Gujarat High Court
Sulochana V Gupta vs Income Tax Officer, Circle 10 on 12 March, 2025
Author: Bhargav D. Karia
Bench: Bhargav D. Karia
NEUTRAL CITATION
C/TAXAP/142/2009 ORDER DATED: 12/03/2025
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/TAX APPEAL NO. 142 of 2009
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SULOCHANA V GUPTA
Versus
INCOME TAX OFFICER, CIRCLE 10
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Appearance:
MRS SWATI SOPARKAR(870) for the Appellant(s) No. 1
MR.VARUN K.PATEL(3802) for the Opponent(s) No. 1
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CORAM:HONOURABLE MR. JUSTICE BHARGAV D. KARIA
and
HONOURABLE MR.JUSTICE D.N.RAY
Date : 12/03/2025
ORAL ORDER
(PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA)
1. This appeal is admitted by order dated 01/05/2009 on the following substantial questions of law:
"(i) Whether in the facts and circumstances of the case, the Income Tax Tribunal has erred in law in holding that income (loss) of a minor son can only be clubbed in the income of the father i.e. Shri Vijay Kumar Gupta and not in the income of the mother i.e. the appellant herein as in the first A.Y., income of a minor son had been clubbed in the hands of father?
(ii)Whether in the facts and circumstances of the case, the Income Tax Appellate Tribunal has erred in interpreting the provisions of the s.64(1A) while holding that income of minor once included in the total income of the either parents will continue to be included in the income of the that very parent, unless the AO is satisfied, after giving that parent an opportunity of being heard, that it is necessary so to do?"Page 1 of 14 Uploaded by PATEL ILA KANTIBHAI(HC00194) on Tue Mar 25 2025 Downloaded on : Fri Mar 28 23:12:48 IST 2025
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2. The appellant filed return of income for the assessment year 1997-1998 on 29/10/1997 declaring total income of Rs.4,30,556/-.
3. The case of the appellant was selected for scrutiny. As the appellant claimed set-off of loss of minor son amounting to Rs.7,55,041/-, the same was subject matter of scrutiny. The Assessing Officer in view of the assessment orders for the Assessment Year 1995-1996 and Assessment Year 1996-1997 where dis-allowance of loss owing to interest incurred by minor son which was claimed and the assessment order of the husband of the assessee Shri Vijaykumar D. Gupta for the Assessment Year 1995-1996 and for the Assessment Year 1996-1997 holding the same to be disallowable passed an assessment order disallowing the loss of Rs.7,55,041/- claimed as set-off by the appellant assessee from her income on the ground that such loss of payment of interest by the minor son of the appellant assessee could not have been allowed as held in the previous two assessment years, one in the case of the husband of the appellant assessee for the Assessment Year 1995-1996 and in case of the appellant assessee for the Page 2 of 14 Uploaded by PATEL ILA KANTIBHAI(HC00194) on Tue Mar 25 2025 Downloaded on : Fri Mar 28 23:12:48 IST 2025 NEUTRAL CITATION C/TAXAP/142/2009 ORDER DATED: 12/03/2025 undefined Assessment Year 1996-1997.
4. The Assessing Officer dis-allowed the set-off of interest by observing as under:
"3.1. While finalizing the assessment order for A. Y. 1995-96 and A. Y. 1996-97, the A. O. had made disallowance fo loss owing to interest incurred by minor son mater Mohit Gupta claimed and Mr. V. K. Gupta in the A.Y. 1995-96 and Mrs. Sulochana V. Gupta in the A.Y. 1996-97 holding the same to be disallowable for various reasons discussed in the assessment order. The assessee was asked to file explanation as to why this year also disallowance should not be made in view of the fact that the facts for A. Y. 1995-96 have not undergone any change even in the current year. The assessee vide letter dtd. 06-03-2000 has submitted as under:-
"The department has been holding that, the shares invested by Minor Mohit Gupta in Gujarat Ambuja Cotspin Ltd., was for claiming promoters stake and having controlling stake in Gujarat Ambuja Cotspin Ltd.
It may be appreciated that, the basis of the additions is absolutely wrong particularly in view of the fact that, Minor son could in no way take controlling stake in the company as he has not in a capacity to hold any position in the company. Further the promoters namely the assessee, her husband and various companies where already commanding controlling stake therefore there was no question of making investment to obtain the control in the said company and therefore very basis of the additions made in the previous year relevant to A.Y. 1995-96 is baseless.
3.2. I have considered the submission of the Page 3 of 14 Uploaded by PATEL ILA KANTIBHAI(HC00194) on Tue Mar 25 2025 Downloaded on : Fri Mar 28 23:12:48 IST 2025 NEUTRAL CITATION C/TAXAP/142/2009 ORDER DATED: 12/03/2025 undefined assessee, which does not rebut the AO's finding as arrived at in A.Y. 1995-96. During the year under consideration also, the minor son, Mohit Gupta, continues to have outstanding borrowings from Sharma Finance Company, which were invested in shares of Gujarat Ambuja Cotspin Ltd (GACL). Neither any dividend income nor any other income is received by the minor. The funds borrowed were utilized for the purpose of investment in his name in the promoters quota of the public issue of GACL. In the past, it is held that the sole motive of the activity was never to earn income and accordingly the interest claimed in the hands of minor is hereby disallowed. The disallowable interest works out to Rs.7,55,041/-."
5. Being aggrieved the appellant assessee preferred an appeal before the CIT (Appeals). The CIT (Appeals) by following the order in case of the husband of the appellant assessee Mr. V. K. Gupta for the Assessment Year 1995-1996 allowed the appeal filed by the appellant assessee deleting the disallowance of interest claimed as set-off from the income by the appellant assessee which was pertaining to the interest of minor son claimed by the assessee as set off from the income. The CIT (Appeals) referred to and relied upon the para-20 the order dated 01/02/2000 in case of Mr. Vijaykumar D. Gupta for the Assessment Year 1995-1996 passed by the CIT (Appeals) as under:-
"The facts of the 5th ground of appeal are that the Page 4 of 14 Uploaded by PATEL ILA KANTIBHAI(HC00194) on Tue Mar 25 2025 Downloaded on : Fri Mar 28 23:12:48 IST 2025 NEUTRAL CITATION C/TAXAP/142/2009 ORDER DATED: 12/03/2025 undefined assessee had claimed loss of minor son Mohit Gupta clubbed under section 64(1)(A) of the Act being interest paid to M/s sharma Finance Co. for investment made by him. The minor had claimed to have made investment in the shares of M/s GACL in 4 lakh shares out of promoters quota at the rate of Rs.15/- per share at Rs.60 Lakhs. The amount invested in shares of M/s GACL in promoters quota was borrowed from M/s SFC besides own capital. Neither any dividend income nor any other income was received by the minor son of the assessee in the year under consideration. The net loss of Rs.5,35,184/- being interest paid to SFC was claimed as loss and reduced from the income of the assessee in final computation of income statement. For the reasoning as in ground no.2 above, the impugned disallowance was made. Ground No.2, as above has since been decided by me in favour of the assessee. For the same reasoning and logic, the Assessing Officer is directed to allow the claim as made. This ground of appeal is accordingly decided in favour of the assessee."
Since the facts of the case for the asst. Year 1997-98 in the case of the appellant and the facts of the case in te case of Vijaykumar Gupta, husband of the appellant for the asst. Year 1995-96 are similar, it is held that the Assessing Officer was not justified in allowing the loss incurred by the minor son against the income of the appellant for the asstt. Year 1997-98. the first ground is, therefore, allowed in favour of the appellant."
6. The respondent Revenue being aggrieved by the order passed by the CIT (Appeals), preferred ITA No.2179/Ahd/2000 raising the following ground:
"The ld. CIT (A) has erred in law and on facts in deleting addition on account of interest income of minor son clubbed to the case of assessee of Rs.7,55,041/-."Page 5 of 14 Uploaded by PATEL ILA KANTIBHAI(HC00194) on Tue Mar 25 2025 Downloaded on : Fri Mar 28 23:12:48 IST 2025
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7. It appears that though the issue of clubbing as per the provisions of Section 64(1A) of the Income Tax Act, 1961 and explanation thereto was not invoked either by the Assessing Officer or by the CIT (Appeals), the departmental representatives contended that the income included in the total income of either parent will be included in the succeeding year in the income of the other parent unless the Assessing Officer is satisfied after giving that parent an opportunity of being heard that it is necessary to do so.
8. It was pointed out that Income of the minor in the very first year i.e. Assessment Year 1995-1996 was included in the hands of the father of the minor whereas for the subsequent Assessment Year 1996-1997 included in the hands of the mother i.e. appellant assessee and therefore it was contended that it ought to have been included in the hands of the father of the minor i.e. Mr. Vijaykumar D. Gupta and hence the Assessing Officer was correct in law in not allowing the clubbing in the hands of the mother and the CIT (Appeals) was not correct in adjusting the loss of the minor against the income of the mother. The Tribunal thereafter considering the provisions of Section 64(1A) of the Act, allowed the appeal Page 6 of 14 Uploaded by PATEL ILA KANTIBHAI(HC00194) on Tue Mar 25 2025 Downloaded on : Fri Mar 28 23:12:48 IST 2025 NEUTRAL CITATION C/TAXAP/142/2009 ORDER DATED: 12/03/2025 undefined of the Revenue observing as under:
"4. We have carefully considered the rival submissions and perused the orders of the authorities below. We find that section 64(1A) lays down 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 [not being a minor child suffering from any disability of the nature specified in section 80U]:
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 specialized knowledge and experience;
Explanation - For the purpose 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- section0 is greater; or
(b) Where the marriage of his parents does not subsist, in te 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.]"
From the reading of the aforesaid section, it is apparently clear form the explanation that the income of the minor is once included in the total income of either parent, any such income will continue to be included in the income of that very parent, unless the AO is Page 7 of 14 Uploaded by PATEL ILA KANTIBHAI(HC00194) on Tue Mar 25 2025 Downloaded on : Fri Mar 28 23:12:48 IST 2025 NEUTRAL CITATION C/TAXAP/142/2009 ORDER DATED: 12/03/2025 undefined satisfied, after giving that parent an opportunity of being heard, that it is necessary to to do. This is an admitted fact that the income on which the minor son incurred the loss, has been included in AY 1995-96 in the case of Shri Vijaykumar Gupta, father of the assessee but the assessee unilaterally included the loss so incurred by the minor in the hands of the assessee (mother of the minor son). The AO did not allow it. When the matter went before the CIT (A), he decided the issue in favour of the assessee holding that the AO was not justified in allowing tht loss incurred by the minor son against the income of the assessee. In view of the clear-cut provisions of section 64(1A), we are of the view that the CIT(A) was not correct in law in allowing the loss incurred by the minor son against the income of the assessee. This loss can only be clubbed in the income of the father, i.e. Shri Vijaykumar Gupta as in the very first assessment year 1995-96 the income of the minor son has been clubbed in the hands of the father. We therefore set aside the order of the CIT (A) and restore the order of the A. O. Thus, the appeal of the revenue is allowed. The cross objection filed by the assessee is merely in support of the order of the CIT (A), and hence infructuous."
9. Being aggrieved, the appellant assessee has preferred this appeal which is admitted on the above substantial questions of law by this Court.
10. Learned advocate Mr. B. S. Soparkar appearing for the appellant assessee submitted that the question of clubbing was not considered either by the Assessing Officer or by the CIT (Appeals) and therefore, the Tribunal could not have gone into the same by invoking provision of Section 64(1A) of the Page 8 of 14 Uploaded by PATEL ILA KANTIBHAI(HC00194) on Tue Mar 25 2025 Downloaded on : Fri Mar 28 23:12:48 IST 2025 NEUTRAL CITATION C/TAXAP/142/2009 ORDER DATED: 12/03/2025 undefined Act because such question would become academic in view of the fact that on merits also, the interest payment made by the minor was allowed as set off from the income of the mother for previous Assessment Year 1996-1997 as well as current Assessment Year 1997-1998 by both the authorities.
11. Learned advocate Mr. B. S. Soparkar invited the attention of the Court to the judgment passed on 11/07/2016 by this Court in case of husband of the appellant in Tax Appeal No.874 of 2009 and allied matters wherein the payment of interest by the minor son was treated as allowable expenditure under the provisions of Section 36(1)(iii) of the Act relying upon the decision in case of Pramukh Oxygen Ltd. vs. DCIT rendered in Tax Appeal No.474 of 2006 and allied matters.
12. It was, however, submitted that the Tribunal has not considered the merits of allowance or disallowance but has only relied upon the provision of Section 64(1A) to allow the appeal of the revenue which was never an issue before the Assessing Officer or the CIT (Appeals). Page 9 of 14 Uploaded by PATEL ILA KANTIBHAI(HC00194) on Tue Mar 25 2025 Downloaded on : Fri Mar 28 23:12:48 IST 2025
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13. On other hand, learned advocate Mr. Dev D. Patel for the respondent submitted that as per the provisions of Section 64(1A) of the Act, neither the Assessing Officer nor the CIT (Appeals) could have considered the allowance/disallowance of the payment of interest on merits as the same could not have formed part of the taxable income. Allowance of interest paid by the minor son on merits as the same could not have been form part of computation of the taxable income of the appellant assessee. It was submitted that the Tribunal has arrived at a finding of fact that the income on which minor son incurred the loss was included in Assessment Year 1995-1996 in the hands of his father Mr. Vijaykumar D. Gupta but for the year under consideration, the same is included in the hands of the appellant assessee mother of the minor son. It was therefore submitted that such clubbing of the income of the minor son in hands of the appellant assessee is contrary to the provisions of Section 64(1A) of the Act and therefore the Tribunal has rightly held that the CIT (Appeals) was not correct in law in allowing the loss incurred by the minor son against the income of the assessee mother which could have been clubbed in the hands of the income of the father only as it was done for the Assessment Year 1995-1996. Page 10 of 14 Uploaded by PATEL ILA KANTIBHAI(HC00194) on Tue Mar 25 2025 Downloaded on : Fri Mar 28 23:12:48 IST 2025
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14. Having heard the learned advocate for the respective parties, we are of the opinion that on perusal of the assessment order as well as the order passed by the CIT (Appeals) for the year under consideration, it is not in dispute that neither of the authority has considered the issue of clubbing by applying the provision of Section 64(1A) of the Act which reads as under at the relevant point of time.
"[(1A) In computing the total income of any individual, there shall be included all such income as arises or accrues to his minor child [not being a minor child suffering from any disability of the nature specified in section 80U]:
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 specialized knowledge and experience;
Explanation - For the purpose 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- section0 is greater; or
(b) Where the marriage of his parents does not subsist, in te 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 Page 11 of 14 Uploaded by PATEL ILA KANTIBHAI(HC00194) on Tue Mar 25 2025 Downloaded on : Fri Mar 28 23:12:48 IST 2025 NEUTRAL CITATION C/TAXAP/142/2009 ORDER DATED: 12/03/2025 undefined 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.]"
15. The Tribunal while allowing of the appeal of the Revenue has come to the conclusion that in view of the above provision of Section 64(1A) of the Act, the CIT (Appeals) was not correct in allowing the loss incurred by the minor son against the income of the assesseee mother which ought to have been clubbed in the income of the father Mr. Vijaykuar D. Gupta as the same was done for Assessment Year 1995-1996. However, the Tribunal has lost sight of the glaring fact that for Assessment Year 1996-1997, the income of the minor was clubbed in the hands of the assessee mother and therefore, the reasoning given by the Tribunal that the same ought to have been clubbed in the hands of the father of the minor is not true and correct and therefore as per the provision of Section 64(1A) as applicable for the assessment year 1997- 1998 the Tribunal was not justified in invoking the same more particularly when the said issue of clubbing was never considered at the assessment stage by the Assessing Officer in view of the clubbing of the income of the minor son for the Assessment Year 1996-1997 in the hands of the assessee Page 12 of 14 Uploaded by PATEL ILA KANTIBHAI(HC00194) on Tue Mar 25 2025 Downloaded on : Fri Mar 28 23:12:48 IST 2025 NEUTRAL CITATION C/TAXAP/142/2009 ORDER DATED: 12/03/2025 undefined mother.
16. In view of the above facts, we are of the opinion that the Tribunal was not justified in invoking the provision of Section 64(1A) of the Act holding that the income (loss) of a minor son can only be clubbed in the income of the father i.e. Mr.Vijaykumar D. Gupta and not in the income of the mother of the appellant assessee for the year under consideration more particularly in view of the fact that such income was of year 1996-1997 in the hands of the appellant assessee which was not disturbed by any of the authority including the Tribunal. Therefore, strictly interpreting the provision of Section 64(1A) of the Act, income of the minor is rightly considered as the income (loss) in the hands of the appellant assessee for the Assessment Year 1997-1998. It is also pertinent to note that for Assessment Year 1996-1997, the assessment order was passed disallowing the minor son's interest claimed on merits and not on the issue of clubbing by the Assessing Officer and the CIT (Appeals) dismissed the appeal on the ground of clubbing, however, the Tribunal dismissed the appeal on the ground of clubbing but the same was allowed by this Court on merits in Tax Appeal No.874 of Page 13 of 14 Uploaded by PATEL ILA KANTIBHAI(HC00194) on Tue Mar 25 2025 Downloaded on : Fri Mar 28 23:12:48 IST 2025 NEUTRAL CITATION C/TAXAP/142/2009 ORDER DATED: 12/03/2025 undefined 2009 and allied matters in case of Mr. Vijaykumar D. Gupta vs. the Dy. Commissioner of Income Tax which was disposed of by common judgment and order dated 11/07/2016 passed by this Court.
17. Therefore, the appeal stands allowed by answering the question of law in favour of the assessee and against the revenue.
(BHARGAV D. KARIA, J) (D.N.RAY,J) ILA Page 14 of 14 Uploaded by PATEL ILA KANTIBHAI(HC00194) on Tue Mar 25 2025 Downloaded on : Fri Mar 28 23:12:48 IST 2025