Agricultural Income of the Minor- Whether Required clubbing for rate purpose

 

 

The definition of income is not an exhaustive definition in the income Tax Act.

Agricultural income is an exempt income U/s 0. There are divergent view as to the agricultural income of minor, whether it will be subject to clubbing for rate purpose also?

On the one side, MP High court in Suresh Chand Talera V Union of India (2006) 208 ITR 341 has held that it is required to be aggregated in the hands of the parents for rate purpose.

There is a Contrary view in Babita P.Kanungo V DCIT (2005) 277 ITR (AT) 177 (Mum) wherein it is held that the agricultural income don’t attract clubbing provisions.

The case is as under:

Smt. Babita P. Kanungo vs Deputy Commissioner Of Income Tax on 17 May, 2004

Equivalent citations: 2005 277 ITR 177 Mum, (2005) 96 TTJ Mum 573

Bench: T Sharma, A Garodia

ORDER A.K. Garodia, A.M.

1. This is an assessee’s appeal directed against the order of the learned CIT(A)-XXXIX, Mumbai, dt. 17th July, 2000, for asst. yr. 1997-98. The grounds of appeal are as under :

“1. That on the facts and in the circumstances of the case, the learned AO and also the learned CIT(A) has erred in law as well as in facts in holding that agricultural income pertaining to minors are liable to be clubbed Under Section 64 of the IT Act, 1961, in the hands of the assessee (parent) for the rate purposes.

2. That the learned AO has erred in clubbing the agricultural income of the minors in the hands of the appellant Under Section 64at Rs. 36,000 ignoring the provisions of Section 10(1)read together with Section 2(24) and Section 64 of the IT Act, 1961, and the provisions of the Finance Act, 1997, which do not provide for clubbing of agricultural income of minor sons in the hands of their parents, being the agricultural income of minors is not the income which is the subject-matter of Section 64, the clubbing provisions. The learned CIT(A) has also erred in upholding the finding given by the lower authority and case law relied by his is inapplicable to the facts of the case of the assessee appellant.”
3. Both these grounds relate to only one issue, i.e., whether agricultural income pertaining to minors are liable to be clubbed Under Section 64of the IT Act, 1961, in the hands of the assessee (parent) for rate purposes. It was contended by the learned Authorised Representative of the assessee that sub-Section (1A) of Section 64is relevant for the purpose of clubbing of minor’ s income with the income of his or her parent. Our attention was drawn to the provisions contained in Section 64(1A) and it was contended that as per this section, only total income of a minor has to be clubbed with the total income of the parent. Regarding total income, it was contended that Chapter III of the IT Act, 1961, deals with incomes, which do (not) form part of total income and our attention was drawn to Section 10(1), which is reproduced below :

“10. In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included-

(1) agricultural income.”

3. It was contended that agricultural income does not form part of total income as per the provisions of Section 10(1). Our attention was also drawn to the definition of total income as per Section 2(45), which is also reproduced below:

‘total income’ means the total amount of income referred to in Section 5, computed in the manner laid down in this Act.”

4. It was contended that as per the definition of total income also, the same has to be computed in the manner laid down in this Act and, therefore, in view of the provisions of Section 10(1), agricultural income cannot be included in total income and, therefore, it cannot be clubbed under Section 64(1A). It was also contended that judgment of Hon’ble jurisdictional High Court rendered in the case of CIT v. Abhay L. Khatauand followed by the learned CIT(A) is not applicable in this case because the facts are different. In this judgment, dividend income accrued on shares transferred by the assessee to his wife whereas in the present case, there is no transfer of asset by the assessee to his minor children.
5. As against this, it was contended by the learned Departmental Representative of the Revenue that no finding is given either by AO or the learned CIT(A) regarding sources of agricultural land in the hands of minor children of the assessee and, therefore, applicability of the judgment in the case of CIT v. Abhay L. Khatau(supra), can be decided only after proper examination of the facts as to how the lands in question were acquired by the minor children. It was also contended that as per the provisions of Section 64(1A), all income which arises or accrues to a minor child has to be clubbed excluding only those incomes; which are specifically excluded by the provisions of this section.
6. We have considered the rival submissions and perused the materials on record. We find that this is not the case of Department that the agricultural lands were transferred by the assessee to his minor children and, therefore, we are in agreement with the learned Authorised Representative of the assessee that the judgment in the case of CIT v. Abhay L. Khatau(supra), is not applicable in.this case. Further, even if it is accepted that the lands in question were transferred by the assessee to his minor children, the agricultural income of minor children cannot be clubbed in the hands of the assessee (parent) because as per Section 2(45)r/w Section 5 and Section 10(1), agricultural income does not form part of total income and as per Section 64(1A), only total income of minor has to be clubbed with the income of the parent. For this reason also, this judgment is not applicable in the present case because in this judgment, income in question was dividend income, which was forming part of total income in the relevant assessment year being asst. yr. 1966-67.
7. Now, we examine the provisions of Section 64(1A)and for the purpose relevant portion of the same is reproduced below :

“(1A) In computing the total income of any individual, there shall be included 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”

From the above, we find that in computing total income of an assessee, all such income as arises or accrues to his minor child is to be clubbed. The words “all such income” in this section refer to total income and we are of the considered opinion that for giving effect to this section, first the total income of the minor children is to be computed and then such total income only of the minor children is to be clubbed with the income of the parent. In view of our above finding that agricultural income does not form part of total income as defined in Section 2(45) r/w Section 10(1), we find that Section 64(1A)cannot be applied to agricultural income of ‘minor children’.

8. The AO has considered the agricultural income of minor children as income of the assessee for rate purposes. We find that for including the agricultural income for rate purposes, it has to be done as per Section 2(2)of the Finance Act, 1997, which is reproduced below :

“In the cases to which para A of Part I of the First Schedule applies, where the assessee has, in the previous year, any net agricultural income exceeding six hundred rupees, in addition to total income, and the total income exceeds forty thousand rupees, then,-

(a) the net agricultural income shall be taken into account, in the manner provided in cl. (b) that is to say, as if the net agricultural income were comprised in the total income after the first forty thousand rupees of the total income but without being liable to tax, only for the purpose of charging income-tax in respect of the total income; and

(b) the income-tax chargeable shall be calculated as follows :

(i) the total income and the net agricultural income shall be aggregated and the amount of income-tax shall be determined in respect of the aggregate income at the rates specified in the said para A, as if such aggregate income were the total income;

(ii) the net agricultural income shall be increased by a sum of forty thousand rupees, and the amount of income-tax shall be determined in respect of the net agricultural income as so increased at the rates specified in the said para A, as if the net agricultural income as so increased were the total income;

(iii) the amount of income-tax determined in accordance with sub cl. (i) shall be reduced by the amount of income-tax determined in accordance with sub-cl. (ii) and the sum so arrived at shall be the income-tax in respect of the total income.”

9. From the above, it can be seen that the agricultural income can be included for rate purposes only when the assessee has, in the previous year, any net agricultural income exceeding Rs. 600. Now the question arises whether, agricultural income of minor children can be said and taken as agricultural income of the assessee. We find that the provision of Section 64(1A)is in respect of clubbing of total income of a minor child with the income of his parent. Total income is defined by Section 2(45)which says that total income means the total amount of income referred to in Section 5, computed in the manner laid down in this Act. In Chapter III, Section 10(1) of this Act clearly says that agricultural income is not to be included in total income. Here, it is pertinent to note that as per Section 2(2) of the Finance Act, 1997, also, only agricultural income of the assessee has to be considered for rate purposes and it does not say that agricultural income of minor children is also to be considered for rate purposes. In view of this, we are of the considered opinion that the agricultural income of the minor children of the assessee cannot be clubbed with the agricultural income of the assessee Under Section 64(1A) and it cannot be said that the agricultural income of the minor children of the assessee is agricultural income of the assessee and, therefore, in view of Section 2(2) of the Finance Act, 1997, this agricultural income of the minor children of the assessee cannot be included into the income of the assessee for rate purposes. We hold accordingly and both these grounds of the assessee are allowed.
10. In the result, the assessee’s appeal is allowed.