1990 PLP (Trib (PTD)

‑‑‑‑S.69(3)(c)‑‑‑Provisions of S.69(3)(c) are applicable where the minor had a share income from a firm and the assessee (father of minor) was not a partner in that firm‑‑‑Exception‑‑Burden of proof‑‑‑Where the income of the minor was to be clubbed in the income of his father, opportunity of hearing was to be given to the father. Section 69(3)(c) is applicable where the minor has a share income from a firm and the assessee is not a partner in that firm. The only two exceptions were if the minor had derived the capital contribution from inheritance or from a gift from the assessee in respect of which the gift‑tax had been paid. Therefore, in such a situation the burden was on the assessee to prove that the minor had either derived the contribution from inheritance or from a gift on which the gift tax had been paid. But then the question arises whether father of minor in whose hands the income of the minor was being assessed, had been provided an opportunity to prove it. The answer is admittedly no. Therefore, the order of the ITO could be held to be erroneous if clause (c) was applicable. In the case the income of the minor had to be clubbed at the hands of the father, however, since the conditions on the basis of which the clause (c) could be said to be not applicable, could be established by evidence by the assessee had he been given an opportunity of being heard. it is only fair that the assessee should be provided an opportunity of being heard. Income‑tax Appellate Tribunal set aside the order of the IAC with the direction that the assessee (father of minor) may be provided a reasonable opportunity of being heard and to establish as to whether the minor had capital contribution from inheritance or from a gift on which the gift‑tax had been paid. In case, the assessee establishes‑either of these two facts, then clause (c) cannot be made applicable in the facts and circumstances of this case. In case, however, the assessee fails to prove either of these facts, then the IAC is entitled to hold that the original assessment order was erroneous and prejudicial to the interest of revenue and the income had to be clubbed at the hands of the father.? Siraj Khalid for Appellant. Naseer Ahmad, D.R. for Respondent. Date of hearing: 23rd May, 1989. These are three appeals filed by the assessee relating to the assessment years 1979‑80, 1980‑81 and 1981‑82 against the order of the learned JAC passed under section 66‑A of the Income Tax Ordinance, 1979, (hereinafter called the `Ordinance') on 13‑6‑1984.

2. Briefly the facts of the case may here be narrated. The assessee in all the assessment years under consideration was a minor at the time of original assessment completed under section 59(1) of the Ordinance at an income of Rs. 15,100, Rs. 4,216 and Rs. 5,184 respectively for the assessment years under consideration. He tiled his returns and the returns were signed by him, although, he was a minor. It may further be noted that in the assessment year 1979‑80 the assessee's source of income was commission agency and brokerage while in the subsequent two assessment years the income derived by him was 20% share in a registered firm. When these facts came to the knowledge of the learned IAC, he called for the record and cancelled all the three assessments and directed the ITO to club the income of the minor assessee at the hands of his father, Mr. Mohammad Iqbal (present appellant in these appeals). It may further be noted that while passing the order by the learned IAC he ‑only issued notices to the minor, Ehteshamul Haque and no notice was issued to the present assessee, namely, Mohammad lqba

1. Mr. Ehteshamul Haque, the minor filed appeals in the Court of the learned AAC who, however, summarily dismissed these appeals on 13‑3‑1985 with the remarks "that the appeal did not lie before him against the order of an IAC". Hence, these appeals have been filed by father of the assessee, namely, Mohammad lqbal on 11‑3‑1985. An application for condonation of delay has been filed on two grounds. Firstly, that he was never informed by his son in regard to the order passed by the learned IAC and he was first informed on 9‑3?1985. This application is supported by an Affidavit. The second ground taken by the assessee is that the learned IAC had never issued a notice to him before passing the impugned order, although, the assessee was the real affected party.

3. After hearing the parties, I am satisfied that the minor‑assessee on wrong legal advice, had filed the appeals in wrong forum. In any case, the assessee not having been made a party by the learned IAC, as no notice had been issued to him, the limitation would start against him from the date of knowledge which, according to him, is 9‑3‑1985 duly supported by an Affidavit. In these circumstances, I condone the delay and admit the appeals for regular hearing.

4. On merits, the first contention of the learned counsel for the assessee was that section 66‑A of the Ordinance was added by the Finance Ordinance, 1980, and as such it was not available for the assessment year 1979‑

80. This contention is devoid of any force for the simple reason that this section 66‑A is a procedural section empowering the learned IAC to revise the assessment order and at the time when the notice was issued in May, 1984, this power was available to the learned IAC. It is irrelevant that the assessment year for which the power was being exercised is the one in which the empowering section was not available. What is to be seen is that as to whether the section 66‑A was on the statute book when the notice was issued to the assessee. I, therefore, do not find any merit in this objection which is rejected.

5. The next contention of the learned counsel for the assessee was that the learned IAC has stated that the assessment order passed by the assessing officer was both erroneous and prejudicial to the revenue on the ground that the return had been signed by a minor, although, it should have been signed by his guardian. It was contended that mere fact that the return had been wrongly signed does not make the assessment order prejudicial. In support of his contention, he has relied upon Tribunal's decision reported as (1988) 51 Tax 39, in which it was held that non‑signing of the return is merely an irregularity. I am inclined to agree with the learned counsel on this issue that mere non‑signing of the return or signing of a return by a wrong person is merely an irregularity inasmuch as it is not the case of the department that the return had not been filed. Admittedly, the return had been filed, the income had been declared and it had been assessed. Therefore, when both the parties admit that the return had been filed it is merely an irregularity that the minor has signed the return. It may be pertinent to note that the minor became major on 6‑7‑1983 during the pendency of the proceedings before the learned IAC and the learned IAC has passed the order on 13‑3‑1985. Therefore, when the order had been passed by the learned IAC, the assessee had already become major. Even if there was any irregularity the learned IAC could have got it rectified by asking the assessee to sign the return. In any case, on becoming major the minor‑assessee having admitted to file the return, this amounts to rectification of any irregularity which had been committed because of his signing as a minor. Therefore, on that score the learned IAC could not hold the assessments invalid or erroneous and prejudicial to the interest of revenue. The second ground taken by the learned counsel for the assessee is also valid that the present assessee, namely, Mohammad Iqbal in whose income the minor's income was directed to be clubbed, should have also been provided an opportunity of being heard before passing an adverse order against him.

6. The next contention of the learned counsel for the assessee was that the learned IAC had not mentioned any provision of law under which the minor's income could be clubbed at his hands. He submitted that neither section 69 nor section 83, which could possibly be the relevant sections, are applicable in the facts and circumstances of this case. According to the learned counsel for the assessee, the assessee was not a partner in the firm share income from which has been declared by the minor‑assessee and, therefore, section 69 had no application.

7. I have considered the contentions of the learned counsel for the assessee and have also herd the learned DR. So far as the assessment year 1979‑80 is concerned the objection of the learned counsel for the assessee seems to be correct. The only provision under which a minor's income could be clubbed is section 69 of the Ordinance. Under subsection (3) of section 69 share income of a spouse or a minor can be clubbed at the hands of an individual. Under clause (a) of the aforesaid sub‑section, the share income of the spouse or a minor child could be clubbed if the assessee is also a partner in that firm. Since the assessee is not a partner in the firm in which the minor was also a partner, therefore, clause(a) had no application. The relevant clause would be clause (c) where the share income of a minor child of the assessee from a firm could be clubbed at the hands of the father unless it could be shown that the capital contribution of the minor child was derived from inheritance or from a gift from the assessee. But that clause is also not applicable so far as the assessment year 1979‑80 is concerned. Under clause (c) it is the share of income of a minor child from a firm which can be clubbed at the hands of his father. In the assessment year 1979?80 the assessee's income is not derived from any Firm. The minor's income, thus, could not be clubbed at the hands of the assessee. Therefore, even if it would be taken that the learned IAC was right in holding that the ITO's order was erroneous and the assessment was to be cancelled on that account, even then the; second part of the learned IAC's order directing the ITO to club the income of the minor at the hands of his father would be invalid and illegal as clause (c) has no application and there is no other provision under which the minor's income could be clubbed at the hands of his father. I, therefore, vacate the order of the learned IAC for the assessment year 1979‑80 which is notwithstanding even if the order of the ITO is said to be erroneous on the basis of the signing of return by a minor.

8. However, for the assessment years 1980‑81 and 1981‑82 the position is entirely different. In these two assessment years clause (c) of subsection (3) of section 69 is fully applicable. The learned counsel for the assessee attempted to argue that section 69 was applicable only if the assessee was a partner in the firm from which the minor had derived the share income. However, clause(c) does not visualize such a situation. That clause is applicable where the minor has a share income from a firm and the assessee is not a partner in that firm as in the present case. The assessee was not a partner in the firm the share income of which had been declared by the minor. The only two exceptions were if the minor had derived the capital contribution from inheritance or from a gift from the assessee in respect of which the gift‑tax had been paid. Therefore, in such a situation the burden was on the assessee to prove that the minor had either derived the contribution from inheritance or from a gift on which the gift tax had been paid. But then the question arises whether Mohammad Iqbal, the present assessee in whose hands the income of the minor was being assessed, had been provided an opportunity to prove it. The answer is admittedly no. Therefore, the order of the ITO could be held to be erroneous if clause(c) was ‑applicable. In the case the income of the minor had to be clubbed at the hands of the father, however, since the conditions on the, basis of which the clause(c) could be said to be not applicable, could be established by evidence by the assessee had he been given an opportunity of being heard, it is only fair that the assessee should be provided an opportunity of being heard. I, therefore, set aside the order of the learned LAC for the assessment years 1980‑81 and 1981‑82 with the direction that the assessee, namely Mohammad Iqbal may be provided a reasonable opportunity of being heard and to establish as to whether the minor had capital contribution from inheritance or from a gift on which the gift‑tax had been paid. In case, the assessee establishes either of these two facts‑‑then clause (c) cannot be made applicable in the facts and circumstances of this case. In case, however, the assessee fails to prove either of these facts, then the learned IAC is entitled to hold that the original assessment' order for these two assessment years was erroneous and prejudicial to the interest of revenue and the income had to be clubbed at the hands of the assessee's father, namely, Muhammad Iqbal.

9. For the foregoing reasons, the assessee's appeal for the assessment year 1979‑80 is accepted and the order of the learned IAC is vacated but the orders of the IAC for the assessment years 1980‑81 and 1981‑82 are set aside and the case is remitted back to the learned IAC for re‑decision on the above points. M.B.A./897/T????????????????????????????????????????????????????????????????????????? ?????????? Order accordingly