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Minor can be an assessee under Income-Tax Act

November 22, 2004 11:33 IST

Can a minor be an assessee under the Income-Tax Act, 1961?

Yes. Minor child of an assessee father has been treated as assessee for assessment of capital gain in the Assistant Commissioner of Income Tax vs Madan Lal Bassi case, (2004) 88 ITD 57 (Chandigarh-Tribunal)

During the re-assessment proceedings for the assessment year 2000-01, the income-tax office has proposed to make an addition in regard to low withdrawals for household expenses. But during the original proceedings, the withdrawals shown were accepted without making any addition on that account. Is the income-tax office entitled to do so?

No. In the re-assessment proceedings, the earlier decisions taken cannot be reviewed. Hence, the income-tax office's proposal to make addition on account of low withdrawals, which were accepted in the original assessment proceedings, will not be legally permissible.

This view is supported by the decision of the Punjab and Haryana High Court in the Vipan Khanna vs Commissioner of Income Tax case, (2002) 255 ITR 220.

Kindly mention the law relating to tax deduction at source from the payment to be made to a non-resident.

The sum paid to the non-resident may be either fully or partly chargeable to the income tax. If it is fully chargeable, undoubtedly, the tax has to be charged at the appropriate rates on the whole of such sum and deducted and paid.

If the sum is only partly chargeable (embedded or hidden income), the assessee has to apply under Section 195(2) to the assessment officer for determination of the appropriate fraction of the income hidden or embedded therein.

The assessment officer in that case will have to pass an order on the assessee's application determining the appropriate portion. The assessee has a right of appeal against such order under Section 248 but that right of appeal can be exercised only if the tax is deducted and paid.

In a case where no such application is filed, then the assessee is liable to deduct tax on the footing that the whole sum is chargeable to tax.

Please explain the role of "proviso" in an enactment?

The well settled principle about construing any proviso to main provision is that ordinarily the proper function of a proviso is that it qualifies the generality of the main enactment by providing an exception and taking out as it were, from the main enactment, a portion which, but for the proviso, would fall within the main enactment.

Ordinarily, it

is foreign to the proper function of a proviso to read it as providing something by way of an addendum or dealing with a subject, which is foreign to the main enactment.

A proviso qualifies the generality of the main enactment by providing an exception and taking out from the main provision a portion, which but for the proviso would be the part of the main provision.

A proviso must, therefore, be considered in relation to the principal matter to which it stands as a proviso. A proviso should not, therefore, be read as if providing something by way of addition to the main provision, which is foreign to the main provision itself.

Cardinal rule of interpretation is that a proviso to a particular provision of a statute embraces the field, which is covered by the main provision. It carves out an exception to the main provision to which it has been enacted as a proviso and to no other.

Whether expenses incurred in the context of amalgamation could be claimed as revenue expenditure by the respective companies?

Yes. Where two companies are amalgamated, such amalgamation is resorted to for smooth and efficient conduct of the business of the company, whether it is transferee-company or transferor-company.

Hence, merely because the assessee-company in the instant case was transferor company, it cannot be said that the expenditure of legal fees was not incurred wholly and exclusively for the purpose of the business of the assessee.

When the legal expenses are to be paid in connection with the amalgamation of a firm with another firm, the liability to pay legal expenses arises in respect of the period when the transferor-company still continues to exist.

May be on a future date, the transferor-company may cease to exist after the scheme is sanctioned by the court under the relevant provisions of the Companies Act, 1956.

The effective date of amalgamation in many cases may even be a date prior to the date of sanction of the scheme, but so long as the scheme is not sanctioned, the transferor-company continues to exist and since the amalgamation is resorted to for the smooth and efficient conduct of the business through the transferee-company, it has to be held that legal expenses are laid out wholly and exclusively for the purpose of business of assessee-company [See the Commissioner of Income Tax vs Bombay Dyeing & Mfg Company Ltd case. (1996) 219 ITR 521 (SC) and the Commissioner of Income Tax vs Akme Electronics & Control (P) Ltd case. (2004) 267 ITR 396 (Gujarat)].

T N Pandey in New Delhi