1984 (10) TMI 81 - AT - Income Tax

A Partner, Carrying On Business, Central Excise, Minor Child, Partnership Firm, Share Income

Summary

Issues:
Interpretation of section 64(1)(i) of the Income-tax Act, 1961 regarding inclusion of share income of the wife in the husband's total income based on professional qualification.

Analysis:
The appeal involved a dispute over the application of section 64(1)(i) of the Income-tax Act, 1961, concerning the inclusion of the wife's share income in the husband's total income. The case revolved around the professional qualification of the wife, who was a partner in a firm dealing in foreign liquor. The Income Tax Officer (ITO) had included the wife's share income in the husband's total income, invoking section 64(1)(i). The assessee contended that the wife's professional qualification exempted her share income from being included in the husband's income. The Appellate Assistant Commissioner (AAC) accepted the assessee's argument based on a certificate from the excise authorities confirming the wife's professional qualification. However, the department appealed against the AAC's decision, arguing that the activities of the firm were business activities, not professional, and thus the wife's share income should be included in the husband's income.

The Tribunal analyzed the distinction between professional and business activities based on legal precedents. Referring to the case of Dr. K.K. Shah, the Tribunal highlighted the difference between professional activities requiring intellectual or manual skill and business activities involving the production or sale of commodities. The Tribunal emphasized that activities like selling drugs or dealing in foreign liquor, which require licenses, do not automatically qualify as professional activities. The Tribunal cited the Supreme Court's definition of a profession, which involves personal skill and intelligence, to differentiate between professional and business activities. The Tribunal concluded that the firm's activities were business activities, not professional, and thus the wife's share income was rightly included in the husband's total income under section 64(1)(i).

Ultimately, the Tribunal reversed the AAC's order and restored that of the ITO, allowing the department's appeal. The judgment underscored the legislative intent behind section 64(1)(i) to prevent tax evasion and interpreted the provision to align with this objective. The decision clarified that mere licensing requirements for certain activities do not categorize them as professional and upheld the inclusion of the wife's share income in the husband's total income based on the nature of the firm's activities.