1985 (5) TMI 70 - AT - Income Tax

Summary

Issues:
1. Clubbing of share income under section 64 of the Income-tax Act, 1961.
2. Allowance of deduction under section 80C for life insurance premium paid by the husband when income is included in the wife's hands under section 64.

Detailed Analysis:

1. The main issue in this case revolves around the clubbing of share income under section 64 of the Income-tax Act, 1961. The Income Tax Officer (ITO) had clubbed the share income of the husband in the assessee's hands as her income was higher than that of her husband, invoking Explanation 1 to section 64. The husband had paid a life insurance premium, but the ITO did not allow the deduction under section 80C for it.

2. Upon appeal, the Appellate Assistant Commissioner (AAC) held that the deduction under section 80C is admissible only for the amount of premium paid by the assessee, following a decision of the Kerala High Court. The assessee argued that if income of one person is included in another person's income under section 64, the deduction available to the first person should also be available to the second person. The departmental representative contended that section 64 only includes income arising to the spouse and not total income, and deductions specified under Chapter VIA are not allowed.

3. The Appellate Tribunal considered the arguments of both sides and emphasized that income specified in section 64 is to be included in the hands of the spouse or transferor, not the total income. Deductions allowed are those related to earning the income under that head. The deduction under section 80C is a special deduction unrelated to the source of income. Therefore, in this case, the wife is not entitled to the deduction under section 80C for the life insurance premium paid by the husband unless she pays it herself.

4. The Tribunal also discussed the impact of Explanation 1 to section 64, highlighting the potential variations in income leading to changes in the availability of deductions under section 80C. However, it concluded that equity cannot influence the interpretation of the section, and relief under section 80C is only available to the person who paid the premium, regardless of income transportation. The anomalies introduced by the Explanation were acknowledged, but the Tribunal held that it is for the Legislature to address these issues, ultimately dismissing the appeal filed by the assessee.