Liya Acharya Vs Union of India (Madras High Court)
Madras HC: Reassessment notice issued to minor quashed, as income already clubbed and taxed in father’s hands under Section 64(1A)
Summary: The Madras High Court, in Liya Acharya v. Union of India & Ors., quashed reassessment proceedings initiated against a minor whose income had already been clubbed with that of her father and natural guardian under Section 64(1A) of the Income-tax Act, 1961. The Court held that reassessment proceedings against the minor were not tenable in the admitted factual circumstances and left the Department free to initiate appropriate proceedings against the father in accordance with law.
The dispute concerned AY 2022-23. According to the petitioner’s explanation, the Income Tax Department had questioned mutual fund purchases aggregating to ₹1,96,92,554 made in the minor’s name. The petitioner contended that these investments originated from redemption proceeds of earlier mutual fund holdings and that the relevant capital gains had already been offered to tax in her father’s hands through the applicable clubbing provisions. Notwithstanding this explanation, the Department passed an order dated 17 June 2026 under Section 148A(3) and issued a consequential notice under Section 148.
At the preliminary hearing on 24 August 2026, the High Court found prima facie that the minor’s income had been clubbed with her father’s income in the return for AY 2022-23. It therefore granted an interim stay of the impugned order and proceedings arising from the reassessment notice.
In its counter-affidavit, the Department acknowledged that a minor’s income could be offered to tax by clubbing it with the guardian’s income under Section 64(1A). However, it contended that the father had failed to separately identify the minor’s income, thereby preventing the authorities from ascertaining whether the entire income had been offered to tax.
Justice Senthilkumar Ramamoorthy observed that the respondents had, in effect, admitted the clubbing of the petitioner’s income with that of her father and natural guardian. In these circumstances, reassessment proceedings against the minor could not be sustained. The Court accordingly set aside the impugned order and notice, while expressly preserving the Department’s liberty to initiate reassessment proceedings against the father in accordance with law. The writ petition was disposed of without any order as to costs.
Cases Discussed: No separately cited judicial precedents appear in the original High Court order. Accordingly, no additional cases are inserted.
Argued by Adv. Bharat Raichandani i/b UBR Legal.
FULL TEXT OF THE JUDGMENT/ORDER OF MADRAS HIGH COURT
When the matter was listed for admission on 24.08.2026, the following order was issued:
“An order under Section 148(A)(3) and the consequential notice under Section 148 of the Income Tax Act, 1961, are challenged in this writ petition on the ground that said order was issued against a minor in spite of the income being clubbed with that of the father and natural guardian of the minor in the return of income for the assessment year 2022–2023.
2. Ms. S. Premalatha, learned Senior Standing Counsel, accepts notice for the respondents. She seeks time to obtain instructions.
3. On perusal of the documents on record, I find prima facie that the income was clubbed with that of the father and natural guardian. Therefore, there will be an interim stay of the impugned order and proceedings pursuant to the notice under Section 148 until the next date of hearing.
4. List on 29.09.2026.”
2. The respondents have filed a counter affidavit. In relevant part, at paragraph 7 and ground F, it is stated as under:
“7. .. .. The documents which were submitted by the father of the petitioner do not specifically segregates the income of the petitioner from the income of petitioner’s father.
F. With regard to the allegation made by the petitioner in para F of the Grounds is denied, it is submitted that the income earned by the minor need not to file Income Tax Return separately, the income can be offered to tax by clubbing the income with the guardian u/s 64(1A) of the Income Tax Act. In this instant case, petitioner’s father has failed to segregate the income of the petitioner from the petitioner’s father during the 148 proceedings to ascertain that the Income of the petitioner as well as petitioner’s father have been offered to tax. Mere non-filing of return did not attract this case as fit case for the 148 proceedings, but the inability of segregation of income of both the individuals invites the issuance of notice under Section 148 of the Income Tax Act, 1961. It is already stated in previous paragraphs that prima facie findings need not require detailed investigation in order to reopen the proceedings. ”
3. In effect, the respondents have admitted that the petitioner’s income was clubbed with that of the father and natural guardian under Section 64(1A) of the Income Tax Act, 1961. In these circumstances, the initiation of re-assessment proceedings against the petitioner is not tenable. Hence, the impugned order and impugned notice are set aside by leaving it open to the respondents to initiate re-assessment proceedings against the petitioner’s father in accordance with law.
4. The writ petition is disposed of on the above terms. Consequently, connected miscellaneous petitions are closed. There shall be no order as to costs.
