Income Tax Appellate Tribunal - Mumbai
Joint Cit vs Govind Rohira Alias Srichand Rohra on 6 July, 2004
Equivalent citations: [2005]95ITD77(MUM)
ORDER
K.P T. Thangal, JM.
In this appeal by the revenue the only effective ground urged is directed against the order of the Commissioner (Appeals) in directing the assessing officer to allow deduction under section 54F of the Income Tax Act, 1961 to an amount of Rs. 26,98,983.
2. The grievance of the revenue is that the benefit under section 54F could be made applicable only to assessee and the benefit should not been extended to minor. It is the case of the revenue that the Commissioner (Appeals) ignored the fact that the assessee has been defined in section 2(7) of the Income Tax Act to mean a person by whom any tax or any other sum of money is payable under the Act. In the case of the minor, no tax is payable as his entire income is clubbed with that of the other person. The facts leading to the dispute briefly is as under.
3. In this case, the assessee has filed return by declaring income of Rs. 49,28,997 on 30-8-1995. The assessee is an individual, derived income during the year from the property concerned M/s. Fine Food, interest from private parties, salary from Lucky Enterprise. However, the assessing officer noticed the main source of income of the assessee was from long term capital gain on sale of shares and on sale of land. He, further noted that the assessee is also included in long term capital gain of minor son Hitesh and minor daughter Aparna in his total income. So also short term capital gain of minors and interest income of minor which have been included in his total income under section 64 of the Act. During the assessment proceedings, assessee was asked to explain as to why deduction under section 54F claimed minor to Rs. 23,31,000 in respect of Master Hitesh G. Rohra should not be disallowed. This was for the reason that the assessee was already having residence of his own in whose case the minors income was assessed. It was replied that the minor was not owning residence and since the minor does not own a residence, the condition was satisfied under section 54F of the Act. The claim of the assessee was disallowed by the assessing officer holding that the 'assessee' is defined in section 2(7) to mean a person by whom any tax or any other sum of money is payable under the Income Tax Act. However, in the case of minor, no tax is payable by them as their income is clubbed with that of other person. Hence, disallowed the claim of the assessee. While disallowing the claim of the assessee, the assessing officer also placed reliance on the decision of Supreme Court in the case of CIT v. J.H. Gotla (1985) 156 ITR 323 (SC), wherein their Lordships held as under:
"On a consideration of scheme of the Act and the provisions therein as noted before, the share income of the wife and minor children included in the assessee's total income under the Act should be regarded as business income derived from business carried on by the assessee and in that view of the matter, the assessee is entitled to set off his loss carried forward from the previous year."
Hence, disallowed the claim of the assessee. The matter was carried before the first appellate authority.
4. It was submitted before the Commissioner (Appeals) that the assessee has claimed deduction under section 54F in the hands of the minor as the minor has no other residential premises of his own. it was further submitted the observation of the assessing officer that only a person who has assessed to tax could avail the benefit is incorrect. It was submitted that an individual includes a minor, a lunatic or an idiot, the assessment of such person however requires to be done in accordance with the provisions of section 160. It does not mean that such an individual loses his status of assessee though such persons are considered as deemed assessees under section 2(7) of the Income Tax Act, 1961. He, further submits that under section 64(1-A) while computing total income of an individual, shall be included of such incomes as arise or accrues to his minor, (not being a minor children having or any disability of nature satisfied under section 80U). The word 'income' which occur in section 64 has the meaning attached to it in clause (24) of section 2 of the Act, under which income includes any capital gains chargeable under section 45. Section 45 in turn provides that any profit or gains arising from the transfer of capital asset property of any kind held by assessee etc., vide section 2(14) effected in the previous year shall save as otherwise provided in sections 54,54B, 54D, 54E, 54F, 54G and 54H be chargeable to Income Tax Act, 1961 under the head capital gains and shall be deemed to be income of the previous year in which the transfer took place. For the above prepositions assessee also relied on the decision in the case of CIT v. S.K. Naik (1984) 145 ITR 791 (Ker.), CIT v. Segu Harnath (1988) 171 ITR 318, 321 (AP). Thus, it was submitted minor is an assessee and he is entitled for all the deductions contemplated under the Act while computing the income taxable even if such income are clubbed with other person under section 64 of the Act. The learned Commissioner (Appeals) held the issue is assessee's favour. He held that income includes capital gains. He held that though income is to be clubbed in the hands of the parents as per the settled law, the clubbed income shall be includes under the same head of income as in the hands of the real owner of the income for all purposes, is also a settled law. He held placing reliance of the decision of Kerala High Court in the case of CIT v. S.K. Naik (1984) 145 ITR 791 (Ker), that what ever deductions due to a person even if his/her income is clubbed with other person, the deduction due to him should be allowed. This was a case where a wife received salary being Director of the Company for which the assessee was the Managing Director. The Hon'ble High Court held that the salary of the wife could be clubbed with that of her husband only after allowing the standard deduction. In the case of CIT v. Segu Harnath (1988) 171 ITR 318 (AP), the Hon'ble AP High Court held that if minor assessee borrows income for the business benefit, his income is clubbed with that of his parent. He is entitled for deduction before fixing the taxable income. Thus he held in sum and substance of judicial decisions are that the income to be clubbed should be computed as per the provisions of the Act in the hands of the real owner of the income and the resultant income only should be clubbed. He, further held the minors income as claimed is entitled to be exempted under section 54F as he was not having a house of his own. He further held that there is no bar in the case of minor owning house and if he has permitted to own a house definitely he is also entitled for deduction. In the instant case, since he was not having house of his own, he held the exemption claimed is to be accrued. Aggrieved by the above order, revenue is in appeal before the Tribunal.
5. The assessee's representative made a written submission almost reiterating the submissions before the first appellate authority. It is further submitted that individual includes minor, lunatic and an idiot and the assessment of such persons recurred to be done in accordance with the provisions of section 160. However, this does not mean that such persons loose the status of being an assessee. It is further submitted that section 64(1A) says that in computing total income of an individual, there shall be inclusion of such income as a rised or accrues to his minor children. The word 'income' occur in section 64 has the same meaning as found. Clause (24) of section 2, under which income includes any capital gains chargeable under section 45. Under section 45 any profits or gains arising from the transfer of capital asset effected in the previous year shall be same as otherwise provided in sections 54,54B, 54D and 54E, 54F, 54G and 54H be chargeable to income tax under the head capital gains and shall be deemed to be the income of the previous year in which such transfer took place. Thus section 64(1A) authorizes the inclusion of the share of an income of a minor, refers to the share income determined in the hands of the minor child by applying all the provisions of the Act. The assessee also reiterated the decisions placed before the Commissioner (Appeals) particularly following -(a) CIT v. S.K. Naik (1984) 145 ITR 791 (Kar.), (b) CIT v. Segu Harnath (1988) 171 ITR 318, 321 (AP). Hence, he has submitted that the order of the Commissioner (Appeals) should be upheld.
6. As against this, the learned DR supported the order of the assessing officer. If the minor is really an assessee and if he could be assessed, as such, there was no need of clubbing his income to his parent. For him, the income is earned by business, by activity somebody else and as such there is no meaning in saying that it's minor's income. This is all the more clear, the learned DR is submitted by virtue of the decision of the Hon'ble Supreme Court in the case of J.H. Gotla (supra). In this case, the learned DR has submitted the Hon'ble Supreme Court that the share of the income of the wife and minor children include in the assessee's total income under the Income Tax Act because it is recorded as assessee's income derived from the business carried on by the assessee.
7. We heard the rival submissions and gone through the order of the revenue authorities. After hearing the submissions, we are of the view that the order of the Commissioner (Appeals) is to be upheld.
8. Firstly, it is to be noted that a minor is entitled to have his own income. Minor could be an owner of house of his own. If the minor in case was having such a house of his own, there was no difficulty in allowing his claim under section 54F of the Act. Only because minor is not having a house of his own, it cannot be said that he is not entitled for the benefits contemplated under this section. The business is carried on behalf of the minor by his parent. The Commissioner (Appeals) in para 3 records that shares were held by assessee in Ramani Hotels Pvt. Ltd. bought on different dates between 1988 and 1993. Such shares were sold on 21-4-1994 for a consideration of Rs. 37,21,000. The capital gain worked out to Rs. 31,37,392, but, a residential house was bought for Rs. 31,99,000 in the name of assessee's minor son and it was claimed the benefit under section 54 of the Act. The income arises from the sale of the shares stood in the name of the assessee's minor son. If he could legally purchase and sell the shares through his father, the income realized from this sale also can be utilised for the purchase of the house property acting through his father. Merely because the income is clubbed with the income of the assessee's father, there is no meaning in saying that he is not entitled for the benefits contemplated under the section as rightly contended by the assessee. The minor son is not a nonentity, but, he acts only through his parent. In the case of S.K. Naik (supra), the Hon'ble High Court held that "it would be contrary to the scheme of the Act itself not to allow deductions before clubbing the income of the wife with that of her husband". This was the case where we find income was clubbed in the hands of her husband and where the revenue did not allow the standard deduction. The Hon'ble High Court held concurring with the Tribunal that the standard deduction is to be allowed.
9. In the case of Segu Harnath (supra), the Hon'ble A.P. High Court held "Where the assessee was a partner in a firm and his minor daughter was admitted to the benefit of partnership in the firm and assessee borrowed funds and invested the same in the partnership firm in the name of his minor daughter, the interest payable by the assessee on capital borrowed by the assessee on behalf of the minor daughter was deductible under section 67(3) from the share income arising to the minor child and it was only the resultant income, after deduction which was to be included in the total income of the assessee under section 64(1)(iii)". The above judgment clearly shows that even if the income of the minor is clubbed with the income of the other individual, all the deductions are to be allowed while computation of income of the minor/spouse and only the net taxable income is to be clubbed under section 64.
10. For the reasons stated herein above, we find, no flow in the order of the learned first appellate authority and hence we dismiss the revenue's appeal.
11. In the result, revenue's appeal is dismissed.