1984 (9) TMI 139 - AT - Income Tax

Summary

Issues:
1. Disallowance of salary claimed by the assessee paid to her husband for managing the business.
2. Interpretation of provisions of s. 64(1)(ii) and s. 40A(2) in relation to payment of remuneration to a spouse.
3. Determination of whether the husband of the assessee possesses technical or professional qualification and experience justifying the salary payment.

Analysis:

Issue 1:
The assessee claimed an expenditure of Rs. 12,000 as salary paid to her husband for managing the business. The ITO disallowed the claim stating lack of justification for employing the husband at such a salary. The AAC upheld the decision, citing the proviso to s. 64(1)(ii) which exempts cases where the spouse possesses technical or professional qualification. The assessee appealed further.

Issue 2:
The representative for the assessee argued that s. 64(1)(ii) does not apply to proprietary businesses and contended that the husband should be considered to possess the required technical qualification and experience. The Departmental Representative argued that s. 64(1)(ii) applies, referencing a previous Tribunal decision. The Tribunal noted a conflict between s. 40A(2) and s. 64(1)(ii) regarding the treatment of expenditure on spouse's remuneration.

Issue 3:
Upon consideration, the Tribunal found merit in the assessee's contention. The husband's qualifications and experience were not disputed, and it was argued that the remuneration was attributable to his technical or professional knowledge. The Tribunal referenced a Special Bench decision to define professional qualification and experience, ultimately concluding that the husband's remuneration was justified. The Tribunal upheld the assessee's contention and allowed the appeal, deleting the addition made by the ITO.

In conclusion, the Tribunal allowed the appeal, emphasizing the husband's technical and professional knowledge and experience, which justified the salary payment made by the assessee. The conflict between s. 40A(2) and s. 64(1)(ii) was noted, with the Tribunal ultimately ruling in favor of the assessee based on the specific circumstances and qualifications of the husband.