the income

received by a minor in the case of a valid complete partition of a HUF.

The above argument of the said learned counsel has no merit. Section 64(1A) has been inserted in the statute much later than section 171

[section 171(9) or any other part of section 171] and it can be presumed that Parliament, when it enacted section 64(1A), was aware of section

That apart, while the entire section 64 specifically deals with computation of the total income of an individual, section 171 is only a machinery

section dealing with the mode of assessment after partition of the HUF. In the above context, I am of the view that section 64(1A) will have

precedence and the question of reading it down will not arise. The decision cited by the said learned counsel, viz., Sri Venkataramana Devaru and

Others Vs. The State of Mysore and Others, will have no application to the present case since the facts therein were different. The net result is, I

concur with the conclusion reached by my learned brother Thanikkachalam, J. in his judgment that section 64(1A) neither suffers from legislative

incompetency, nor offends article 14 and that the said provision is valid.