SIBI JOY Vs. INCOME-TAX OFFICER

JUDGEMENT

(1.) The writ petition has been filed challenging Ext. P5 order of the 1st respondent and Ext. P6 order of the 2nd respondent. According to the petitioners, the income (interest on fixed deposits) accruing to the 2nd petitioner - a minor - cannot be clubbed with the income of the 1st petitioner and that tax at source cannot be deducted in respect of the interest income accruing on the fixed deposit under the provisions of the Income Tax Act, 1961 (the Act).

(2.) The facts of the case, in brief, are that the 1st petitioner herein is a regular income tax assessee. The 2nd petitioner (minor) is the daughter of the 1st petitioner. The husband of 1st petitioner / father of the 2nd petitioner, Vinod Easaw Varghese, died in an accident. The Ist Addl. Subordinate Judge's Court, Thiruvananthapuram, vide Ext.P3 order in OP(Succession) No. 44/2008 (dtd. 12/11/2009), held that the 1st petitioner is entitled to 1/3rd share and that the 2nd petitioner is entitled to 2/3rd share from the estate of the deceased, which includes amounts received as compensation owing to the death of the aforesaid Vinod Easaw Varghese. In terms of Ext.P3 order, the 2nd petitioner's share was to be deposited as a fixed deposit in the State Bank of India, and the fixed deposit receipt was to be produced before the Court for safe custody until the 2nd petitioner attains majority. It is the case of the petitioners that the 3rd respondent Bank cannot deduct tax at source under S.194 A of the Act on the interest income accruing annually on the said fixed deposit of the 2nd petitioner. The petitioners preferred Ext.P4 application under sec. 197 (1) of the Act before the 1st respondent seeking a certificate for non-deduction of tax with respect to interest accruing annually on the said fixed deposit. The 1st respondent vide Ext.P5 order rejected the said application on the ground that the income of the minor has to be clubbed with the income of the 1 st petitioner (mother of the 2nd petitioner), for the purpose of taxation under the Act. A revision petition was preferred under Sec. 264 of the Act before the 2nd respondent, who vide Ext.P6 order (dt. 02/11/2012), did not find any ground to issue any directions in exercise of jurisdiction under Sec. 264 of the Act. The petitioners are therefore before this Court under Article 226 of the Constitution of India.

(3.) Sri. D.S. Sreekumaran, the learned counsel appearing for the petitioners would contend that the petitioners were entitled to the death benefits of the deceased from his employer and also as part of the motor vehicle accident claim. It is submitted that the 2/3rd share of the death benefits (an amount of Rupees Sixty lakhs) was deposited in the name of the 2nd petitioner as per Ext.P3 order of the Court and that the fixed deposit receipt is produced before the Court for safe custody. It is submitted that since the order of the Court clearly stipulates that any payment to be made to the minor only when she attains majority, any benefit (interest income) arising out of the fixed deposit will also be received by the 2 nd petitioner only when she attains majority. It is submitted that in the absence of receipt of any income in the intervening period, tax cannot be deducted at source. It is submitted that since immediate or deferred payment of benefit is not available to the 2nd petitioner during her minority and the benefit of the fixed deposit together with accumulated interest is payable only after she attains majority; tax cannot be deducted u/s 194 A. It is contended that the 1 st respondent, without appreciating the peculiar fact circumstances in the present case, issued Ext.P5 order. The learned counsel pointed out that, in view of the aforesaid order, the income of the 2nd petitioner has to be clubbed with the income of the 1st petitioner (mother of the 2nd petitioner) as per Sec. 64(1A) of the Income Tax Act and that the 1 st petitioner is made liable to pay tax for the interest income with respect to the said fixed deposit of the minor. It is submitted that the 1st petitioner is not liable to pay income tax on the interest accruing annually from the fixed deposit of the 2nd petitioner. It is submitted that since there is no income earned by the 2nd petitioner during her minority, the interest income could not be clubbed with the income of the 1 st petitioner. It is also submitted that the 2nd petitioner maintains a cash system of accounting, and therefore, clubbing of income u/s 64 (1A) of the Act in the hands of the 1st petitioner cannot be justified, as no amount (income) has actually been received by the petitioners. The learned Counsel submits that the 2nd respondent failed to appreciate the peculiar circumstance in which the petitioners are placed and erroneously refused to exercise jurisdiction under Sec. 264 of the Act. In support of his contentions, the learned counsel for the petitioners placed reliance on the judgment of the Supreme Court in Commissioner of Income Tax, Gujarat vs. M.R. Doshi (Dead) by Lrs. 1995 (supp) 3 SCC 464 (1995) 211 ITR 1) & Kapoor Chand v Asst. Commr. of Income Tax, (2015) 14 SCC 405, to buttress his contentions. Relying on the above decisions, it is contended for the petitioners that there is no immediate or deferred benefit for the minor during the period of her minority. The benefit is to be received only after the period of her minority; therefore, the petitioners are not liable to pay tax with respect to the said fixed deposit. It is further submitted for the petitioners that, in the present case, taxation of income in the hands of the 1st petitioner is legally unsustainable. Reference is made to Ss. 5 & 145 of the Act. It is also submitted that the respondents have no jurisdiction to change the order of Sub Court with respect to the said fixed deposit and the department can initiate action to collect tax from the 2nd petitioner only when she becomes major. It is submitted that if the interest income accrued from the said fixed deposit is clubbed with that of the 1 st petitioner's income, the same will result in payment of heavy tax by the 1 st petitioner. It is contended that, if the provisions of sec. 64(1A) provide for the clubbing of income (whether received or not) of the minor that would render the provision ultra vires the Constitution of India as it requires an individual assessee to pay tax on an income that the minor is not entitled to receive during her minority. It is contended that the intention and purpose of enactment would not be to cause a heavy burden on another person who is not receiving any benefit out of the interest income accrued annually. It is contended that the same is in violation of the principles of natural justice.