1983 (3) TMI 34 - HC - Income Tax

Summary

Issues Involved:
1. Whether deduction under section 80L should be allowed in respect of the dividends derived by the assessee's wife before her income is clubbed with the husband's income under section 64(1)(iii).
2. Whether the deduction under section 80L should be allowed in respect of the dividends received by the assessee's wife because she is the owner of the shares, especially when her income is clubbed with the husband's income under section 64(1)(iii).

Detailed Analysis:

Issue 1: Deduction under section 80L before clubbing income
The primary issue was whether the deduction under section 80L should be applied to the wife's dividend income before it is clubbed with the husband's income under section 64(1)(iii). The facts established that the assessee, an advocate by profession, had a dividend income of Rs. 18,425, and his wife's dividend income was Rs. 9,666. According to section 64(1)(iii), the wife's dividend income must be treated as the assessee's income. The assessee argued that the statutory deduction under section 80L should be applied to his wife's dividend income before it is added to his income. However, the Income Tax Officer (ITO) and the Appellate Assistant Commissioner (AAC) rejected this contention, stating that section 80L refers only to an assessee, and since the wife is not an assessee, the deduction cannot be availed before clubbing the income. The Tribunal, however, held that only the wife's dividend income minus Rs. 3,000 (the deduction under section 80L) should be included in the assessee's income.

Upon review, the court emphasized the definitions and provisions under the Income Tax Act, particularly sections 5, 4, 64(1)(iii), and 80L. The court noted that the total income of the assessee includes his income plus the wife's dividend income as per section 64(1)(iii). The court clarified that the gross total income referred to in section 80L is defined under section 80B and includes the total income before any deductions under Chapter VI-A, which includes section 80L. Therefore, the total income of the assessee should be computed first, and then the deduction under section 80L can be applied. The court concluded that the wife's dividend income must be clubbed with the assessee's income before any deduction under section 80L is claimed. Consequently, the court answered question No. (i) in the negative and against the assessee.

Issue 2: Ownership of shares and deduction under section 80L
The second issue questioned whether the deduction under section 80L should be allowed on the dividends received by the assessee's wife because she is the owner of the shares, despite her income being clubbed with the husband's income under section 64(1)(iii). The court found that the ownership of the shares was not a material consideration for answering the first question. Since the primary issue was resolved by determining that the wife's dividend income must be clubbed with the husband's income before any deduction under section 80L, the court deemed it unnecessary to answer the second question. Therefore, question No. (ii) was returned unanswered.

Additional Considerations:
The court also addressed various arguments and references made by the learned counsel for the assessee, including the interpretation of "income" and expenses incurred in earning that income. However, these arguments were deemed irrelevant to the specific questions referred to the court. The court also reviewed several cited decisions but found them inapplicable to the current case, as they did not provide any assistance or guidance in resolving the issues at hand.

Conclusion:
The court held that the dividend income of the assessee's wife must be clubbed with the income of the assessee before any benefit under section 80L is claimed. The Revenue was entitled to its costs from the assessee, with counsel's fee fixed at Rs. 500.