1998 (6) TMI 63 - HC - Income Tax

Summary

Issues Involved:
1. Consideration of shares held by Hindu undivided family in determining 'substantial interest' under section 64(1)(ii) of the Income-tax Act.
2. Interpretation of the proviso to section 64(1)(ii) regarding the applicability to the appellant.
3. Deduction under section 80T with reference to capital gain after setting off the capital loss.
4. Taxability of salary income received by the assessee as a managing director in the hands of the assessee or her husband.

Issue-wise Detailed Analysis:

1. Consideration of Shares Held by Hindu Undivided Family:
The court addressed whether shares held by the Hindu undivided family should be considered while determining 'substantial interest' in the company under Explanation 2(i) to section 64(1)(ii) of the Act. The Tribunal had previously held that such shares should be considered. However, the court did not express an opinion on this issue as the counsel for the assessee did not press it, contingent upon the resolution of the second issue in favor of the assessee.

2. Interpretation of the Proviso to Section 64(1)(ii):
The core issue was whether the income received by the assessee as a managing director should be treated as her independent income under the proviso to section 64(1)(ii) or as the income of her husband. The proviso exempts income arising to a spouse possessing technical or professional qualifications if the income is solely attributable to the application of such knowledge and experience. The court noted that the assessee had substantial experience and qualifications, having worked as a managing director in various companies and having received substantial remuneration. The court referred to decisions from other High Courts, which held that technical or professional qualifications need not necessarily be formal degrees or diplomas but could include expertise and experience. The court concluded that the assessee's income should be treated as her independent income, thus answering the question in favor of the assessee.

3. Deduction under Section 80T:
The court addressed whether the deduction under section 80T is admissible with reference to capital gain only after setting off the capital loss. This issue was decided against the assessee and in favor of the Revenue, following the Supreme Court's decision in H. H. Sir Rama Varma v. CIT, which confirmed that the deduction under section 80T is admissible only after setting off the capital loss.

4. Taxability of Salary Income:
The court examined whether the salary income received by the assessee as a managing director should be taxed in her hands or included in her husband's income under section 64(1)(ii). The court noted that the assessee had significant experience and qualifications relevant to her role as managing director. The Tribunal had previously decided in favor of the assessee, following the decision in Batta Kalyani v. CIT. The court agreed with this view, holding that the salary income should be taxed as the assessee's independent income. Thus, the court answered the question in favor of the assessee and against the Revenue.

Conclusion:
The court concluded that the income received by the assessee as a managing director should be treated as her independent income under the proviso to section 64(1)(ii). The shares held by the Hindu undivided family were not addressed. The deduction under section 80T must be calculated after setting off the capital loss. The salary income received by the assessee should be taxed in her hands, not her husband's. All references were disposed of without any order as to costs.