The Assessing Officer is clubbing my minor daughter's entire interest income with mine under s.64(1A), although I never transferred a rupee to her. Is that provision even valid?
It is valid, and the challenge has failed in every High Court that has heard it. Section 64(1A) deliberately does away with any requirement of a transfer by the parent or of any attempt at avoidance: once an individual has a minor child with income, that individual is a class by himself, and clubbing the minor's income is a machinery provision within Parliament's competence under Entry 82 of List I. Read the sub-section as it now stands before applying that, because it is narrower than the judgment describes: s.64(1A) does not reach the income of a minor child suffering from a disability of the nature specified in s.80U at all, and what remains is cut down further by the proviso (manual work, or the child's own skill, talent or specialised knowledge and experience) and by the s.10(32) exemption.
Decided by the High Court (V.K. Singhal J (as printed in the report header; the judgment itself uses the plural 'before us')) on 1999-09-02, reported as ILR 1999 KAR 4445; [2000] 242 ITR 522 (Kar). It bears on section 64(1A), section 64, section 10(32), section 80U, section 64(1) of the Income Tax Act 1961, in Assessment & Scrutiny, How Tax Law Is Read and Capital Gains Exemptions matters.
Practitioners still argue s.64(1A) on the footing that clubbing needs a nexus with the parent — an instinct carried over from the pre-1993 s.64(1) cases like Prem Bhai Parekh. That argument is closed. The Karnataka High Court accepted that the minor may face a higher slab and still upheld the section, and it accepted that no evasion need be shown in the individual case. What is left to argue is the proviso (manual work, or the child's own skill, talent or specialised knowledge and experience), the Explanation (which parent), and the s.10(32) exemption — not the vires.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
Read aloud by your device. Press again to stop.
Writ petitioners assailed the validity of s.64(1A), inserted by the Finance Act 1992 with effect from 1 April 1993, which requires all income arising or accruing to a minor child to be included in the total income of the parent, subject only to a proviso excluding income from manual work done by the child and from an activity involving the application of the child's skill, talent or specialised knowledge and experience. Legislative competence was expressly not challenged. The attack was confined to three points: that there is hostile discrimination between a minor whose income is clubbed (and so taxed at the parent's higher rate) and a minor whose income is not; that clubbing has no nexus with the object sought to be achieved; and that the provision offends the Directive Principles by singling out minors. The judgment sets out the Finance Bill memorandum, the Chokshi Committee (Direct Tax Laws Committee) recommendations on s.64, the report of the Expert Group on anti-avoidance, and the Finance Minister's Budget Speech recording that 'some of our taxpayers have converted children into tax shelters for their fathers' and that professional income of child artistes and wage income of minors would be excluded.
The petitions were dismissed. Section 64(1A) is a machinery provision for computation, enacted to block a loophole; it is not necessary that evasion or avoidance be shown in every case for which the provision is drawn. An individual whose minor child has income constitutes a different class by himself, so there is no hostile discrimination against minors whose income is clubbed as compared with those whose income is not, and the higher tax burden that follows inclusion does not make the provision unconstitutional (paras 20 to 23). The contention that s.64(1A) is unworkable where the parents are childless or the minor's finances are under the control of a trustee or guardian was rejected on the ground that once a legal fiction is created it has to be carried to its ultimate object and conclusions (para 20). The petitions accordingly stood dismissed (para 24).
The Court began from the concession that Parliament's competence under Entry 82 of List I was not in issue, and reasoned that the tax levied is on income, while the question in whose hands it is to be taxed is machinery authorising the authorities to compute income in a particular manner (para 20). It set out the legislative history, the Chokshi Committee's rejection of the family as a taxable unit and its recommendations for tightening s.64, the Expert Group's anti-avoidance material and the Budget Speech (paras 5 to 7), and noted that the Patna High Court in Syed Askari Hadi Ali Augustine Imam v. Union of India [1994] 209 ITR 746 had already upheld s.64(1A) as intra vires Entry 82 and not violative of article 14, treating it as a machinery provision (para 9), and that the Madras High Court had done the same in K.M. Vijayan (para 10). Applying Balaji v. ITO [1961] 43 ITR 393, where the Supreme Court upheld the corresponding provisions of s.16(3)(a)(i) and (ii) of the 1922 Act on the twin tests of intelligible differentia and rational relation to the object, the Court held that where the Legislature selects for classification a group of persons who are in fact used as a cloak to perpetrate fraud on taxation, article 14 is not offended (paras 18 and 23). Sardar Baldev Singh v. CIT was applied for the proposition that a taxing entry authorises not only the imposition of the tax but legislation preventing its evasion (para 19), and Ganga Sugar Corporation for the proposition that fine-tuning to attain perfect equality is a fiscal ideal that article 14 does not demand (para 15).
There is no hostile discrimination between those minors whose income is not included with the income of their parent as they may not be assessable at all or may be assessable at a lower rate of tax as the individual whose minor children is having income have been considered a different class by themselves.
Upload it and we will read it, work out your deadline and draft the reply. A CA reviews before anything is filed.
Handle my notice → Ask a CA on WhatsAppIt is valid, and the challenge has failed in every High Court that has heard it. Section 64(1A) deliberately does away with any requirement of a transfer by the parent or of any attempt at avoidance: once an individual has a minor child with income, that individual is a class by himself, and clubbing the minor's income is a machinery provision within Parliament's competence under Entry 82 of List I. Read the sub-section as it now stands before applying that, because it is narrower than the judgment describes: s.64(1A) does not reach the income of a minor child suffering from a disability of the nature specified in s.80U at all, and what remains is cut down further by the proviso (manual work, or the child's own skill, talent or specialised knowledge and experience) and by the s.10(32) exemption. This was decided by the High Court (V.K. Singhal J (as printed in the report header; the judgment itself uses the plural 'before us')) and bears on section 64(1A), section 64, section 10(32), section 80U, section 64(1) of the Income Tax Act 1961. It is reported as ILR 1999 KAR 4445; [2000] 242 ITR 522 (Kar). Practitioners still argue s.64(1A) on the footing that clubbing needs a nexus with the parent — an instinct carried over from the pre-1993 s.64(1) cases like Prem Bhai Parekh. That argument is closed. The Karnataka High Court accepted that the minor may face a higher slab and still upheld the section, and it accepted that no evasion need be shown in the individual case. What is left to argue is the proviso (manual work, or the child's own skill, talent or specialised knowledge and experience), the Explanation (which parent), and the s.10(32) exemption — not the vires. If it applies to you, the first step is this: Check whether the child suffers from a disability of the nature specified in s.80U before arguing anything else. The opening words of s.64(1A) as it now stands are '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' — that child's income is outside the sub-section entirely, and the 1999 judgment predates the point being litigated anywhere.
Writ petitioners assailed the validity of s.64(1A), inserted by the Finance Act 1992 with effect from 1 April 1993, which requires all income arising or accruing to a minor child to be included in the total income of the parent, subject only to a proviso excluding income from manual work done by the child and from an activity involving the application of the child's skill, talent or specialised knowledge and experience. Legislative competence was expressly not challenged. The attack was confined to three points: that there is hostile discrimination between a minor whose income is clubbed (and so taxed at the parent's higher rate) and a minor whose income is not; that clubbing has no nexus with the object sought to be achieved; and that the provision offends the Directive Principles by singling out minors. The judgment sets out the Finance Bill memorandum, the Chokshi Committee (Direct Tax Laws Committee) recommendations on s.64, the report of the Expert Group on anti-avoidance, and the Finance Minister's Budget Speech recording that 'some of our taxpayers have converted children into tax shelters for their fathers' and that professional income of child artistes and wage income of minors would be excluded. The matter was decided on 1999-09-02 by the High Court (V.K. Singhal J (as printed in the report header; the judgment itself uses the plural 'before us')). On those facts the High Court held as follows. The petitions were dismissed. Section 64(1A) is a machinery provision for computation, enacted to block a loophole; it is not necessary that evasion or avoidance be shown in every case for which the provision is drawn. An individual whose minor child has income constitutes a different class by himself, so there is no hostile discrimination against minors whose income is clubbed as compared with those whose income is not, and the higher tax burden that follows inclusion does not make the provision unconstitutional (paras 20 to 23). The contention that s.64(1A) is unworkable where the parents are childless or the minor's finances are under the control of a trustee or guardian was rejected on the ground that once a legal fiction is created it has to be carried to its ultimate object and conclusions (para 20). The petitions accordingly stood dismissed (para 24).
The Court began from the concession that Parliament's competence under Entry 82 of List I was not in issue, and reasoned that the tax levied is on income, while the question in whose hands it is to be taxed is machinery authorising the authorities to compute income in a particular manner (para 20). It set out the legislative history, the Chokshi Committee's rejection of the family as a taxable unit and its recommendations for tightening s.64, the Expert Group's anti-avoidance material and the Budget Speech (paras 5 to 7), and noted that the Patna High Court in Syed Askari Hadi Ali Augustine Imam v. Union of India [1994] 209 ITR 746 had already upheld s.64(1A) as intra vires Entry 82 and not violative of article 14, treating it as a machinery provision (para 9), and that the Madras High Court had done the same in K.M. Vijayan (para 10). Applying Balaji v. ITO [1961] 43 ITR 393, where the Supreme Court upheld the corresponding provisions of s.16(3)(a)(i) and (ii) of the 1922 Act on the twin tests of intelligible differentia and rational relation to the object, the Court held that where the Legislature selects for classification a group of persons who are in fact used as a cloak to perpetrate fraud on taxation, article 14 is not offended (paras 18 and 23). Sardar Baldev Singh v. CIT was applied for the proposition that a taxing entry authorises not only the imposition of the tax but legislation preventing its evasion (para 19), and Ganga Sugar Corporation for the proposition that fine-tuning to attain perfect equality is a fiscal ideal that article 14 does not demand (para 15). In the words reproduced by the source cited on this page: "There is no hostile discrimination between those minors whose income is not included with the income of their parent as they may not be assessable at all or may be assessable at a lower rate of tax as the individual whose minor children is having income have been considered a different class by themselves." The decision followed or applied Balaji v. ITO [1961] 43 ITR 393 (SC) — applied; Sardar Baldev Singh v. CIT [1960] 40 ITR 605 (SC) — applied; Syed Askari Hadi Ali Augustine Imam v. Union of India [1994] 209 ITR 746 (Patna) — followed; K.M. Vijayan v. Union of India [1995] 215 ITR 371 (Mad) — followed.
It was decided by the High Court on 1999-09-02 and is reported as ILR 1999 KAR 4445; [2000] 242 ITR 522 (Kar). Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 64(1A), section 64, section 10(32), section 80U, section 64(1), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the department, and it appears in this library for that reason — you need to know what the Assessing Officer will cite against you. The petitions were dismissed. Section 64(1A) is a machinery provision for computation, enacted to block a loophole; it is not necessary that evasion or avoidance be shown in every case for which the provision is drawn. An individual whose minor child has income constitutes a different class by himself, so there is no hostile discrimination against minors whose income is clubbed as compared with those whose income is not, and the higher tax burden that follows inclusion does not make the provision unconstitutional (paras 20 to 23). The contention that s.64(1A) is unworkable where the parents are childless or the minor's finances are under the control of a trustee or guardian was rejected on the ground that once a legal fiction is created it has to be carried to its ultimate object and conclusions (para 20). The petitions accordingly stood dismissed (para 24). It arises in Assessment & Scrutiny, How Tax Law Is Read and Capital Gains Exemptions matters, on section 64(1A), section 64, section 10(32), section 80U, section 64(1) of the Income Tax Act 1961, and was decided by V.K. Singhal J (as printed in the report header; the judgment itself uses the plural 'before us'). Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Stop framing the objection as 'there was no transfer' or 'there was no tax avoidance' — the judgment holds neither is required. Move the fight to the proviso: if the minor's receipt is from manual work or from an activity involving the application of the child's own skill, talent or specialised knowledge and experience, document that at the assessment stage with contracts, credits and the nature of the engagement. Claim s.10(32) for each minor child separately (Rs 1,500 per child, restricted to the includible income where that is less) — the Finance Bill memorandum reproduced in the judgment sets out exactly how the relief is computed. Check the Explanation before deciding whose return the income goes into, and remember that once it has been included in one parent's total income it stays there in later years unless the Assessing Officer, after hearing that parent, decides otherwise. Do not carry a vires ground into a Tribunal appeal; the Tribunal cannot decide it and it costs credibility.
Validity check could not be completed. Validity check partly completed. The decision is consistent with the Patna High Court in Syed Askari Hadi Ali Augustine Imam and the Madras High Court in K.M. Vijayan (whose disposal, 'In the result, the writ petitions are dismissed. No costs.', was separately confirmed), and the Madras High Court proceeded on the same footing in R.P. Sarathy in 2019. Later treatment now located: the Punjab and Haryana High Court in Anju Mehra v. Union of India (22 March 2012, CWP No. 13510 of 2003) upheld the constitutional validity of s.64(1A) 'including Clause (a) of Explanation to the said sub-section' and dismissed the petition, rejecting an argument founded on s.6 of the Hindu Minority and Guardianship Act. No decision doubting s.64(1A) was located. No search for any Supreme Court appeal was carried out, and the sub-section has since been narrowed by the s.80U carve-out described in the editor note, which was not before this Court. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The indiankanoon header prints a single Judge, V.K. Singhal, J., but the judgment speaks in the plural ('Before us the competence of the Legislature is not challenged'), so the composition of the Bench could not be settled from the copy read. At its paragraph 2 and again at paragraph 10 this judgment describes K.M. Vijayan v. Union of India [1995] 215 ITR 371 as a decision of a 'Full Bench of the Madras High Court'; the indiankanoon copy of K.M. Vijayan prints two Judges (Thanikkachalam, J. and Abdul Hadi, J.), so that description should not be relied on. The s.10(32) passage quoted in this entry is the Finance Bill memorandum reproduced in the judgment, not the Court's own words. Paragraphs 1 to 24 were transcribed continuously and paragraph 24 is the disposal. Two current-law caveats. First, the sub-section as it now stands opens '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' — a carve-out the 1999 judgment does not mention and which was confirmed for this entry on the departmental page for s.64 (heading 'Income of individual to include income of spouse, minor child, etc', Year: 2022) and independently in the Madras High Court's reproduction of the sub-section in R.P. Sarathy (2019). The departmental page carries no amendment footnotes, so the commencement date of that carve-out is not stated here. Second, the s.10(32) figure of Rs 1,500 per minor child is taken from the Finance Bill memorandum reproduced in this judgment and was NOT confirmed against the enacted section on any live source: the departmental page for s.10 truncates inside clause (23C) and never reaches clause (32). Verify the figure before advising on it. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The petitions were dismissed. Section 64(1A) is a machinery provision for computation, enacted to block a loophole; it is not necessary that evasion or avoidance be shown in every case for which the provision is drawn. An individual whose minor child has income constitutes a different class by himself, so there is no hostile discrimination against minors whose income is clubbed as compared with those whose income is not, and the higher tax burden that follows inclusion does not make the provision unconstitutional (paras 20 to 23). The contention that s.64(1A) is unworkable where the parents are childless or the minor's finances are under the control of a trustee or guardian was rejected on the ground that once a legal fiction is created it has to be carried to its ultimate object and conclusions (para 20). The petitions accordingly stood dismissed (para 24).
Every entry in this library links to where it was found, so you can check it yourself rather than take our word for it.
The AO clubbed my wife's rental income with mine and denied my HRA. Is that right?
My wife's and minor children's share income from a firm is clubbed into my total income. Can I set my own carried forward business loss against it, when I am not a partner in that firm?
I gifted money to my children, who put it into a firm and were admitted to the benefits of partnership. Is their share income clubbed with mine as arising from the gift?
I transferred shares to my fiancee a week before we married. Will the dividends on those shares be clubbed with my income?