Report No. 265

2. Revisiting the provisions of the Income Tax Act, 1961

2.1 Section 64 (IA) of the Act, 1961 reads as under: (IA) 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 SOU:

Provided that nothing contained in this sub-section shall apply in respect of such income as arises or accrues to the minor child on account of any-

(a) manual work done by him; or

(b) activity involving application of his skill, talent or specialised knowledge and experience.

Explanation. - For the purposes of this sub-section, the income of the minor child shall be included,-

(a) where the marriage of his parents subsists, in the income of that parent whose total income (excluding the income includible under this sub-section) is greater; or

(b) where the marriage of his parents does not subsist, in the income of that parent who maintains the minor child in the previous year, and where any such income is once included in the total income of either parent, any such income arising in any succeeding year shall not be included in the total income of the other parent, unless the Assessing Officer is satisfied, after giving that parent an opportunity of being heard, that it is necessary so to do.

2.2 In this regard two other relevant provisions of the Act, 1961 also deserved to be considered:

(i) As to deduction:- Under section 10(32) of the Act, 1961, the parents in whose hands the minor's income is clubbed is entitled to an exemption up to Rs. 1500/per child.

(ii) As to transfer of property : Under section 27 of the Act, 1961, income out of property transferred for no consideration to a minor married daughter.

2.3 The provisions of the Act, 1961' do. not allow exemption to clubbing of income of the minor in the form of interest on maintenance amount, 'to one of the parent's income. Therefore, the High Court observed as under:

It was opinion of the court that the exception should also be created in such cases where the maintenance is provided for the minor children.

In the opinion of the court, the circumstances of the minor having received maintenance money are different from say a minor in whose name some business has been started by either of the parent or who has been advanced some gift during the subsistence of marriage of parents. Therefore, an exception against clubbing of income from maintenance money is a desirable thing, in case of minor children residing with a single parent.

2.4 The Court also suggested insertion of a clause providing for exemption in such a situation, as a proviso to section 64(1A) of the Act, 1961.