The income of a minor child can be clubbed in the income of either parent based on previous assessments, and the Tribunal erred in restricting it to the father only.

ORDER :

(BHARGAV D. KARIA, J.)

1. This appeal is admitted by order dated 01/05/2009 on the following substantial questions of law:

“(i) Whether in the facts and circumstances of the case, the Income Tax Tribunal has erred in law in holding that income (loss) of a minor son can only be clubbed in the income of the father i.e. Shri Vijay Kumar Gupta and not in the income of the mother i.e. the appellant herein as in the first A.Y., income of a minor son had been clubbed in the hands of father?

(ii)Whether in the facts and circumstances of the case, the Income Tax Appellate Tribunal has erred in interpreting the provisions of the s.64(1A) while holding that income of minor once included in the total income of the either parents will continue to be included in the income of the that very parent, unless the AO is satisfied, after giving that parent an opportunity of being heard, that it is necessary so to do?”

2. The appellant filed return of income for the assessment year 1997-1998 on 29/10/1997 declaring total income of Rs.4,30,556/-.

3. The case of the appellant was selected for scrutiny. As the appellant claimed set-off of loss of minor son amounting to Rs.7,55,041/-, the same was subject matter of scrutiny. The Assessing Officer in view of the assessment orders for the Assessment Year 1995-1996 and Assessment Year 1996-1997 where dis-allowance of loss owing to interest incurred by minor son which was claimed and the assessment order of the husband of the assessee Shri Vijaykumar D. Gupta for the Assessment Year 1995-1996 and for the Assessment Year 1996-1997 holding the same to be disallowable passed an assessment order disallowing the loss of Rs.7,55,041/- claimed as set-off by the appellant assessee from her income on the ground that such loss of payment of interest by the minor son of the appellant assessee could not have been allowed as held in the previous two assessment years, one in the case of the husband of the appellant assessee for the Assessment Year 1995-1996 and in case of the appellant assessee for the Assessment Year 1996-1997.

4. The Assessing Officer dis-allowed the set-off of interest by observing as under:

“3.1. While finalizing the assessment order for A. Y. 1995-96 and A. Y. 1996-97, the A. O. had made disallowance fo loss owing to interest incurred by minor son mater Mohit Gupta claimed and Mr. V. K. Gupta in the A.Y. 1995-96 and Mrs. Sulochana V. Gupta in the A.Y. 1996-97 holding the same to be disallowable for various reasons discussed in the assessment order. The assessee was asked to file explanation as to why this year also disallowance should not be made in view of the fact that the facts for A. Y. 1995-96 have not undergone any change even in the current year. The assessee vide letter dtd. 06-03-2000 has submitted as under:-

“The department has been holding that, the shares invested by Minor Mohit Gupta in Gujarat Ambuja Cotspin Ltd., was for claiming promoters stake and having controlling stake in Gujarat Ambuja Cotspin Ltd.

It may be appreciated that, the basis of the additions is absolutely wrong particularly in view of the fact that, Minor son could in no way take controlling stake in the company as he has not in a capacity to hold any position in the company. Further the promoters namely the assessee, her husband and various companies where already commanding controlling stake therefore there was no question of making investment to obtain the control in the said company and therefore very basis of the additions made in the previous year relevant to A.Y. 1995-96 is baseless.

3.2. I have considered the submission of the assessee, which does not rebut the AO’s finding as arrived at in A.Y. 1995-96. During the year under consideration also, the minor son, Mohit Gupta, continues to have outstanding borrowings from Sharma Finance Company, which were invested in shares of Gujarat Ambuja Cotspin Ltd (GACL). Neither any dividend income nor any other income is received by the minor. The funds borrowed were utiliz