JUDGMENT
R. Jayasimha Babu, J.
1. The question referred to us at the instance of the Revenue is as to whether the income deemed to have accrued to a father from and out of the investment made in the names of his minor children to whom the father had gifted the property is assessable in the hands of
the father, even when the father had no other taxable income. The assessment years are 1977-78, 1978-79, 1979-80, 1980-81 and 1981-82.
2. The assessee is a non-resident. He had no income in India, except the secured income realised from the investment of the amounts gifted by him to his minor children, which income was liable to be included in his total income and taxable accordingly. Though the order of reference mentions Section 64(1)(iv) of the Income-tax Act, 1961, the correct provision has been referred to by the Income-tax Officer in his assessment order and is Section 64(1)(v) of the Act.
3. Though the Assessing Officer held that it was not essential that the assessee should have other taxable income before the income deemed to have been derived by him from the investment made in the names of his minor children for the amounts gifted- by him to those minor children before that income can be taxed in his hands, that view was reversed by the Appellate Assistant Commissioner and the further appeal of the Income-tax Officer was dismissed by the Tribunal.
4. The assessee who is stated to be a citizen of Ceylon and a non-resident, under the relevant provisions of the Act, had between October 4, 1974 and December 12, 1974, gifted to his three minor children sums of Rs. 50,000 each. The gift amounts were received by his wife on behalf of the minor children. The wife and the minor children came to India on January 18, 1975, and settled down at Trichy. The amounts were invested by the mother on behalf of her minor children in a firm and interest was paid by the mother to her minor children. The amount of interest realised by the minor children was Rs. 18,000. It is this amount that was soug’ht to be taxed as the income of the father, who had made the gift of Rs. 50,000 each to his three minor children and from the investment of which such interest amounts had been realised.
5. The view of the Tribunal is that these amounts cannot be taxed at the
hands of the father on the assumption that unless and until the father had
other income of his own, he cannot be regarded as an assessee under the
Act and the income, which had really accrued to others is only deemed to
have accrued to him and it cannot be taxed at his hands. We are unable to
agree with this view of the Tribunal.
6. The assessee is defined in Section 2(7) of the Act. That-definition as it stood at the relevant point of time is as follows :
” ‘assessee’ means a person by whom any tax or any other sum of money is payable under this Act, and includes-
(a) every person in respect of whom any proceeding under this Act has been taken for the assessment of his income or of the income of any other person in respect of which he is assessable, or of the loss sustained by him or by such other person, or of the amount of refund due to him or to such other person :
(b) every person who is deemed to be an assessee under any provision of this Act ;
(c) every person who is deemed to be an assessee in default under any provision of this Act.”
7. The assessee is thus a person by whom tax or any other sum of money is payable under the Act. Any one who is liable to pay tax under the Act is therefore liable to be treated as an assessee.
8. Section 5 of the Act refers to the scope of total income. The total income of a non-resident is dealt with under Section 5(2) of the Act, which reads as under :
“(2) Subject to the provisions of this Act, the total income of any previous year of a person who is a non-resident includes all income from whatever source derived which-
(a) is received or is deemed to be received in India in such year by or on behalf of such person ; or
(b) accrues or arises or is deemed to accrue or arise to him in India during such year.
Explanation 1.–Income accruing or arising outside India shall not be deemed to be received in India within the meaning of this section by reason only of the fact that it is taken into account in a balance-sheet prepared in India.
Explanation 2.–For the removal of doubts, it is hereby declared that income which has been included in the total income of a person on the basis that it has accrued or arisen or is deemed to have accrued or arisen to him shall not again be so included on the basis that it is received or deemed to be received by him in India.”
9. Sub-clause (b) of Section 5(2) of the Act makes a non-resident liable to pay tax in respect of income accruing or arising or deemed to have arisen or accrued to him in India during the year.
10. Section 64 of the Act provides that income of an individual would include income of spouse, minor child, etc., in certain circumstances. Clause (v) of Section 64(1) of the Act provides that subject to the provisions of Clause (i) of Section 27, in a case not falling under Sub-clause (iii) of this sub-section, 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. If the income of the spouse or minor is realised from the assets transferred otherwise than for adequate consideration by the other spouse or parent, it should be included in the income of the person, who transferred the asset.
11. The income-tax return which the assessee is bound to file specifically requires the assessee to state the income arising to the spouse or minor child or any other person as referred to in Chapter V of the Act. It is therefore evident that the income of the minor child, which is liable to be
included in the return of the father who had gifted the amounts from the investment of which the income arose is to be treated as his income and is taxable in the hands of the father. Section 64 of the Act does not provide that the father or other spouse who made the transfer of assets should have income from some other source before the income realised from the assets transferred for inadequate consideration to the other spouse or minor child is included in his income. The return which the assessee is required to file must truly and correctly set out the actual income in respect of which the assessee is liable to be taxed. Even if as in this case, the assessee had no income other than the income realised by his minor children by investing the amounts gifted to them by the assessee, such income being treated as the assessee’s income under Section 64 of the Act, the assessee was bound to furnish a return, declaring that income, and that income was liable to be taxed notwithstanding the fact that the assessee did not have any other income. The taxability of the income of the minor is not dependant upon the father having other taxable income. What is sought to be assessed is the income realised from the investments made for and on behalf of the minor, where the source of that investment is an asset transferred to the minor for inadequate consideration by the donor or transferor. Instead of levying tax on the minor the Act treats that income as the income of the parent and the effect of treating the income in that manner is to render the income of the minor as the income of the father for the purposes of the Act.
12. The Supreme Court in CIT v. Smt. P.K. Kochammu Amma, Peroke [1980] 125 ITR 624, while construing Section 64(1)(i) and (hi) of the Act observed that the income of the spouse or minor from the profits of a firm in which the assessee is a partner, that income is liable to be included in computing” the total income of the assessee and the assessee is duty bound to disclose in the return to be submitted by him all amounts representing the shares of the spouse and minor child in the profits of the firm, in which he is a partner since it forms part of his total income chargeable to tax. The court also held that the words “his income” in Section 139(1) must include every item of income which goes to make up his total income, assessable under the Act.
13. The view of the Tribunal cannot therefore be upheld. The question referred to us is answered in favour of the Revenue and against the asses-see. No costs.
