K KRISHNAVENI Vs. APPELLATE ASSISTANT COMMISSIONER

JUDGEMENT

(1.) THE petitioner herein was a partner of three partnership firms, M/s. Gnanam and Company, M/s. Jaya Sugar and M/s. Jaya Agencies and had earned a share income of Rs. 18,235 in the assessment year 1976-77. In the same assessment year, her minor son, K. Jayakumaran, was admitted to the benefits of the firm of M/s. Jakay Agencies in which the petitioner was not a partner up to the period ending September 30, 1975, and earned a share income of Rs. 14,174. Her another minor son, K. Jayachandran, was also admitted to the benefits of the firm, M/s. Jaya Sugars, up to the period ending September 30, 1975, when the petitioner was not a partner in that firm and earned a share income of Rs. 9,877 in the same assessment year. While making an assessment of the petitioner's total income for the assessment year 1976-77, the ITO, the second respondent herein, included the income earned by the above two minor sons totalling about Rs. 24,051 along with the petitioner's income on the basis of the amendment brought in the year 1975 to s. 64 of the I.T. Act, 1961.

(2.) AGGRIEVED by the order of the ITO, the petitioner preferred an appeal to the first respondent, the AAC of Income-tax, contending that the income earned by her minor sons cannot be clubbed with her income as the amendment to s. 64 is not applicable to the assessment year 1976-77, and that even if the amendment is taken to be applicable to the assessment year 1976-77, the notification No. S.O. 475(e) dated September 5, 1975, appointing different dates for bringing into force the various provisions of the amending Act will be invalid and void as it will have a retrospective effect so as to impose the liability on the income which was earned before the notification was issued. The said contention of the petitioner was rejected by the first respondent on the ground that the law applicable to income-tax assessment is the law as it stands in the year of assessment and not the law which was in force during the year in which the income was earned and that in any even it is beyond the scope of the AAC's power to decide the vires of any of the provisions of the notification.

(3.) SECTION 16(3)(a)(i) and (ii) of the Indian I.T. Act, 1922, was earlier challenged as infringing the fundamental right of equality before law and also as violating article 19(1)(f) and (g) of the Constitution. The Supreme Court in Balaji v. ITO [1961] 43 ITR 393 held that Entry 54 of the Federal Legislature "taxes on income other than agricultural income" which is identical with item 82 of List I of the Seventh Schedule of the Constitution should be read not only as authorising the imposition of a tax, but also as authorising an enactment which prevents the tax imposed being evaded and that if it were not to be so read, then the admitted power to tax a person on his own income might often be made infructuous by ingenious contrivances, and therefore, the said entry can sustain a law made to prevent evasion of tad. The challenge based on violation of the doctrine of equality before law enshrined in article 14 of the Constitution was also rejected by the Supreme Court on the ground that from the standpoint of imposition of tax, the difference between an individual and his wife doing business in partnership and an individual and his wife doing business separately and an individual doing business in partnership with his wife and an individual doing business in partnership with a third party, made or female, and between an individual who has admitted his minor children to the partnership business and an individual who is doing business in partnership with his major children or outsiders, would have a reasonable basis of classification and that is consistent with the object of the Legislation which is to prevent evasion of tax. Therefore, the Legislation was justified in selecting for the purpose of classification only that group of persons, who, in fact, are used as a cloak to perpetrate fraud on taxation. It was argued before the Supreme Court that there might be a genuine partnership 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. The Supreme Court dealing with this submission observed that there is no classification between genuine and non-genuine cases, that the classification is between cases of partnership between husband, wife and/or minor children, whether genuine or not, and partnerships between others, and that 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 and that will not make the classification itself bad. The Supreme Court quoted with approval the following observation of Rajagopalan J., speaking for the Bench, is Amina Umma v. ITO [1954] 26 ITR 137, 150 (Mad) :