G. Ethirajulu Vs. Commissioner of Income-tax - Court Judgment

Excerpt:
direct taxation - assessment - sections 64 and 147 of income tax act, 1961 - whether share income of minor son from ranganath silk house was liable to be included in assessment of father under section 64 (iv) of act - introduction of assets gifted to minor son by his father assessee was to advantage of partnership business - assessee contended that income fell to share of minor did not directly or indirectly arose to minor son from assets gifted to him by assessee and hence it was not included in total income of assessee - no nexus between transfer of assets and income - section 16 (3) of act was in pari materia with section 64 (iv) of act - held, share income of assessee's minor son from 'x' was not liable to be included in total income of assessee under section 64 (iv) of act. - maximssections 2(xv) & 3(1) & (3): [v.v.s. rao, n.v. ramana & p.s. narayana, jj] ghee as a live stock product held, [per v.v.s. rao & n.v. ramana, jj - majority] since ages, milk is preserved by souring with aid of lactic cultures. the first of such resultant products developed is curd or yogurt (dahi) obtained by fermenting milk. dahi when subjected to churning yields butter (makkhan) and buttermilk as by product. the shelf life of dahi is two days whereas that of butter is a week. by simmering unsalted butter in a pot until all water is boiled, ghee is obtained which has shelf life of more than a year in controlled conditions. ghee at least as of now is most synthesized, ghee is a natural product derived ultimately from milk. so to say, milk is converted to dahi, then butter. scientifically or common sense point of view, even though ghee is not directly obtained from milk (which is certainly a product of cow/buffalo), it is certainly a product of a product of livestock i.e., cow or buffalo. it would be rather illogical or irrational to say that ghee is not a milk/dairy product or to say that it is not a product of livestock. section 2(x) and 2(iv) of the act used the plural products of livestock. the legislative intention is very clear that not only a product of livestock like milk (when notified by government), butter etc., are products of livestock but even derivative items (derived from a product of livestock) are intended to be product of livestock for the purpose of the act. thus the term ghee is to be interpreted on the basis of expression products of livestock as defined in section 2(xv) of the act. whatever products are declared as such by the government by notification, they become products of livestock for purpose of the act. consequently it was held that ghee is the product of livestock and by reason of power conferred under section 3(1) read with section 3(3) of the act on them it is competent for the government to declare ghee as product of livestock for the purpose of regulating its purchase and sale, in any notified market area. [per p.s. narayana, j,(dissenting)]if livestock or agricultural produce and the categories thereof had been specified in the statute itself by appending in the schedule or otherwise, that would stand on a different footing from the present provisions of the act which contemplate the issuance of notifications in accordance with the procedure ordained by the provisions specified supra. in view of the clear definition of the livestock and products of livestock, the ghee being derivative of butter or cream, if the language employed in definition to be taken as they stand, the only conclusion would be is that the ghee would not fall within ambit of the definitions aforesaid. sections 4 & 3: [v.v.s. rao, n.v. ramana & p.s. narayana, jj] declaration of notified area held, it is only under section 3 that government are required to publish draft notification inviting objections and section 3(3) mandates to consider objections and suggestions before issuing declaration order. it is very conspicuous that section 4 does not contemplate any draft notification inviting objections and suggestions before either constituting market committee, establishing notified market area or declaring notified market area for the purpose of levy of market fees. thus, except ordaining government to issue preliminary/draft notification inviting objections at the time of issuing declaration order under section 3(3) of the act nowhere much less under section 4 contemplates issuing a notification inviting objections. when the legislature has chosen to exclude principles of natural justice, the court cannot introduce rule of audi alteram partem and render statutory provisions unworkable. in such a case, maxim, expressum facit cessare tacitum (when there is express mention of certain things, then anything not mentioned is excluded) would apply. section 7: [v.v.s. rao, n.v. ramana & p.s. narayana, jj] levy of market fee element of quid pro quo - held, levying fees and tax are two forms of exercise of sttaes taxing power. there is no quid pro quo between tax payer and public authority as tax is a part of common burden. it is also well settled that fee is charge for special service or a benefit given to a class of individual fee payers and fee collected need not have correlation with actual service in exactitude but if it is shown that substantial portion of the fee is expended or the purpose for which it is levied, it would be justified. expressum facit cessare tacitum sections 4 & 3: [v.v.s. rao, n.v. ramana & p.s. narayana, jj] meaning when there is express mention of certain things, then anything not mentioned is excluded. 1. at the instance of the assessee the following question of law has been referred to this court, under section 256(1) of the income-tax act, 1961 (hereinafter referred to as 'the act') for our opinion :'whether, on the facts and in the circumstances of the case, the share income of the minor son from m/s. ranganatha silk house is liable to be included in the assessment of the father, i.e., the assessee, under section 64(iv) of the income-tax act, 1961 ?'2. the material facts leading to this reference may be stated :3. for the assessment year 1962-63 the assessee, g. ethirajulu, was assessed to tax in the status of individual, on a total income of rs, 56,669. subsequent to the completion of the assessment, the income-tax officer came to know that the assessee's minor son, who received from the assessee assets worth rs. 12,000 invested the same in m/s. ranganatha silk house and was admitted to the benefits of the partnership. the income that fell to the share of the minor in m/s. ranganatha silk house for the said assessment year came to rs. 11,663. as he was of the opinion that the said share income of the minor under section 64(iv) of the act was includi-ble in the total income of the assessee for the purpose of assessment and, as it was not so included, the income-tax officer reopened the assessment of the assessee under section 147, after service of notice as required under section 148 of the act and revised the assessment by including the share income of the assessee's minor son of rs. 11,663 in the total income of the assessee. the inclusion of the share income of the minor son in the total income of the assessee was upheld in the first appeal by the appellate assistant commissioner and, in a second appeal, by the income-tax appellate tribunal. in upholding the addition, the tribunal found that, (i) the introduction of the assets gifted to the minor by his father, the assessee, was to the advantage of the partnership business, (2) it was the intention of the assessee to provide an income earning business to his minor son and for that purpose gifted those assets to his minor son, and (3) the admission of the minor to the benefits of the partnership was dependent upon the contribution of the capital by the minor in the shape of assets, which were gifted by the assessee to his minor son.4. challenging the propriety of the inclusion of the share income of the minor son in the total income of the assessee, the learned counsel, sri venkatappa, appearing for the assessee contended that the income that fell to the share of the minor did not directly or indirectly arise to the minor from the assets gifted to him by the assessee and hence it was not includible in the total income of the assessee. in support of the said argument the learned counsel relied upon the decisions of the supreme court in commissioner of income-tax v. jwala prasad agarwala, : [1967]66itr154(sc) and commissioner of income-tax v. prem bhai parekh, : [1970]77itr27(sc) . sri p. rama rao, the learned standing counsel for the department, contended to the contra. 5. omitting the irrelevant portion, section 64(iv) of the act reads as follows:'in computing the total income of any individual, there shall be included all such income as arises directly or indirectly ....(iv) subject to the provisions of clause (i) of section 27, to a minor child, not being a married daughter of such individual, from assets transferred directly or indirectly to the minor child by such individual otherwise than for adequate consideration ;....'6. the undisputed facts in the case are that the assessee gifted certain assets to his minor son, who invested the same in the partnership firm of m/s. ranganatha silk house. the minor son of the assessee was admitted to the benefits of the partnership. the short question that arises on these admitted facts is whether the income that fell to the share of the minor, who was admitted to the benefits of the partnership in m/s. ranganatha silk house, directly or indirectly arose out of the assets transferred to the minor by his father, the assessee. this question was directly in issue in the latter case decided by the supreme court in commissioner of income-tax v. prem bhai parekh.7. in the case before it, the tribunal found that the capital invested by the minors in the firm came from the gifts made by their father. in considering whether the share income of the minors in those circumstances was includible in the total income of their father, under section 64(iv) of the act, the learned judge, hegde j., speaking for the supreme court, observed that:'the connection between the gifts mentioned earlier and the income in question is a remote one. the income of the minors arose as a result of their admission to the benefits of the partnership. it is true that they were admitted to the benefits of the partnership, because of the contribution made by them. but there is no nexus between the transfer of the assets and the income in question. it cannot be said that the income arose directly or indirectly from the transfer of the assets referred to earlier. section 16(3) of the act created an artificial income. that section must receive strict construction as observed by this court in commissioner of income-tax v. keshavlal lallubhai patel, : [1965]55itr637(sc) . in our judgment before an income can be held to come within the ambit of section 16(3), it must be proved to have arisen--directly or indirectly--from a transfer of assets made by the assessee in favour of his wife or minor children. the connection between the transfer of assets and the income must be proximate. the income in question must arise as a result of the transfer and not in some manner connected with it.'8. with these observations the supreme court upheld the judgment of the high court in excluding the minor's share income from the total income of the assessee.9. we entirely agree with the argument of the learned counsel, sri t. venkatappa, that the aforesaid decision of the supreme court is on all fours with this case. section 16(3) of the income-tax act, 1922, is in pari materia with section 64(iv) of the income-tax act, 1961. hence the decision of the supreme court rendered under the income-tax act, 1922, is fully applicable to the facts of this case and will cover the position of law under the 1961 act. following that decision we answer the question referred to us in the negative and against the department, i.e., the share income of the assessee's minor son from m/s. ranganatha silk house is not liable to be included in the total income of the assessee under section 64(iv) of the act. commissioner of income-tax shall pay the costs of this reference to the assessee. counsel fee is rs. 250.