1986 (7) TMI 79 - HC - Income Tax

Summary

Issues:
Interpretation of section 64(1)(i) of the Income-tax Act, 1961 regarding clubbing of income of the assessee's wife with the income of the assessee based on the assessee's capacity as a partner in a firm representing the Hindu undivided family.

Detailed Analysis:

The High Court of Madhya Pradesh was presented with a reference under section 256(1) of the Income-tax Act, 1961, by the Income-tax Appellate Tribunal, Indore Bench, regarding the applicability of section 64(1)(i) of the Act in a specific case. The main question referred to the court was whether the Tribunal was correct in holding that the said section had no application to the case and that the income of the assessee's wife should not be clubbed with the income of the assessee.

The case involved an individual assessee for the assessment year 1979-80, where the Income-tax Officer had clubbed the income of the assessee's wife from her partnership in a firm with the income of the assessee. The assessee, acting as the karta of a Hindu undivided family, contended that section 64(1)(i) was not applicable. The Tribunal found that the assessee filed separate returns, one as karta of the family and the other in his individual capacity, and held that the wife's income should not be clubbed as the assessee was a partner in a representative capacity.

The Revenue contended that the Tribunal's view was erroneous, citing decisions from other High Courts. However, the assessee's counsel argued that section 64(1)(i) only applied to individuals assessed in their individual capacity, not as representatives of others. The High Court agreed with the assessee's interpretation, supported by decisions from various High Courts, emphasizing that the term "individual" in the provision referred to an assessee being assessed in their individual capacity, excluding those assessed in a representative capacity like a karta of a Hindu undivided family.

Ultimately, the High Court upheld the Tribunal's decision, ruling that section 64(1)(i) did not apply in the case, and the income of the assessee's wife should not be clubbed with the assessee's income. The court's answer to the referred question was in the affirmative, favoring the assessee. Each party was directed to bear their own costs in the reference proceedings.