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Identical issue in three references for different assessment years: Inclusion of salary and interest paid to the husband of the assessee in her income under section 64(1)(i) of the Income-tax Act, 1961. Analysis: The case involved a dispute over the inclusion of salary and interest paid to the husband of the assessee in her income under section 64(1)(i) of the Income-tax Act, 1961. The facts revealed that the husband was initially an employee of the firm and later became a partner, with his salary increasing from Rs. 1,000 to Rs. 1,500 per month. The Income-tax Officer had clubbed the husband's income with the wife's income, leading to a challenge by the assessee. The Tribunal initially ruled in favor of the assessee, stating that the salary was not directly linked to the husband's membership in the firm. The Tribunal emphasized that the husband had been receiving salary even before becoming a partner, and the increase was not solely due to his partnership status. The Tribunal also highlighted the absence of a direct connection between the salary and the husband's admission to the firm. Consequently, the Tribunal deleted the salary amount from the wife's income. The Revenue argued that the salary was paid directly to the husband under the partnership deed after he became a partner, making his previous employment status irrelevant. The Revenue contended that even if the salary could not be considered as directly arising from the membership of the firm, it should still be added to the spouse's income under section 64(1)(ii) of the Income-tax Act. On the other hand, the assessee's counsel argued that any income earned through an individual contract independent of the partnership terms should not be considered as income from the firm membership. The counsel cited various legal precedents to support this argument. The High Court analyzed the partnership deed terms and noted that the husband's salary increase was not based on a separate individual contract but was directly linked to the partnership agreement. The Court emphasized that once the husband became a partner, his continued status as an employee was not relevant unless proven otherwise. The Court highlighted that the deed did not mention any separate employment agreement, indicating that the salary arose directly under the partnership terms. Additionally, the Court discussed the provisions of section 67 regarding the computation of income from a partnership firm, emphasizing that salary paid to a partner is an integral part of their share of income from the firm. Ultimately, the High Court ruled in favor of the Revenue, holding that the salary paid to the husband by the firm should be included in the wife's income under section 64(1)(i) of the Income-tax Act. The Court concluded that the Tribunal had erred in not considering the partnership deed as the primary agreement governing the husband's salary. No costs were awarded in the judgment.
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