2003 (9) TMI 54 - HC - Income Tax

Whether, Tribunal was, in law, justified in holding that the payment of salary to the assessee s wife, was not covered by the provisions of section 64(1)(ii)? - While framing the assessment, the ITO noticed that the assessee had paid a salary to his wife. The ITO asked the assessee to explain why this salary should not be added to his income. The assessee replied that he was handicapped and disabled ex-serviceman and had to get 24 hours constant attendant to lookafter his day-to-day business activities. Instead of engaging any outsider, the assessee employed his wife who was said to be an efficient worker - Tribunal has found that the requirements of the proviso to clause (ii) of section 64(1) of the Act are satisfied Thus Tribunal was justified in holding that the payment of salary to the assessee s wife was not covered by the provisions of section 64(1)(ii)

Summary

Issues:
Interpretation of section 64(1)(ii) of the Income-tax Act, 1961 regarding payment of salary to the assessee's wife.

Analysis:
The judgment in question involves a reference under section 256(1) of the Income-tax Act, 1961, focusing on whether the payment of salary to the assessee's wife falls within the purview of section 64(1)(ii) of the Act. The assessee, an individual and a war hero who lost both hands in the 1971 war, was operating a Vijay Scooter Agency to sustain his livelihood. During the assessment years 1982-83 and 1983-84, the Income-tax Officer observed that the assessee was paying a monthly salary of Rs. 1,200 to his wife, Smt. Lajja Kaul. The Officer sought clarification on why this salary should not be considered as part of the assessee's income. The assessee explained that due to being handicapped, he required constant assistance for his business activities, for which he employed his wife, who was described as a proficient worker.

The crux of the matter lies in the interpretation of section 64(1)(ii) of the Income-tax Act, which mandates the inclusion of income arising to the spouse of an individual by way of salary, commission, or remuneration from a concern in which the individual holds a substantial interest. However, an exception exists under the proviso to this clause, exempting income derived by the spouse possessing technical or professional qualifications, solely attributable to the application of their expertise. In the present case, the Tribunal concluded that the proviso's conditions were met as the assessee's wife held an M.A. in Economics, indicating her professional qualifications. Consequently, the Tribunal's decision was upheld, affirming that the payment of salary to the assessee's wife was not covered by section 64(1)(ii) of the Act.

Therefore, the judgment favored the assessee, ruling in their favor and against the Department. The Tribunal's determination regarding the applicability of the proviso to section 64(1)(ii) based on the wife's professional qualifications was deemed appropriate, leading to the conclusion that the salary payment to the wife did not fall under the purview of the specified provision.