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Issues Involved:
1. Interpretation of the "clubbing provision" u/s 64(1)(i) of the I.T. Act, 1961. 2. Distinction between "business" and "profession" for the purpose of clubbing income. 3. Applicability of the clubbing provision to professional couples. Summary: Issue 1: Interpretation of the "clubbing provision" u/s 64(1)(i) of the I.T. Act, 1961 The court examined the provision u/s 64(1)(i) which states: "In computing the total income of any individual, there shall be included all such income as arises directly or indirectly to the spouse of such individual from the membership of the spouse in a firm carrying on a business in which such individual is a partner." The court noted that this provision mandates the clubbing of income of spouses who are partners in the same firm carrying on a business, resulting in a higher tax rate. Issue 2: Distinction between "business" and "profession" for the purpose of clubbing income The court emphasized the distinction between "business" and "profession" as recognized by the Legislature in both the old Act (Indian I.T. Act of 1922) and the new Act (I.T. Act of 1961). The term "business" includes trade, commerce, or manufacture, while "profession" involves intellectual or manual skill controlled by intellectual skill, such as in the case of doctors or lawyers. The court highlighted that the new Act specifically uses the term "carrying on a business" to differentiate it from professional activities. Issue 3: Applicability of the clubbing provision to professional couples The court referred to the legislative intent and the Finance Minister's speech, which indicated that the clubbing provision should not apply to professional couples like doctors or lawyers. The court concluded that the income of professional couples from their professional activities should not be clubbed together. However, if the professional couple engages in any distinct business activity, such as running a chemist's shop or admitting patients of other doctors in their nursing home, the income from such activities can be clubbed together. Judgment: 1. I.T.R. Nos. 193/78, 154/78 & 113/79: The court held that the income of the spouses from professional activities cannot be clubbed together. However, if the spouses are engaged in any distinct business activity, their income from such activities can be clubbed. Income from a nursing home run by the doctors treating their own patients is considered professional income. If the nursing home admits and treats patients of other doctors, it may be considered a business. 2. Income-tax Applications Nos. 158/81, 159/81 & 167/81: These applications were rejected as the activities carried on were purely professional, and the Tribunal's view was in accordance with the court's interpretation. In conclusion, the court answered the references by distinguishing between professional and business activities and rejected the income-tax applications, with no order regarding costs in all six matters.
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