1981 (11) TMI 119 - AT - Income Tax

Summary

Issues:
Claim for clubbing of income under section 64(1)(ii) of the Income-tax Act, 1961.

Analysis:
The judgment pertains to two appeals filed by the assessee, challenging the assessment of certain remuneration received as a manager in a partnership firm. The key issue raised was whether the remuneration received should be assessed in the individual assessment of the assessee or clubbed with the income of his wife under section 64(1)(ii) of the Income-tax Act, 1961. The disputed amounts included commission receipts and conveyance allowance, reduced by claimed expenditures.

The section 64(1)(ii) of the Act provides for the inclusion of income arising to the spouse of an individual in the total income of that individual if derived from a concern in which the individual has substantial interest. It exempts income solely attributable to the spouse's technical or professional qualifications. In this case, the assessee's wife had substantial interest in the partnership firm, triggering the application of section 64(1)(ii). The income received by the assessee was not linked to any professional or technical expertise, supporting the claim for clubbing with the wife's income.

The departmental representative argued that the assessee cannot dispute the inclusion of income and that the provision must be invoked by the assessing officer of the spouse. However, the Tribunal found merit in the assessee's claim, emphasizing that the same income cannot be taxed in the hands of two individuals to avoid double taxation. The mandatory nature of section 64(1) requires the inclusion of income belonging to another person in the assessment of an individual, even if the income arises to the former. Therefore, in this case, the disputed income, although received by the assessee, had to be assessed in the wife's assessment to comply with the Act's provisions.

The Tribunal accepted the assessee's contention and directed the deletion of the disputed addition in the individual assessment. The judgment highlights the mandatory nature of section 64(1) and the rationale behind including income in the assessment of a different individual to prevent tax avoidance schemes.