1999 (5) TMI 21 - HC - Income Tax

Summary

Issues Involved:
1. Clubbing of salary income under section 64(1)(ii) of the Income-tax Act, 1961.
2. Ownership of house property transferred by spouse under section 27 of the Income-tax Act, 1961.
3. Assessability of bank interest in the hands of the assessee.
4. Assessment of income from readymade garments business.

Detailed Analysis:

Issue 1: Clubbing of Salary Income under Section 64(1)(ii)
The primary issue was whether the salary income of the assessee from a firm in which her spouse had substantial interest should be included in the spouse's assessment under section 64(1)(ii) of the Income-tax Act, 1961. The court examined the proviso to section 64(1)(ii), which allows the exclusion of such income if the spouse possesses technical or professional qualifications and the income is solely attributable to the application of such knowledge and experience. The court noted that the assessee, a B.Sc. in Bio Science, did not possess any specific nursing qualifications required under the Indian Nursing Council Act, 1947. Consequently, the court held that the assessee did not satisfy the first condition of possessing technical or professional qualifications, and thus, her salary income should be clubbed with her husband's income. This decision was consistent across multiple assessment years (1986-87, 1987-88, and 1988-89) and different references involving the same parties.

Issue 2: Ownership of House Property Transferred by Spouse under Section 27
The second issue was whether the assessee could be deemed the owner of the house property transferred by her spouse. The court observed that the land was transferred at book value, which constituted adequate consideration under section 27. The construction on the land, which started before the transfer, did not affect the validity of the transfer. The court upheld the findings of the Commissioner of Income-tax (Appeals) and the Tribunal, concluding that the property was legally transferred to the assessee, and thus, the income from the property should be assessed in her hands. This decision was also applied consistently across the relevant assessment years.

Issue 3: Assessability of Bank Interest in the Hands of the Assessee
The third issue was whether the bank interest should be assessed in the hands of the assessee. Since the court had already determined that the property was transferred legitimately and the income from it should be assessed in the hands of the assessee, it logically followed that the bank interest, which was part of the income from the property, should also be assessed in her hands. This conclusion was affirmed for the relevant assessment years.

Issue 4: Assessment of Income from Readymade Garments Business
The fourth issue involved whether the income from the readymade garments business should be assessed as a substantive measure. The court, aligning with its decision on the ownership of the house property, held that except for the income from the readymade garments business, the rest of the income should be assessed substantively in the hands of the assessee. This decision was consistent across the different references and assessment years.

Conclusion:
The court's judgment consistently held that the salary income of the assessee should be clubbed with her husband's income under section 64(1)(ii) due to the lack of technical or professional qualifications. The property transfer was deemed legitimate, and the related income, including bank interest, was to be assessed in the assessee's hands. The income from the readymade garments business was to be assessed substantively. These decisions were uniformly applied across the various references and assessment years.