1976 (4) TMI 119 - AT - Income Tax

Summary

Issues:
1. Whether 80-L relief is admissible to the dividend income of the wife before it is clubbed with the income of her husband.

Analysis:
The appellant, an advocate, had dividend income along with property income and his wife had dividend income as well. The dispute arose regarding whether the wife's dividend income should receive 80-L relief before being clubbed with the husband's income. The Income Tax Officer (ITO) initially held that the wife's dividend income should be clubbed first and then 80-L relief should be given. On appeal, the Appellate Assistant Commissioner (AAC) agreed with the ITO's decision. The appellant contended that 80-L relief should be given before clubbing the wife's dividend income with his. The main issue was whether 80-L relief is admissible to the wife's dividend income before it is clubbed with the husband's income.

In a previous case, the Madras High Court held that income from a property transferred by the husband to the wife should be included in the husband's total income after certain deductions. However, the introduction of section 27(1) of the IT Act, 1961, plugged this loophole by deeming the spouse transferring house property without adequate consideration as the owner for income computation purposes. This fiction applies only to house property and impartible estates, not to other assets. In the current case, the appellant transferred shares to his wife, and as the fiction under section 27(1) does not apply to shares, the wife is deemed the owner of the shares. Therefore, the wife's dividend income should be determined under the IT Act as the owner of the shares, allowing for deductions under section 80-L.

The conclusion reached was that under section 80-L, the wife's dividend income should be computed after allowing a deduction of up to Rs. 3,000. The law determines the wife's dividend income after this deduction, and any higher income cannot be included in the husband's total income under section 64(iii). Therefore, it was held that 80-L relief is admissible to the wife's dividend income before it is clubbed with the husband's income. As a result, the appeal was allowed in favor of the assessee.