Minor's income--Father no more; Mother remarries

Hi Anuj,

Regarding the clubbability of the minor's income after the death of either of the two parents, the question that we'd need to answer is: Can the marriage still be said to subsist even after the husband or the wife is no more? Section 64(IA) has not dealt with the situation that would arise if either or both of the parents of the minor die. It has envisaged a situation of divorce of the parents—in that event the income would be clubbed in the hands of the parent that maintains the child. > > Does the marriage cease to subsist upon the death of the husband (or the wife)? The Mumbai Tribunal had had an occasion to decide on a similar issue. In Mrs. Rohita Subramanium v. Dy. CIT [2002] 75 TTJ (Mum.) 101, Mrs Rohita's husband had died. The question was: In whose hands would the minor child's income be clubbed? The Tribunal held that the marriage does not break down upon the death of either of the spouses; it subsists even after the death of one of the couple. Whilst both the parents were living, the minor's income was tagged to the parent having higher income. Since death of either spouse doesn't lead to collapse of the marriage, we'd still club the minor's income in the hands of the parent having higher income. Since the child's father is dead and has therefore Zero income, the mother clearly has "higher" income. As such, we shall club the minor's income in the mother's hands. > > The Tribunal in this case seems to have interpreted "subsistence" of marriage in a rather legalistic than a commonsensical manner. A marriage subsists as long as the couple hasn't voluntarily decided to part ways; death being an Act of God does not kill the marriage. The Tribunal members seem to have given their verdict thinking along these lines.> > But the Lucknow High Court in Smt. Laxmi Agarwal v. Asstt. CIT [2003] 133 Taxman 114 (Luck.) (Mag.) saw this issue in an entirely different manner. It ruled that in the case of death of a parent it isn't possible for the revenue to club the minor's income, unless it is proven that the surviving parent maintains the child. So in your client's case where the mother has remarried after the father's death and the grandparents are taking care of the kids, the income won't be clubbed in the mother's hands. > > So the jury is still out on this one. But to me, the Lucknow HC judgement sounds more sensible. And As I had opined in the case where both parents kick the bucket leaving behind the minor with a stream of income; in case of death of the father too, in my opinion, nothing would be taxable in the minor's hands, if it's the grandparents of the child who are maintaining her. This is also supported by the well-accepted dictum of law that in the absence of the machinery provisions in the Act to give effect to the provisions of the charging section, the charging section fails. > > In no case can a minor be taxed directly unless she's a child artist or the like or is physically challenged. > >

Thanks,>

CA Sanjeev Bedi> >

--- On Tue, 6/10/08, Anuj Gupta wrote:> > From: Anuj Gupta > Subject: Minor's income; Parents no more> To: ICAI_CIRC_MEERUT_ CA@yahoogroups. com> Date: Tuesday, June 10, 2008, 3:35 PM> > > > > > > > > I came across a situation which is similar to the query answered by the star contributor Sh. Sanjeev Bedi but yet unique also, because in my case the father of the children has died and the mother has remarried, leaving the custody of children with the grandparents, who have applied for the guardianship of the children.> > Now the children have got money from LIC and also the other sources to invest. Who will be liable to tax on such interest income received from investments made in name of children.> > Regards> > CA. Anuj Gupta> > >

Re: Minor's income; Parents no more> > > > >

Hi Piyush,> >

With the death of both the parents, the clubbing provisions of > Section 64(1A) go out the window. Even if the parents divorce, > clubbing provisions still hold; the kid's income is clubbed along > the income of the parent who maintains the kid. But in the > unfortunate event of both Mummy and Daddy Allah-ko-piara hoeing, > there's no way you can club the child's income with any of his > uncles, aunties or grandparents.> > Consider the following judgement of Chennai Tribunal in the case of > R.P. Sarathy v. Joint CIT [2005] 97 TTJ (Chennai) 801; [2006] 5 SOT > 731 (CHENNAI):> > [Facts:> > The parents of the assessee, who was a minor, died in an accident in > June/July 1993. Her grandfather sent her to school under his > guardianship. She inherited movable and immovable properties of the > deceased parents and also from her grandmother. The amounts received > by her by way of inheritance and gifts on birthdays were invested by > her grandfather. For the relevant assessment years she computed her > income and filed nil return on the ground that the income of minor > was not taxable. The Assessing Officer, however, assessed the entire > income in the hands of the legal representatives of the assessee. On > appeal, the Commissioner (Appeals) confirmed the action of the > Assessing Officer.]> > On appeal the Tribunal held that none of the exceptions (divorce or > personal skill of the minor) applied to the assessee as neither of > the parents was surviving. The minor was not liable to file the > return of income as per the provisions of the Act, in case both the > parents were not alive. Section 64(1A) does not speak about the > situation where both the parents are not surviving. But from > Explanation (b) to sub-section (1A) of section 64, it can be easily > conferred that the minor's income, in case both the parents are not > alive, cannot be assessed in the hands of the grandparent or any > other relatives. Further, there is no provision to assess the > minor's income in the hands of the minor and if the parents do not > survive, then that income cannot be clubbed in the hands of any of > his grandparents or anybody who maintains the minor child. Since the > parents of the minor were not surviving in the instant case in hand, > the income of the minor could not be clubbed in the hands of her > grandfather. Accordingly, the orders of the lower authorities were > quashed.]> > So it is clear that in the absence of both the parents, clubbing is > ruled out. The above judgement also correctly says that there is no > provision to assess the minor's income in the hands of the minor > himself, barring that manual skill/child prodigy exception. So does > that mean in the instant case, nothing would be brought to tax on > the interest earned on FDRs created out of insurance proceeds > received from the LIC consequent to the death of the parents? > > The answer it seems, also taking the ratio of the above ruling into > account, is: Yes. It seems the lawmakers, whilst they did visualize > the divorce and the child prodigy situations, forgot to think of a > situation where both the parents depart for their heavenly abode > leaving the underage kid behind. What would happen to the surviving > minor child's income? > > In my opinion, it won't be taxable at all.> >

Thanks,> >

CA Sanjeev Bedi > > ---

Dear All,> >

Please guide me in following matter:> > One minor has received plenty of funds from LIC due to the death > of his both of the parents. At present the said minor child is under > the guardianship of his maternal uncle. The amount of funds so > received is proposed to be invested in bank FDRs. In whose income > this interest income would be clubbed. Whether, in such case, since > due to the death of the both of the parents, can return of the minor > be filed through any representative assessee without attracting the > clubbing provisions u/s 64(1A).> > I shall be very thankful for the kind guidance in the aforesaid > matter.> > With Regards.> > CA. Piyush Jain (Rishikesh)

AGM of a private company---Shareholders Abroad

Hi Vishal,

Although an EGM may validly be held even on the planet Mars, an AGM has to be held at the registered office of the company only. Section 166 lays down that members have to be physically present. Proxies won't do. Proxies appointed u/s 176 don't count for the purposes of determining whether Quorum u/s 174 has been reached. But I think there's nothing to preclude a private company, which isn't a subsidiary of a public company, to amend its Articles in such a way as to provide that even proxies will be counted towards the quorum. You haven't said if the holding company of the Indian subsidiary in question is a public company?Another way out is to first convene the meeting and then adjourn it for want of quorum. Quorum isn't required at the adjourned meeting. Section 174(4) and (5) say that if the quorum isn't present at the adjourned meeting, the members present shall constitute the quorum. The significant words here are "members present". A presence of only 2 members suffices to make up a quorum in case of a private company. And if neither of them is present either in the original or the adjourned meeting, can we say that in the adjourned meeting the members present, being Zero in number, constituted the quorum? I think if you can have even one of the members fly down to India, it would be a perfectly valid AGM, if held in the manner discussed above. But I feel—theoretically at least---a general meeting can be legally held even in the event of presence of none of the members of the private company in the adjourned meeting.

Thanks,

CA Sanjeev Bedi

In http://us.mc508.mail.yahoo.com/mc/compose?to=ICAI_CIRC_MEERUT_CA%40yahoogroups.com, vishal pasad wrote:>> dear members,> > one indian subsidairy pvt ltd company 's shareholders are NRI , > > they not been able to come in india in 2008 . but agm must be held in india as per companies act in india only , for which shareholders should be present in india .> > but in above case shareholdes are not present in india, > > we want to fix the date og agm now, & place.> > so is ther any way out by which agm date can be held in any other country or shareholders own country . of above mentioned indian pvt ltd compoany .> > plz guide > > regards> > vishal

Depreciation Cos. Act--Minimum Rates

Hi Josh,

Yes, you can provide depreciation under the Companies Act at rates different from those laid down in Schedule XIV to the Cos Act. But the rates the company chooses, on a scientific evaluation of the life of the assets, can't be lower than those mentioned in Schedule XIV. Note 5 below Schedule XIV says this:[5. The following information should also be disclosed in the accounts:(i) depreciation methods used; and(ii) depreciation rates or the useful lives of the assets, if they are different from the principal rates specified in the Schedule.]This note read with Section 349(4)(k) and Section 350 would mean that there's no problem if a company chooses to determine depreciation on the basis of the useful lives of the assets determined by itself. If the useful life of the assets as determined by the company happens to be lower than the life of the assets based on which Schedule XIV rates are prescribed, then the higher amount of depreciation dictated by such lower life can be provided, ignoring what Schedule XIV says. But if the company estimates the lives of the assets to be more than that envisaged by the DCA under Schedule XIV, it doesn't have the liberty to charge depreciation at lower rates. Schedule XIV rates are the minimum ones. The Expert Advisory Committee of the ICAI has also opined thus.Actually, managements may be tempted to inflate their profits to increase their managerial remuneration, which is based on a percentage of the book profits. So companies have been permitted to provide depreciation at rates higher than those mandated by Schedule XIV. But they can't do that at rates lower than those. Under the Tax laws, you can't claim depreciation at rates higher than those specified in Rule 5; under the Cos law, you can't charge depreciation at rates lower than the ones mentioned in Schedule XIV. A proper disclosure in the Notes to Accounts of course would be required. A leasehold land is not depreciated; rather its cost is amortized over the period of the lease. The initial amount paid is a sort of Advance Rent. The annual amortization would constitute "Outgoings" u/s 349(4)(j) for the purposes of determining net profits.

Thanks,

CA Sanjeev Bedi---

In ICAI_CIRC_MEERUT_ CA@yahoogroups. com, "josh" wrote:>>

Dear Members> >

My query is regarding Depreciation. > > 1. As rate of depreciation has been prescribed in Schedule XIV, > can any company chose the rate of depreciation other than rate in > Schedule-XIV by disclosing the fact in the note of account?> > 2. Rate of depreciation for the land has not been prescribed in > schedule XIV. In case of land leased for exploration on iron ore, coal > or minerals, where value of land depleted/ attenuated during the > course of extraction of Ore, mineral etc. Can depreciation will be > applicable in this case and if yes at what rate?

No the ITO cannot issue a Blanket Certificate u/s 28AA

Hi Mr Tejasvi,

No the ITO cannot issue a Blanket Certificate—that the assessee can use to cover each and every person who is a source of income for him---for deduction of tax at source at a lower rate or a Nil rate. Rule 28AA clearly prohibits that: [28AA. (3) The certificate shall be valid only for the person named therein.(4) The certificate shall be issued direct to the person responsible for paying the income under advice to the applicant.]The way Form 13, in which the application for lower deduction of tax is made, is worded also doesn't leave any room for doubt that this Certificate is specific to the payer of income. Here's how the text in Form 13 reads: [I,_____of__ ____do, hereby, request that a certificate may be issued TO THE PERSON RESPONSIBLE FOR PAYING TO ME the incomes/sum […..] ]The AO has clearly erred. You should point this out to the AO and have the certificate amended and addressed to the specific person who's the payer of income in this case. There might be problems otherwise. Thanks,CA Sanjeev Bedi--- In ICAI_CIRC_MEERUT_ CA@yahoogroups. com, "CA. S.R.Tejasvi" wrote:>> Dear Sirs,> Recently I came across a certificate issued by an Income Tax officer, authorising any person liable to deduct tax on payment made to the assessee, to deduct tax at lower rate.> Is it proper for the officer to issue such a blanket certificate authorising any person liable to deduct tax? Didn't the certificate is meant to be issued to specific person?> Kindly clarify.> Thanking you,> Yours faithfully,> CA. S.R.Tejasvi

Section 11--Charitable Trust: What is "Income"?

Hi Abhishek,

The question before us is: What constitutes "Income" of the trust u/s 11 for the purposes of examining whether 85% of it has been applied to charitable activities? There's nothing arcane, esoteric or mysterious about the word "Income" used in Section 11. Scores of decided laws have laid down that what constitutes "Income" in terms of Section 11 has to be determined in a commonsensical manner, according to the normal rules of accountancy. By Income here we mean nothing more than what a layman would understand it to be. So it is fair to say that in case of donations and other receipts in connection with which we do not incur any expenses, we would need to calculate the figure that we have to spend by applying the percentage of 85 to the total amount of Cash Inflow the trust has had during the year. But in case of business or other receipts, to know what's our "income" we'd have to look at the figure of Surplus, 85 per cent of which we shall be liable to spend on charitable activities. The emphasis in case laws, of whom there are numerous, has been on the Real Income. Real Income means the income that's actually been received, and not simply that's accrued to us. The expenses like salary and general administration incurred in connection with keeping the trust going aren't application of income and so they will have to be deducted to arrive at "income" that needs to be applied for charitable purposes. This has been held in the case of CIT v. Birla Janahit Trust [1994] 208 ITR 372/73 Taxman 465 (Cal.).Depreciation is an allowable expenditure. In CIT v. Sheth Manilal Ranchhoddas Vishram Bhavan Trust [1992] 198 ITR 598/[1993] 70 Taxman 228 (Guj.) it was said depreciation as per normal rules of accountancy should be allowed while computing income, as the income of the trust is not to be computed in accordance with the provisions of the Act but in a commercial manner. It may be noted that tax-free income like Agricultural income does not form part of total income for the purpose of computing the percentage to be applied or accumulated for future application. CIT v. Nabhinandan Digamber Jain [2002] 257 ITR 91/[2003] 128 Taxman 779 (MP).As far as the application of income is concerned, all sorts of layouts, whether on capital or revenue account, would qualify as having been applied towards the charitable ends. Thanks,CA Sanjeev BediMy query is : We need to apply at least 85% of the income of charitable trust for charitable purpose. Now the question is what is the meaning of income over here. Is it the "Gross Receipt" or is it the "Surplus", that we need to apply during the year. In my opinion We need to apply 85 % of the surplus and not the gross receipts, in case if we are having business income. And in the case of donation income or income from House property etc. it would be the gross income, out of which we need to apply the 85 %. Suppose in the case of an educational society, society is running a college and is also having donations. In the case of donations 85 % of the gross donation should be applied for educational (charitable) purpose and in the case of college fees received by the society, 85% of the surplus must be applied for the charitable purpose because all the expenses claimed for having the surplus are actually not the application of income, they are merely the expenses incurred for earning the gross receipts. I need to know, whether my view for the same is correct, and if yes, which case laws are in favour of my opinion. Waiting for your views. Regards CA. Abhishek Agarwal