JUDGMENT
In this writ application, the petitioners, inter alia, have prayed for a declaration that [SECTION] of the [ACT] (hereinafter referred to as "the Act"), introduced by the [ACT], which came into force from April 1, 1993, as ultra vires [SECTION] of the [ACT].
In view of the pure question of law, it is not necessary to state that facts of the matter in detail.
Suffice it to say that an irrevocable trust was created on September 7, 1988, by petitioner No. 1 for the support and maintenance of his wife (petitioner No. 3) as also his minor son and daughter. Petitioner No. 1 has contended that by the aforementioned trust, the petitioner has made a grant of Rs. 7 lakhs in favour of his wife and a further sum of Rs. 7 lakhs each in favour of his two minor children. Petitioner No. 1 allegedly made another trust on February 23, 1992, in favour of his minor children by initially contributing a sum of Rs. 10,000 but subsequently a further sum of Rs. 3,26,000 was contributed for the benefit, support and maintenance of the minors in equal shares. Allegedly, the said trust was created as the minors has given up their rights in terms of a compromise petition filed in [CASE NUMBER] in the court of the Subordinate Judge, Patna, concerning the properties commonly known as "Riswan" situated at Fraser Road, Patna. It has therefore, been contended that petitioners Nos. 2 and 3 have their own source of income and thus they are liable to pay income-tax. The [ACT] was introduced in the Lok Sabha, and the same was enacted by Parliament with effect from April 1, 1993. In terms of [SECTION] of the said [ACT], amendments were made in the [ACT], whereby sub-section (1A) to [SECTION] was inserted which read as follows :
"(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 specialised knowledge and experience.
Explanation. - For the purposes of this sub-section, the income of the minor child shall be included, -
(i) 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;
(ii) 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."
According to the petitioner is terms of the aforementioned provision income of a minor has been clubbed with the income of his parent. According to the petitioner, he did not have tax liability but in terms of the amended provisions the income of a minor child would also be included in the total income of the petitioner.
Mr. [ENTITY], learned counsel appearing on behalf of the petitioners, has raised a short question in support of this application. Learned counsel submitted that in terms of [SECTION] to the [ACT], Parliament is empowered to enact a law for imposition of income-tax upon an individual. Learned counsel submitted that in view of the charging section contained in [SECTION] of the Act read with the definition of "person" contained in [SECTION] thereof, any person who has an income is liable to pay tax. According to learned counsel, thus no distinction can be made between a minor and the major if both were having income for the purpose of payment of tax under the said Act. Learned counsel submitted that if the provision of [SECTION] of the Act is not declared to be ultra vires the same would lead to an absurdity inasmuch as an income derived by a minor by winning lottery and prize will also be included in the income of his father.
[SECTION] defines the term "person" as follows :
"[SECTION]. - person includes -
(i) an individual,
(ii) a Hindu undivided family,
(iii) a company,
(iv) a firm,
(v) an association of persons or a body of individuals, whether incorporated or not,
(vi) a local authority, and
(viii) every artificial juridical person, not falling within any of the preceding sub-clauses."
[SECTION] of the said Act reads thus :
"Where any Central Act enacts that income-tax shall be charged for any assessment year at any rate or rates, income-tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions of, this Act in respect of the total income of the previous year or previous years, as the case may be, of every person :
Provided that where by virtue of any provision of this Act income-tax to be charged in respect of the income of a period other than the previous year, income-tax shall be charged accordingly. (2) In respect of income chargeable under sub-section (1), income-tax shall be deductible or payable under any provision of this Act."
In our opinion, the submissions made by Mr. [ENTITY] cannot be accepted. [SECTION] to the [ACT] covers the filed of legislation in relation to the matters enumerated therein. The question as to whether the income of a minor will be clubbed with the income of one of his parents or not is also a matter covered under [SECTION] to the [ACT].
Parliament as also the State Legislature have made several enactments in terms whereof the property of a minor is clubbed with the properties held by his parents, e.g., [ACT], and [ACT]. In terms of the aforementioned Acts, the [ACT]. In terms of the aforementioned Acts, the ceiling area has to be determined at the hands of the family which includes husband, wife and their minor children. Thus, for the purpose of determination of a ceiling area, the lands held and possessed by a minor have to be clubbed with the lands held and possessed by his parents.
It has been held by the Supreme Court as also by this court that such provisions are not ultra vires the [ACT]. Reference in this connection may be made to [PRECEDENT]; [PRECEDENT] and [PRECEDENT]. It has also been held by this court as also by the Supreme Court of India that the property of a wife can also be clubbed with the property of her husband unless and until the wife is a judicially separated wife. Reference in this connection may be made to [PRECEDENT] and Smt. [PRECEDENT].
If the property of a minor child or a wife can be clubbed with that of the father/husband, there cannot be any doubt that Parliament in its wisdom may make a law in terms whereof an income derived by a minor child can be clubbed for the purpose of assessment of income-tax with the income of one of his parents. In terms of Explanation(1A) appended to [SECTION] of the Act, the income of a minor shall be included in the income of husband and wife whose total income is greater for the purpose of clauses (i) and (ii) thereof.
The Finance Minister also in his speech before Parliament while introducing the said Bill stated thus (see [PRECEDENT]) :
"60. 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 artists 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."
Thus, it is evident that the aforementioned provision has been enacted for the purpose of checking evasion of tax. It is now well-known that Parliament and the Legislature while making an enactment for imposition of tax may also make enactment for the purpose of checking the evasion thereof.
In this view of the matter, in our opinion, [SECTION] of the said Act cannot be said to be ultra vires entry 82, [SECTION] to the [ACT].
The contention of Mr. [ENTITY] to the effect that minor children are also individuals and thus the said provision is ultra vires [SECTION] of the [ACT] has no substance.
As noticed hereinbefore, there are several statutes in terms whereof the properties of a minor are to be clubbed with the properties of his father and, thus, there is absolutely no reason as to why the income of a minor cannot be directed to be clubbed with that of his father. Minors are a class by themselves and, thus, the question of the said Act being ultra vires [SECTION] of the [ACT] does not arise.
It is now well known that the discretionary powers of the Legislature to make classification of laws dealing with taxation matters is much wider as compared to other laws.
In the application of the principles, the courts, in view of the inherent complexity of fiscal adjustment of diverse elements, permit a large discretion to the Legislature in the matter of classification so long as it adheres to the fundamental principles underlying the said doctrine. The power of the Legislature to classify is of wide range and flexibility sot that it can adjust its system of taxation in all proper and reasonable ways (see [PRECEDENT]).
It is also well-known that in computing the total income of any individual, the differentiation between cases of partnership between husband, wife and/or minor children and partnership between others, made with the object of preventing evasion of tax is not violative of [SECTION] of the [ACT].
Reference in this connection may be made to [PRECEDENT] and [PRECEDENT]. We do not find any force that the impugned provision is contrary to or inconsistent with [SECTION] of the [ACT]. [SECTION] is a machinery provision relating to computation of income.
In [PRECEDENT] at page 289, Lord [ENTITY] observed.
"For years a battle of manoeuvre has been waged between the Legislature and those who are minded to throw the burden of taxation off their own shoulders on to those of their fellow-subjects. In that battle, the Legislature has often been worsted by the skill, determination and resourcefulness of its opponents, of whom the present appellant has not been the least successful. It would not shock us in the least to find that the Legislature has determined to put an end to the struggle by imposing the severest of penalties. It scarcely lies in the mouth of the taxpayer who plays with fire to complain of burnt fingers."
Reference in this connection may also be made to [PRECEDENT] All ER 651 (CA) at pages 655-656, wherein Lord [ENTITY] stated :
"It seems to me that the whole of the argument of counsel for the defendant depends on whether the documents in February, 1966, were a sham. He relied very much on the words apparent alternation in the paragraph of the defendants affidavit which I have read. I think he is putting too much weight on the word apparent". It is quite plain to me from the paragraph in the affidavit and from the detailed amendment of the documents which the defendant himself made that this was not a sham at all. It was a re-arrangeemnt deliberately made so as to avoid tax. It was suggested that this re-arrangement might be illegal, but that point was not pressed very much, and I think rightly, because agreements or re-arrangements to avoid tax are made every day and are not illegal. It seems quite plain that what happened here was : Seeing that the original arrangement would attract tax, the parties deliberately re-arranged it so as to avoid tax. They made it in law what the documents show it to be, namely, a loan by the bank to the English company : a letter in which the wines were hypothecated by the English company as security for the loan; and in addition guarantees given, as to half the loan by the defendant, and as to the other half, by one of the associated companies.
The long and short of its is that the defendant signed these guarantees; the money has been advanced by the bank; the defendant or his companies have had the wine; and the bank has not seen a penny or hardly a penny of it. In my judgment, the defendants case is so shadowy that the judge was right in giving leave to defend only conditionally on the full amount being brought into court. I find myself, therefore, in agreement with the judge on both points and I would dismiss the appeal."
For the reasons aforementioned, there is no merit in this application. It is accordingly, dismissed.