₹1.97 Crore in a Minor’s Name, Already Clubbed With Father: Madras High Court Quashes Reassessment Against Minor
Section 64(1A) | Section 148A | Section 148 | Minor’s Income | Reassessment | Madras High Court
Can the Income-tax Department reopen an assessment in the hands of a minor when the minor’s income is already required to be clubbed with the income of the parent?
The Madras High Court has answered this question in favour of the taxpayer, holding that where the income of a minor is assessable in the hands of the parent under Section 64(1A) of the Income-tax Act, reassessment proceedings cannot ordinarily be directed against the minor for the very same income.
The ruling is particularly relevant where substantial investments or capital gains stand in the name of a minor but the corresponding income has been offered to tax by the parent under the clubbing provisions.
The Facts: ₹1.97 Crore Mutual Fund Investment in Minor’s Name
The case concerned Liya Acharya, a minor, for AY 2022-23.
Mutual fund investments of approximately ₹1.97 crore had been made in the name of the minor daughter. The funds used for the investment had originated from the redemption of earlier mutual fund investments.
The resulting capital gains were not ignored for tax purposes. They were offered to tax in the father’s return by applying Section 64(1A), which provides for clubbing of a minor child’s income with the income of the parent, subject to the statutory framework.
Despite this position, the Income-tax Department initiated proceedings against the minor.
An order under Section 148A(3) was passed on 17 June 2026, followed by issuance of a notice under Section 148.
The minor, represented through her father as natural guardian, challenged the proceedings before the Madras High Court.
Department’s Defence: Income Was Not Separately Identified
The Department did not dispute the general principle that income of a minor can be clubbed with the income of the parent.
Its contention was somewhat different.
According to the Department, the father had not separately segregated the minor’s income from his own income in his return. Consequently, the Department contended that it could not independently verify whether the entire income relating to the minor had actually been offered to tax.
On this basis, the Department sought to justify the reopening proceedings against the minor.
The question before the Court, therefore, was not simply whether the income existed, but in whose hands that income was legally assessable.
Madras High Court Examines the Department’s Own Admission
The Court took note of the Department’s counter affidavit.
Significantly, the Department itself acknowledged the legal position that income of a minor may be clubbed with the income of the parent under Section 64(1A) and that a separate return in respect of such minor’s income was not necessarily required.
The Court treated this position as important.
Once the Department accepted that the minor’s income had been clubbed with the father’s income, proceedings seeking to reassess the same income in the hands of the minor could not be sustained merely because the Department wanted the income to be separately identifiable.
In other words, the issue was not simply one of verification of quantum. The fundamental question was the correct person in whose hands the income was chargeable to tax.
Reassessment Proceedings Against Minor Set Aside
The Madras High Court consequently set aside:
– the order passed under Section 148A(3); and
– the consequential notice issued under Section 148.
However, the Court did not grant an unrestricted immunity from examination of the underlying income.
The Department was left free to proceed against the father, in accordance with law, if the Department considered that the income had not been correctly or fully offered to tax in the parent’s hands.
This distinction is important.
The Court did not hold that the income was permanently outside the tax net. Rather, it held that the reassessment machinery could not be directed against the wrong assessee merely because the Department wanted to verify the computation or disclosure.
Section 64(1A): The Real Issue Is the Correct Taxpayer
Section 64(1A) contains a specific clubbing mechanism for income arising to a minor child.
Therefore, where the statutory conditions are satisfied, the minor’s income is brought to tax in the hands of the parent rather than independently assessed in the minor’s hands.
This has an important practical consequence.
Suppose:
Minor earns income → Section 64(1A) applies → Income is clubbed with parent’s income → Tax liability arises in parent’s assessment.
It does not ordinarily follow that the Department can subsequently reopen the minor’s assessment for the same income simply because it finds the parent’s disclosure inadequate.
The appropriate course would be to examine the parent’s assessment, subject of course to satisfaction of all statutory requirements applicable to reassessment.
A Reassessment Cannot Ignore the Statutory Scheme
The judgment highlights an important principle of tax administration.
The Department undoubtedly has the power to verify whether income has escaped assessment. But that power has to operate within the statutory scheme determining the person chargeable to tax.
Where Parliament has specifically provided that a particular category of income is to be clubbed with the income of another person, the machinery provisions cannot be used in a manner that effectively disregards that substantive allocation of tax liability.
The Department’s concern regarding whether the entire income was disclosed may be legitimate.
But the remedy must be directed against the person in whose hands the income is assessable.
What If the Father Had Not Offered the Entire Income?
This is where the ruling becomes particularly useful.
The judgment does not mean that once a minor’s income is claimed to have been clubbed, the Department is powerless.
If the Department has material suggesting that:
– the capital gains were understated;
– some income was omitted;
– the income was not actually included in the parent’s computation; or
– the clubbing provisions were incorrectly applied,
the Department may examine the parent’s assessment in accordance with law.
The important distinction is between:
“Income has escaped assessment”
and
“Income has escaped assessment in the hands of this particular assessee.”
The second question becomes crucial where statutory clubbing provisions apply.
Practical Implications for Parents and Minor Children
The ruling provides a useful compliance lesson for families making substantial investments in the names of minor children.
Where investments are made in the name of a minor, taxpayers should maintain a clear documentary trail showing:
1. source of funds used for investment;
2. investment statements and contract notes;
3. redemption details of earlier investments;
4. computation of capital gains;
5. disclosure of the income in the parent’s return under Section 64(1A), wherever applicable;
6. supporting schedules and working papers; and
7. reconciliation between the minor’s investment activity and the income actually included in the parent’s return.
This becomes particularly important where the investment value is substantial.
The Larger Principle
The Madras High Court’s ruling reinforces a simple but significant proposition:
> Taxing the right income in the wrong person’s hands cannot be justified merely because the Revenue seeks further verification.
Section 64(1A) is not merely a reporting convenience. It determines the manner in which the minor’s income is brought within the tax framework.
Therefore, where the Department itself accepts that the income is subject to clubbing in the parent’s hands, reopening the assessment of the minor for the same income raises a fundamental jurisdictional issue.
The Department remains entitled to verify whether the parent has correctly disclosed the income. But that enquiry has to be undertaken against the correct taxable person.
The Tax Talk Takeaway
A minor may hold investments, but that does not necessarily mean that the minor is the person in whose hands the resulting income has to be assessed.
Section 64(1A) can shift the taxability of the minor’s income to the parent.
The Madras High Court ruling therefore serves as an important reminder that reassessment is not merely about finding income—it is also about finding the correct assessee in whose hands that income is legally chargeable.
Wrong assessee + correct income = still a serious jurisdictional problem.
Case: Liya Acharya (Minor) v. Union of India, W.P. No. 32492 of 2026, Madras High Court, order dated 29 September 2026.
The copy of the order is as under:
